Air Tanzania subsidies reach $2.8 million

Monday May 29 2006

Special Correspondent

The Tanzania government has been subsidising the Air Tanzania Company Ltd (ATCL) to the tune of more than Tsh500 million ($400,000) every month following its decision to end joint ownership of the airline with the giant South African Airways.

Air Tanzania has been running under government subsidy for the past seven months, with the total amount now coming to Tsh3.5 billion ($2.8 million).

The Minister for Infrastructure, Basil Mramba, told The EastAfrican last week that the situation was "becoming increasingly intolerable."

He said the disengagement had reached the stage of "governmental level talks," which implied that technical issues were left to shareholders.

"I am becoming impatient seeing a commercial airliner running on subsidies. We can’t operate like this any more," said Mr Mramba. He would not, however, reveal the government’s course of action should the situation fail to improve.

The acting chief executive officer of Air Tanzania, Gert van Wyk, confirmed last week that the firm has been running on subsidies since November last year.

Industry analysts observe that Air Tanzania is beginning to offer a bad example as a failed privatisation attempt; the firm is headed for further huge losses to the tune of Tsh6.7 billion ($5.5 million) this financial year.

Ever since the controversial deal to sell a 49 per cent stake to the South Africans, ATCL has been making substantial losses. It made losses of Tsh8.7 billion ($7.3 million) in its first year after privatisation in 2003, and a further loss of Tsh9.3 billion ($7.7 million) in 2004.

Thus, it made a total loss of Tsh24.7 billion ($20.6 million) during its four-year marriage with South African Airways (SAA), which has seen it operating with only two aircraft. Prior to privatisation, the airline had three operating aircraft.

SAA, itself currently mired in a management crisis, is reported to have also been seriously affected by a financial crisis deepened by leases of Boeing aircraft that have swallowed up more than R1 billion ($167.8 million), and the impact of a recent weeklong strike by cabin crew and ground staff.

Mr Mramba said recently that the country is now focusing on creating Air Tanzania as its own national airline once the SAA-ATCL deal is over.

However, key questions pertaining to the airline deal remain unanswered. A member of the Parliamentary Committee for Economics and Finance recently asked the government to explain how much was needed and who would fund the breaking up the SAA-ATCL affair. So far, no figures have been made available.

Analysts are of the opinion that the SAA-ATCL partnership deal could prove to be one of President Jakaya Kikwete’s acid tests, showing how his new government will deal with "bad contracts."

When Tanzania sold shares to SAA for $20 million, the latter had no experience in running foreign airline joint ventures; thus, Air Tanzania became its first international training ground.

Last week, an ATCL official said that although a Boeing 737-200, number 5H ATC, had been brought back from South Africa where it had been taken for maintenance, there would still be a shortage as a similar plane is due for maintenance.