Byase Luteke
IPP Executive Chairman, Reginald Mengi has made a high spirited call
to the Government of Tanzania (GoT) to make Precision Air (PW) the
national/flag carrier. Mr. Mengi made this plea at a function where he
was the guest of honour at the launching of PW’s brand new ATR72-500
aircraft on 21 September 2010 which took place at Julius Nyerere
International Airport. This is the seventh aircraft to be received by
PW following a financing deal worth $129 million and brings a total
fleet to nine aircraft-8 ATR 42/72 and 1 B737-300. Indeed this is a
tremendous achievement for an airline considered an “also runs” a
decade ago.
In his speech to welcome this aircraft christened-Kilimanjaro in
honour of the people of Kilimanjaro region, the media magnate had this
to say “The Government should reconsider to bail out the ailing Air
Tanzania Limited (ATCL) and instead make the highly successful
Precision Air the national carrier.” He continued rooting for PW’s
flag carrier status by emphasizing that “Making Precision Air the
national carrier, will not only be a recognition of this airline’s
invaluable contribution to the airline industry in Tanzania, it will
also deliver a message to local investors that the Government
recognizes the ability of local investors,” said Mr. Mengi.
Before we proceed with this discussion it is worthwhile to enlighten
readers on the concept of a “national/flag carrier” so that we can be
on the same wavelength as we go along.
A national/flag carrier is a transportation company, such as an
airline or shipping company that is locally registered in a given
country, enjoys preferential rights or privileges, accorded by the
Government for international operations. It may be a state-run,
state-owned or private but state-designated company or organization.
Flag carriers may be known as such due to maritime law requiring all
aircraft or ships to display the state flag of the country of their
registry.
The term \”flag carrier\” is a legacy of the time when countries
established state-owned airlines. Governments then took the lead due
to the high capital costs of establishing and running airlines. The
heavily regulated aviation industry also meant aviation rights are
often negotiated between governments, denying airlines the right to an
open market. These Bilateral Air Services Agreements (BASAs) may
specify rights awardable only to locally registered airlines, forcing
some governments to jump-start airlines to avoid being disadvantaged
in the face of foreign competition. Some countries also establish flag
carriers for nationalist reasons, or to aid the country\’s economy,
particularly in the area of tourism.
However, this system was dismantled as a result of the Airline
Deregulation Act of 1978 in the USA which effectively buried the
notion of a national/flag carrier and a similar trend has caught on
especially in the European Union. This has rendered the designation of
flag carriers less important than it was in the past hence the term is
now used loosely to refer to any dominant airline in a country, or in
reference to legacy state carriers even long after deregulation.
As discussed in my previous article the deregulation phenomenon has
been gradually catching on all over the world albeit at a differing
pace. In Asia/Pacific region and South America, for example, some
aspects of air transport deregulation are at an advanced stage while
Africa has taken a cautious approach but there has been some
liberalization in many areas including allowing double or multiple
designation in the BASAs.
Tanzania, for instance, has moved away from single designation where
ATCL was the only national carrier in the BASAs and introduced double
designation where PW is now the second designated carrier. This, in
essence puts PW at par with ATCL as Tanzania’s national carrier so the
issue of calling upon the GoT to declare Precision Air the “national
carrier” of Tanzania as espoused by Mr. Mengi is superfluous, so to
speak.
Mr. Mengi’s call has also unnerved people in some aviation quarters.
There are concerns that by declaring PW the national carrier will
automatically take away ATCL’s national carrier status! These worries
are misguided because as we have seen above, the notion of national
carrier status has long been dead and buried in developed countries
and the fact that Tanzania has adopted double designation in almost
all the BASAs is in essence recognizing PW as the national carrier
alongside ATCL.
As a matter of fact, Mr. Michael Shirima, the founder Chairman of PW
made some clarification to this effect together with matters
surrounding the ownership and affective control of the airline. In
paid advertisements in the mainstream newspapers, Mr. Shirima said
that the fact that he owns 51% of the shares in the antelope-tailed
airline with the balance (49%) being held by Kenya Airways, under the
Chicago Convention of 1944, PW is recognized as a Tanzanian airline
and the fact that his airline enjoys similar privileges in terms of
traffic rights as the government owned airline-ATCL, indeed PW is the
national carrier. The tradition that people are used to call ATCL the
national carrier and not PW, doesn’t take away this right for the
latter.
This aside, Mr. Mengi, also mentioned something important that wasn’t
given prominence in the press. He was quoted as saying that while he
appreciated the government’s concern and efforts in having a national
carrier, he however differed on foreign investor idea. In other words
Mr. Mengi is of a strong view that time has come for the GoT to stop
shopping around for foreign investors to bail out ATCL and look for
the possibility of teaming up with local investors where the
government will have a minority stake and leave the running of the
airline to professional management because Mr. Shirima has set an
example. “For example, the Government of Kenya ownership shareholding
in Kenya Airways is 23.3% only,” said the IPP Chairman.
This is food for thought for GoT on the way forward for ATCL as the
government has been holding faltering talks on the divestiture of ATCL
with the Chinese investor. Reliable sources confirm that China
Sonangol Holding Ltd, the much-talked-about prospective investor in
ATCL is no longer interested in the deal leaving the GoT with no
option but to look elsewhere. With the current financial crunch in the
aviation industry the likelihood of seducing credible foreign
investors to come to ATCL’s party is a remote possibility in the short
to medium term.
ATCL is a dire financial situation which needs urgent resolution in
one way or the other so the GoT should take heed of Mr. Mengi’s
suggestion and seriously look for a home grown solution. My take on
this issue is that the GoT may initiate talks with credible
institutions such as the Aga Khan Foundation (and others) to take over
a debt-free ATCL with the GoT playing a minimal role in the new
venture so that the country may have two strong, competitive and
growth oriented national carriers which will rekindle the nation’s
socio-economic objectives particularly tourism and wide network
coverage.