Year 2020 was a terrible one as the COVID-19 pandemic resulted in a crash of global economies. A recent report by the Auditor-General of East African country, Uganda highlighting the financial Performance of Public Corporations and State Enterprises, has laid bare the devastating effects of the global pandemic on Africa’s aviation industry with the new National Airline and the Uganda Civil Aviation Authority in the spotlight.
According to airspace-Africa.com, the African Airlines Association (AFRAA) estimates that African airlines made a revenue loss of US $10.21 Billion in 2020 due to the effects of COVID-19 and AFRAA continues to advocate for urgent financial support for African airlines. AFRAA believes African governments can play a huge role in providing much needed relief to the industry through grants, loans, loan guarantees and by deferring or waiving charges and taxes.
The Uganda Auditor General’s report identified a number of state owned entities that had their performance reduce in the 2019-2020 financial year due to the impact of COVID-19 in the last half of the financial year. The worst performing State Enterprise was Uganda National Airlines Company Limited with losses of UGX.102.4 Billion (US $27.9 Million).
Because of the large initial capital investment required to set up the airline coupled with the worst crisis in aviation history, which wiped months off the operational calendar, the national carrier predictably had a low Return On Asset score.
According to an official statement from the airline: “Over the full 29 months covered by the two reports from the Auditor General, the airline could only perform commercial flights for 6 of those months. Most of the period was dedicated to investing and setup activities to ensure Uganda Airlines exists as an international airline, and the rest of the time aviation markets were closed. For the 6 months that it was flying, Uganda Airlines’ revenues were 10% below budget despite the impact of COVID-19.”
At a time of extreme distress, airlines still have to deal with large fixed costs. About half of airlines’ costs are fixed. In the second quarter of 2020, IATA said the year-over-year decline in operating costs was 48% compared with a 73% decline in operating revenues, based on a sample of 76 airlines.
The Auditor General’s Liquidity assessment analysed the ability of State enterprises to meet their short-term financial obligations by comparing their current assets and current liabilities. According to the report, a ‘ratio of Current Assets to Current Liabilities between 1.5 and 2 is desirable, although acceptable current ratios vary between industrial sectors.’ Uganda National Airlines Company Limited had a ratio of 6.10 for the 2018-2019 financial year and a ratio of 29.23 for the 2019-2020 financial year.
The report also reveals the debt ratios of both the national airline and Civil Aviation Authority. “Gearing (debt) ratios measure the proportion of the enterprises’ assets that are financed by debt. Although the risk levels vary from industry to industry, a debt ratio of more than 50% is considered undesirable.”
The Auditor General noted that 10 State enterprises had debt ratios of more than 50%, implying that their total assets were insufficient to cover their total debt. This list included the Uganda Civil Aviation Authority (UCAA) with a gearing ratio 51.17% in the 2018-19 financial year and a ratio of 48.88% in the 2019-20 financial year. Uganda National Airlines Company Limited had a gearing ratio of 2.37% in the 2018-19 financial year and a ratio of 0.48 in the 2019-20 financial year.
But in its recent release, the airline denied the existence of any form of debt, saying: “Uganda Airlines is fully capitalised by the shareholders and has no debts on its balance sheet. All the aircraft and other assets were paid for by cash from the shareholders. Uganda Airlines therefore does not have any loans or interest payments to any financier.”
“Interest cover looks at how many times a Company’s operating profits exceed its interest payable. A cover of two(2) times and above is usually considered to be safe, depending on the nature of Industry. The implication is that a company is most likely to meet its interest payments.”
The report noted that the three worst performing State enterprises in this aspect included Uganda National Airlines Company Limited, to the effect that these enterprises may have challenges meeting their interest obligations.
The conclusion from the report served to re-affirm AFRAA’s stance, saying: “The COVID-19 pandemic has affected operations of a number of entities, and Government needs to assess its impact on the critical enterprises and corporations and provide the necessary guidance and assistance.”
Uganda Airlines has this week been recognised by Airline intelligence provider Ch-aviation as the airline with the youngest fleet in the world. The national carrier operates 4 of the latest generation CRJ-900 aircraft delivered in 2019 as well as having the unique distinction of being the first and only Operator of the Airbus A330-800 in Africa.
