Aviation observers stunned by level of Precision Air losses

Precision Air of Tanzania, the only publicly quoted Tanzanian airline company on the Dar es Salaam stock exchange, has reportedly posted a loss of just under 31 billion Tanzania Shillings, compared to a profit of just under 2 billion Tanzania Shillings in the previous financial year.

Precision Air BoeingA source close to the airline attributed much of the loss to the cost involved in the use of leased B737-300’s, which in particular on the route to Johannesburg piled up losses in addition to high maintenance costs. These aircraft have however since been retired from the Precision Air fleet and were returned to the lessors to cut cost, using only their fleet of ATR aircraft for domestic and regional flights. At the same time the source insisted that while the cost of financing the acquisition of brand new ATR 42 and ATR 72 aircraft was substantial, the cost savings by using state of the art turbo prop aircraft were equally substantial vis a vis fuel consumption and lower maintenance cost during the cause of the operation.

Much blame is now being heaped on the former CEO for being over ambitious but also on the board for sanctioning such expansion plans at the time without requiring management to provide a worst case scenario and not only optimistic forecasts. The source, understandably not wishing to be named, then added that the fundamentals of flying the ATR fleet were overall positive as it allowed to serve parts of the country jets could not reach and that while there was an issue with the cash flow, no surprise there considering the loss on the bottom line, the medium term forecast remained positive, as long as they shareholders could agree on a bailout plan to get bridging fund on line. Other sources commented that it was unlikely that Precision would any time soon wish to return to jet aircraft operations or open up routes which require a lot of up front financial involvement but focus on streamlining their network, trimming cost and optimizing their schedules including the greater use of codeshared operations to Kenya and beyond with partner Kenya Airways.

Meanwhile has the airline released a press statement which reads in full as follows:

PRECISION AIR FINANCIAL RESULTS 2012/2013

PRESS RELEASE

Dar Es Salaam, August 30th, 2013

The Board of Directors of Precision Air Services Plc is pleased to announce its full year results for the year ended March 31st 2013.

The company made a net loss of Tshs 30.4 billion against prior year which stood at Tshs 1.2 billion profit.

Overall the Available Seat Kilometers grew by 10% whereas the Revenue Seat Kilometers grew by 16%. Total numbers of passengers uplifted over the period went up by 8.5% to 895,650 against 825,150 prior year. The yield however declined by 9.4%.

Total Revenues grew by 8.2% to Tshs.176.4billion largely driven by increased passenger numbers. This robust growth in passengers was attained even with increased competition in the domestic market.

Direct Expenditures went up by 24% to Tshs 145billion due to increased cost of fuel and increased equipment related costs. Aircraft Maintenance costs increased from Tshs.11.9billion in 2011 to Tshs.23.6billion in 2012; this was mainly due to the high costs of maintaining the Boeing 737 Fleet.

The gross profit margin therefore declined from 28percent in the prior year to 18% (Tshs.31billion against Tshs.46billion prior year).

The Indirect Expenditure grew by 18.6% to Tshs.42billion, driven mainly by staff related costs that went up by 8% to Tshs.28.5billion against Tshs.26.4billion.

Financing Costs grew by 8% due to overdrafts whereas the company accrued a loss in foreign currency exchange of Tshs.4.4billion which is a 50% growth over prior year. This is largely related to US dollar denominated borrowings for aircraft financing.

Loss on impairment of receivables grew to Tshs.8.6billion from Tsh.0.3billion, due to addition provisions made in relation to other carriers billing rejections that were unprocessed by year end.

The net effect was a loss of Tshs.30.4billion against a profit of Tshs.1.2billion prior year.

Considering the performance, the group recognized the need to execute a turnaround. Towards that end, the Board has made changes in Top Management which has developed a new 5year Strategic Plan already approved by the Board.

The plan is focusing on the following:

  1. Network Rationalization (pruning of non-profitable routes)
  2. Fleet Rationalization (Termination of expensive fleet such as Boeing 737 aircraft leases).
  3. Operations & Structure:- includes Staff Retrenchment and Internal Efficiencies
  4. Revenue Enhancement Opportunities;- includes Third Party Maintenance, and Third Party Advertising.

So far, the actions taken have yielded positive results.

Michael Shirima                                        Sauda Rajab

Chairman                                                   Group Managing Director & CEO

Watch this space for regular and breaking news from Eastern Africa’s vibrant aviation scene.

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