Uganda takes to the skies with ‘unwanted’ Airbus

Uganda has become the sole customer for the Airbus A330-800 New Engine Option (Neo) series, which has seen near-zero demand from airlines across the world since it was launched in July 2014.

On Wednesday, Uganda Airlines said that it had signed a memorandum of understanding with Airbus for two A330-800s worth $586 million, offering a parallel of sorts as the two entities helped each other revive their business plans.

Read more: Uganda Airlines get Bombardier, Airbus Jets

The agreement was announced on Wednesday by Uganda Airlines chief executive officer Ephraim Bagenda and Eric Schulz, the Airbus chief commercial officer, at the biannual Farnborough Air Show in the UK.

The agreement renews hope for Airbus, which lost an order for six of the A330-800 by Hawaiian Airlines in March. The carrier cancelled the orders in favour of the Boeing 787-900.

“This agreement demonstrates our ambition for economic growth supported by a robust aviation industry. The A330-800 Neo combines low operating costs, long-range flying capability and high levels of comfort. We are looking forward to launching operations and offering our customers best-in-class service,” Mr Bagenda said.

The Airbus A330-800 Neo lost four orders from TransAsia Airlines in addition to the Hawaiian Airlines. However, the Airbus A330-900 series has had more than 210 orders.

The A330-800 flies longer and with lower fuel burn than the A330-900, but the A330-900 carries 50 more passengers and has a better residual value.

“We are delighted to welcome Uganda Airlines among our A330 Neo customers. The A330 Neo will bring a range of benefits, offering unrivalled efficiency combined with the most modern cabin. We look forward to seeing the A330-800 Neo flying in the colours of Uganda,” said Mr Schulz.

For Uganda, the delivery of the two aircraft may not be earlier than 2020, given that the plane is still in its development stage, putting its trans-continental plans as a future prospect.

The first flight test for Airbus A330-800 Neo was expected by mid-2018, but it could be pushed to later in the year.

Revival of carrier

Uganda Airlines also placed a firm order for four Canadair Regional Jet 900 series (CRJ 900), rounding its plane orders to $776 million, and making the strongest expression of intent yet in the three years since Kampala announced plans to revive a national airline it grounded in 2001.

It now joins Air Tanzania, RwandAir and Kenya’s Jambojet as regional carriers that have preferred the Bombardier-C series for short routes in the region.

“We congratulate Uganda for the revival of its national flag carrier, and are thrilled that the new airline has selected Bombardier and the CRJ900 regional jets for its upcoming debut. We look forward to supporting the development of Uganda’s regional air travel with these jets,” said Jean-Paul Boutibou, vice-president of sales for Middle East and Africa at Bombardier Commercial Aircraft.

Uganda Airlines plans to relaunch with services to 15 regional destinations out of Entebbe, according to a draft plan seen by The EastAfrican.

These will be complemented by three domestic routes and an equal number of international destinations in the short to medium term.

No delivery dates were announced for the CRJ 900s, which were purchased at $190 million, but the business plan indicates the first quarter of 2019 for commencement of regional operations.

The A330s are expected in December 2020, with a tentative entry into service in early 2021.

The international route network will comprise London, Mumbai and a point on the Chinese mainland.

According the plan, breakeven on the regional routes, which will account for 60 per cent of revenue, is projected for the fourth year.

Operational breakeven is projected at a load factor of 64 per cent for regional routes, and 80 per cent for international routes.

Funding

The ambitious plans also project that the carrier will capture a quarter of Uganda’s 1.6 million passenger market in the first year, progressively increasing as more capacity becomes available.

The 15,000 passengers-a-year domestic market will be served through partnerships with existing domestic airlines.

Uganda Airlines, which will be buying the A330s at $293 million apiece, has asked its sole shareholder, the government, to commit $70 million from the Treasury in four tranches over the next three years.

The $313 million required for aircraft purchases and spares will then be funded through a 10-year senior loan and a junior loan with a tenor of seven years.

The money will be borrowed at an interest ceiling of 5 per cent using credit from a combination of banks, private equity firms, international aircraft finance lenders, lessors, government borrowing, export credit agency support and/or cash.

According to the justification for the fleet plan, purchase was chosen over leasing because the latter would be more expensive.

“Leasing options were examined and several key issues were noted. In particular, the costs of leasing versus purchase for both brand-new and used aircraft were assessed.

“Leases available for short-term durations are ‘wet leases’ (leasing both the aircraft and crew), which are very expensive, with structures involving extensive ‘return condition’ provisions,” the project team said, adding that dry aircraft leases tend to be available for secondhand aircraft, with lease tenures of at least five years.

On the other hand, leases for new aircraft are available for tenures starting from seven years or longer. The team reasoned that the costs associated with long-term leases “would put a strain on cash flows and inhibit the growth of the national airline.

“The Business and Implementation Plan recommends that the core fleet to be used on the regional and international networks should be purchased to allow for the accumulation of equity into the airline, as opposed to leasing, which works for the advantage of aircraft lessors,” the team said.

The plan calls for incentives, including a review of the existing Fifth Freedom Rights issued by the government, allocation of offices at national airports as well as a waiver of overflight, air navigation, landing, self-handling, parking, passenger services, airport and other charges for 10 years of operation.