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It’s dream come true as Precision Air lists on DSE

Sunday September 25 2011
precision air

Michael Ngaleku Shirima, founder of Precision Air. Picture: Leonard Magomba

Michael Ngaleku Shirima will become one of the few Tanzanian stockmarket’s dollar millionaires with the listing of Precision Air at the Dar es Salaam Stock Exchange in October.

For an entrepreneur who started off as a coffee exporter, taking his airline public is a dream come true.

Mr Shirima has earned a handsome return for his perseverance and knack for being at the right place and at the right time in the airline industry.

He represents a new breed of savvy Tanzanian businessmen such as Ali Mafuruki, who are making wealth by cultivating profitable partnerships with African multinationals at a time many foreign firms struggle to operate in a harsh investment climate.
This class of investors is succeeding because they both understand how to navigate the corridors of political power and thus stay out of trouble, as well as the importance of recruiting professional managers to run their businesses.

The Tanzanian business climate is filled by a network of politicians-cum-businessmen who fill the top echelon of the monolithic ruling Chama cha Mapinduzi, the independence political party.

The union between Kenya Airways, one of the largest pan-African carriers, and Precision Air, once a small regional player in the Tanzania airline industry, seems to have been a perfect match.

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Starting October 7, Mr Shirima’s firm, Precision Air, will sell its shares on the Dar es Salaam Stock Exchange, turning him into an overnight dollar millionaire. The firm is selling 31.2 per cent of its shares — 58.8 million of them — in a bid to raise $17 million to fund expansion. Each share will go for US cents 29, with the offer closing on October 28. This will leave Kenya Airways holding a 34.2 per cent stake in the company and Mr Shirima owning 34.6 per cent, valued at $18.9 million.

This means that his personal worth has grown nine times in the seven years. He sold a 49 per cent stake to Kenya Airways for $2 million in 2003.  Precision Air was valued at $4.1 million in 2003 but now the airline is worth $55 million.  

Wide experience

Air Tanzania Corporation, the country’s national airline after East African Airways (EAA) that was wound up in 1977, was where Mr Shirima cut his teeth in the aviation industry.

“I learned work ethics at EAA in the Operations Department and gained a wide experience inthe industry,” Mr Shirima said.
He specialised in aircraft performance but had done a pilot’s course. After working for 11 years at EAA, he moved to ATC in 1977.

However, two years later, Mr Shirima left to set up Precision Air, which at first focused on aerial spraying. Later, the company ventured into air charter operations.

Mr Shirima’s moment in the sun would come in 2002 when ATC was looking for a partner.  “KQ and I made a bid for a stake in Air Tanzania Corporation in 2002 when it was up for privatisation. Seeing it was obvious that South African Airways would be the choice for ATC, KQ surprisingly approached me, but acceptance was not immediate, because I was not prepared,” Mr Shirima narrates.

He consulted with some of his senior staff and after an exchange of ideas over a few days became convinced that the partnership was worth it, “because we needed each other for value addition. Without much ado we came to an agreement.”

South Africa Airways had successfully bidded for a stake in the ATC, locking out Kenya Airways, which wanted to expand into Tanzania, but did not want to set up shop from scratch. But things did not go according to plan for ATC after bringing SAA on board. There were serious concerns that the business agreement (signed in 2002) between SAA and ATC was exploitative because the latter was entirely dependent on the former for key functions and services including aircraft maintenance, revenue and general accounting, reservations services, fuel management, training and human resources functions. — all obtained at exorbitant charges.

The agreement was also lopsided in the sense that the top management of the national airline was basically from SAA, with the local staff either sidelined or ignored in key decisions on the day-to-day management of the airline.

Meanwhile, the Tanzania government proved consistently reluctant to contribute its share of the capital. While Tanzania had a 51 per cent shareholding in ATC, “in terms of actual funding of the airline, it somehow expected SAA to provide all the funding,” says one of the former board directors. This became increasingly untenable and eventually SAA decided to let go in 2006.

Precision Air and KQ were able to make the most of ATC’s woes by boosting the capacity of their aircraft and expanding to destinations across Tanzania.  

The experience KQ had gained through its partnership with KLM since 1996 helped it finance the upgrading of Precision’s fleet and recruit a management team to run the airline.

Mr Shirima stayed on as chairman. With lack of capital and management expertise no longer holding the regional carrier back, it was now on a roll, expanding in both the local and regional market. Soon, it had established itself as Tanzania’s dominant locally-owned airline, even as SAA failed to turn the national carrier around. 

Precision’s current growth plans, involving expansion into more foreign markets, should see it taking on the role of a de facto national carrier. Selling shares to the public, analysts say, will strengthen this perception by creating an emotional bond with Tanzanians.

The history of African airlines puts Precision’s success into perspective. Most larger airlines — Kenya Airways, Ethiopian Airlines — have relied on their governments as anchor shareholders for support.

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