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Airline searches for alternative funding options

Precision Air goes back to drawing board

Dr. Wolfgang H. Thome, eTN Uganda  Dec 08, 2011

(eTN) - The poor take up of the airline’s IPO in November, which raised only just over US$7 million instead of the anticipated nearly US$18 million they expected in their coffers at the end of the first-ever share offering by a privately-owned Tanzanian airline, has compelled Precision Air to go back to the drawing board in search of alternative funding options.

The airline has expressed their desire to add aircraft to the fleet, and expand their list of destinations and number of frequencies on routes already being operated, but these plans are now under a cloud as the funds are simply not available at present to push the entire program through.

Speculation is now circulating that the airline really has only two options, either to scale back on their ambitious plans, for the time being at least, or else seek alternative avenues of funding. The first option, in view of the uncertain economic outlook at present, is a viable alternative, using the economic crisis in the Eurozone and emerging recession signs in other major economies to redraw their roadmap. Yet, regular sources close to the airline insist that this is not on the cards and that the inevitable "Plan B" is far off from coming out of the drawers, leaving the airline with the second option to seek funds elsewhere.

Banks, however, are presently looking at prospects, financial performance, and current exposure in terms of long-term debts, incurred over a major purchase deal of a number of brand new ATR aircraft.

Leasing, instead of buying, is another option, but then again, lessors are likely to take their time to arrive at a full assessment of the airline’s cash flow, which would determine their ability to meet lease payments as and when due, besides servicing existing loans for aircraft bought over the past two years. There has been the acquisition of additional turboprop aircraft from ATR - the backbone of Precision’s fleet, crucial to maintaining market domination on domestic routes where Air Tanzania flies. The plans for more jets could be the most affected by the failure of the IPO to reach its targets.

That, in fact, seems to have had an affect also on partner Kenya Airways, itself preparing for a major new share issue, where the value of their shares traded on the Nairobi Stock Exchange has fallen by about 50 percent during the past year. This drop has been attributed in part to the need to "discount" the value for the new share offering and also as it was influenced by the events at Precision, which leaves Kenya Airways with a larger share package than was initially anticipated.

Be that as it may, these developments, in a significant part, reflect the worries the aviation industry presently has in East Africa over the economic outlook in the near future, along with rising interest rates on the domestic financial markets and high inflation, which traditionally unsettled domestic spending and influenced decisions to travel, equally affecting the other airlines in Kenya operating on the national network between Nairobi, Malindi, Mombasa, Eldoret, and Kisumu. It is, in fact, those who need monitoring the most closely, as the tight margins on domestic routes are cause for added concern, and the slightest changes will go right through to the bottom line.

Precision Air goes back to drawing board
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