UGANDA SHOULD AVOID THE STUPIDITY OF KAGAME’S RWANDAIR.

Although RwandAir doesn’t publish its accounts, it is obvious that the airline is only surviving because Kagame keeps borrowing to artificially keep it afloat. This is part of what we know about RwandAir’s financial situation.

1. Every year the Rwandan Tax Payer spends over $40 Million to service the loans for the struggling airline, this figure was revised upwards to $ 47.9 Million in 2014 and the current annual payments must be over $ 50 Million. Considering that the Airline has been making losses since its inception from 2003, the total amount spent must be over $ 1 Billion. Why waste this money on a grandstanding hopeless project when less than 15% of Rwandans have access to electricity?

2. RwandAir borrowed $ 160 Million from the PTA bank to pay for 2 new Airbus A330 aircraft. The total cost for the two Airbus planes is over $ 500 million, it is not clear how Kagame expects to raise the balance.

3. We also know that about half the $ 400 million Eurobond borrowed to build the Kigali Convention Centre was used to finance RwandAir.

4. Will RwandAir ever make a profit? The simple answer is NEVER and below is why:

i. PASSANGER LOAD FACTOR. This is the average percentage of seats occupied by passengers on flights; if the plane has many empty seats the airline will make losses and will never break even. An airline needs at least 75% of its seats to be occupied in order to make zero profit or zero profit (Break-even) for the airline. Any extra passenger above 75% is a profit; airlines like Emirates have an average load factor of over 85% while RwandAir has been struggling with a load factor of between 30% and 50%.

ii. COST PER AVAILABLE SEAT MILE (CASM). This is the unit used to calculate the efficiency of an airline and it is obtained by dividing the operating costs of an airline by the available seat miles. The lower the CASM the more profitable an airline is which means that costs have to be reduced while increasing the available seats per mile. Big airlines are able to take more passengers per miles because they have larger aircrafts like the double Decker A380 which carries close to 900 passengers compared to the A330 which carries about 266 passengers.

iii. ECONOMIES OF SCALE. Emirates carried 51 million passengers last year while RwandAir carried less than 200,000. Emirates’ larger capacity means that they can negotiate lower prices for supplies, spares, maintenance, fuels, lubricants etc because they buy in bulk. RwandAir’s small capacity means that it inherently cannot be efficient, hence the only way to increase its revenues is to raise the ticket prices which will negatively affect the passenger load factor; this puts RwandAir in a catch 22 situation.

5. If you have ever heard of the saying that a rat eats more than an elephant, you will understand why smaller airline have higher cost ratios. To think that Uganda Airlines closed because of corruption is very simplistic and ignores the basic financial fundamentals. The main reason is that more efficient airlines came on the scene and ate into its market share. Uganda airlines inefficiency wasn’t because of corruption but because it was too small to be efficient. By the time Uganda airlines closed it had losses of only $6million yet RwandAir is losing more than $60 million annually and the figure is growing.

6. Despite Uganda having no airline; Passenger traffic at Entebbe airport is 1.6million while Kanombe’s is a dismal 600,000 yet it is supposed to be a major hub.

7. Kagame had hoped that Etihad Airways would invest in RwandAir after they showed interest. However, they pulled out of the deal after realising that RwandAir was heavily indebted and had no hope of ever turning in a profit.

8. If Museveni follows the populist mistake of Kagame, he will always regret.

Therwandan – Marc Matabaro