Precision Air bailout back on the table ?

DAR GOVERNMENT CHANGES TUNE AS CHANCES FOR PRECISION BAILOUT RISE AGAIN

(Posted 20th October 2013)

Information received from a source close to Precision Air has confirmed that a bailout deal by the Tanzanian government is now back on the table following a fresh look at all the negative implications of letting the airline ‘hang’.

It is understood that the Tanzanian government has made a deal apparently contingent on an independent evaluation of Precision Air’s value and share prices, as the company continues to be listed at the Dar es Salaam stock exchange as the only airline in Tanzania. However, as there has been little trading in PW shares of late the share price has remained rather static and is not a perfect indicator right now of the true value of the company.

While hopeful that a deal can eventually be struck and the Tanzanian government can step in by acquiring a major share, perhaps even giving it the ‘Golden Vote’ besides a position on the board of directors, the airline itself, in close discussions with shareholders, is also looking at a range of other or additional options to return to a sound financial footing. ‘There are now no sacred cows to be spared. For one shareholders may be asked to inject additional capital as it is the direct way to raise cash in a publicly listed company. Other options are the sale of assets and to then lease them back. That can be buildings or even aircraft, which Precision has bought outright but which are still under finance arrangements. This may lessen the debt to equity ratio and make it more attractive for either buying into the airline or advancing long term finance. The underlying factors are still positive for Precision. They cover the country like no other airline and provide a public service to remoter airfields. From what I know government is also taking a look at the fare levels other airlines offer on certain routes to determine the long term viability of such fares and may compel them to raise those fares, more so if they see that such companies are operating at losses and for causing a fare war. But the important thing here is that talks are back on and are held in a positive spirit beyond the unfortunate utterances of a few two weeks ago’ wrote a regular aviation source from Dar es Salaam when passing the information.

Major shareholders are the company founder Michael Shirima and partner airline Kenya Airways with each holding slightly over 40 percent each, but both stakes are likely to reduce should the Tanzanian government come on board. Such a scenario might however also impact on Tanzania’s financial ability to continue absorbing the losses of Air Tanzania, which has just made announcements last week of plans to acquire a Bombardier CRJ200 jet for regional flights, naming Bujumbura as one of their intended destinations. This has in many circles been seen as a political decision to link Dar with Bujumbura directly in line with recent events in the East African community where Burundi has been charmed by Tanzania as well as the other partners now known as the ‘Coalition of the Willing to get their ‘swing vote’ to either support or else oppose the fast tracking of infrastructure, energy and tourism cooperation which has unfolded over the past half year between Kenya, Uganda and Rwanda.

Watch this space, for breaking and regular aviation news from Eastern Africa but also for details on the upcoming mini summit of the ‘Coalition of the Willing’ later this month in Kigali and the subsequent Head of State Summit of the East African Community.

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