Business News Wed, 7 Jan 2015

New national airline likely to fail – Transactional Advisors

Attempts by government to establish a new national carrier has hit a snag, as an initial pre- feasibility report by the transactional advisors, PwC Ghana, has been harangued by experts for its unrealistic projections, B&FT has gathered.

The projected financial outlook, passenger throughout and take-off time of the proposed national airline have all been questioned and described by some industry players as "too ambitious and unrealistic", following a submission of the draft pre-feasibility report to government by the transaction advisor, PwC Ghana.

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 InternationalAirline" 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.

However, a number of operators in the aviation sector have raised serious doubts about the key financial ratios and timelines raised in the report, as they depart from industry standard and what pertains in the aviation industry as endorsed by the International Air Transport Association (I ATA).

For point to point operations in the airline industry, the rule of thumb and generally accepted principle is to operate a route for at least 18 months to be able to determine its profitability or otherwise.

Indeed, the current margins in the industry in the best markets are much lower than the projected margins cited in the report.


An IATA analysis in June 2014 showed that in the North America market the margin was 4.3 percent; 2.6 percent for the Middle East; 1.6 percent for Asia/Pacific; 3 percent for Latin

America; 1.3 percent for Europe; and just 0.8 percent for Africa.

Over the past two years, the Africa region has been rated as the weakest place to operate airlines in terms of profitability. Profits are barely positive and represent a margin of just 0.8% on revenues. This is why some airline operators contend the operating profit margin cited in the pre-feasibility study is unrealistic. The project implementation plan cited in the said report portends that the new national carrier is to be registered in August 2015 and acquire its Air Carrier Licence (ACL) and Air Operators Certificate (AOC) in the same month.

This is, before now, unheard of - given the rigorous certification processes new airlines are taken through by the Ghana Civil Aviation Authority (GCAA) in compliance with international laws.

Meanwhile, the Deputy Minister of Transport Joyce Bawah-Mogtari is reported to have said that a new national carrier will be in operation by March 2015.

Source: BFT