Business News of Monday, 16 February 2015
Source: B&FT
Government has resolved not to commit any taxpayer funding into establishing the proposed new national airline.
The decision to restrict public funding for the airline is expected to limit government’s exposure to risk in management and running of the national airline.
The Director, Public Investment Division of the Ministry of Finance, Magdalene Apenteng, explained that government’s role in establishing the airline will be to incentivise the private sector operator that will be selected to partner government in running the airline.
“It is important to note that government does not intend to put in money into this national airline, though it may put in some sort of incentive to attract the private sector to come on board. What I’m trying to say is that, we don’t have the physical cash to put in the airline – i.e. we are not going to put in money as a new airline. That’s the concept.
“But the project is still being prepared by the transaction advisor PwC, and it will give us the options as to what can possibly be done to have the national airline.
“But in terms of the financing, we want the private sector to fund it. However, we will provide incentives to assist the private sector,” she said.
Mrs. Apenteng, who heads a division of the Finance Ministry with the mandate to coordinate and implement the National Public Private Partnership (PPP) programme by providing a transaction advisory role for PPP projects, said this on Friday at an executive breakfast meeting of First Atlantic Bank in Accra.
She said the idea of having a national airline ties into government’s plans to make the country an aviation hub in the sub-region, saying: “As an aspiring aviation hub, normally there must be a home-based carrier that can propel the activities of becoming one; that is why government is looking at supporting and promoting a national airline”.
Over the past couple of years, government has been keen on creating a new national carrier to tap into the growing aviation industry in Ghana.
The interest also stems from a desire to create jobs, as the aviation industry remains largely labour-intensive.
The country’s aviation industry has been growing at an annual rate of 10 percent over the past decade. International passenger throughput for the 28 airlines flying to Accra hit one million last year. KLM, Emirates, British Airways, Arik and Delta are among the leading carriers in terms of traffic. The bid to launch a new national carrier follows two previous state-owned carriers that collapsed under debt and mismanagement.
Ghana International Airlines (GIA), the last national carrier that was 70- percent owned by government, ceased operations in May 2010 amid financial challenges and a shareholder dispute.
GIA’s predecessor, Ghana Airways, was once a respected regional and international carrier that was set up in 1958. Years of mismanagement influenced by nepotism and cronyism however brought the airline to its knees, and it was finally liquidated in 2005.
Given this history, analysts believe a new national carrier should be left to private management with little government involvement.
Already, some aviation industry players have dug into an earlier pre-feasibility report presented by the transaction advisor to the Ministry of Transport describing the projected financial outlook, passenger throughput and takeoff time of the proposed national airline as “too ambitious and unrealistic”.
A copy of the draft pre- feasibility report submitted to the Ministry of Transport dated December 4, 2014 titled “Transaction Advisory Services for the establishment of the new Ghana International Airline” and sighted by the Business and Financial Times (B&FT) projects that the new national airline will record an operating profit margin of 10.1 percent in the first year of operation; 10 percent in year two; 7.5 percent in year three; 11.6 percent in the fourth year; and an astounding 13.8 percent in the fifth year.
These key financial ratios and timelines raised in the report deviate sharply from industry standard and what pertains in the aviation industry as endorsed by the International Air Transport Association (IATA).