A new generation of carriers invades Africa’s airspace
11/03/2008
A transformation is under way in African aviation, driven by a new generation of airlines offering efficient and reliable service. One of these is Precision Air of Tanzania. Finnfund is financing its investment programme.
Precision Air dates back to 1987, when the company’s founders began a business offering aerial spraying for Tanzanian farms. In 1993 operations expanded into charter flights from Arusha, a town that is a centre for Tanzanian safari tourism, located near the country’s main national parks.
In 2003 Kenya Airways became a shareholder and operations began to grow rapidly. In the past few years, passenger numbers have increased at an average of 25 percent annually. In the year ending March 2006 the company carried as many as 425 000 passengers.
Precision Air’s fleet is flying fuller than ever, as indicated by the current load factor of 81 percent. As recently as 2003 it was 44 percent.
Seven new craft on order
Precision Air currently operates seven ATR aircraft with 48-70 seats. Passenger demand is steadily rising, however, and the company has decided that by 2011 it will acquire seven new craft seating less than 100. Some of these will replace its existing aircraft. The delivery ceremony of the first new aircraft took place in February.
Capital spending will total about 120 million dollars. The company believes that, with its new aircraft, the number of passengers will reach 600 000 annually.
Finnfund is providing credit to finance the investment, which is also backed by European Financing Partners (EFP), a joint vehicle formed by European development finance institutions and the European Investment Bank. Precision Air is the first EFP-proposed project that Finnfund has financed.
“Tanzania’s transport connections are in great need of improvement and a country with such a great surface area will always need functioning flight routes,” says Senior Investment Manager Mikko Kuuskoski of Finnfund. “Precision Air is planning to expand its route network into new rural areas of Tanzania, which will make it possible to grow vegetables and cut flowers for export, for example, and to develop tourism in these areas.”
Route network spans the country
Of Precision Air’s shares, 51 percent are owned by a Tanzanian businessman, Michael Shirima, a longstanding player in aviation. The other shareholder is Kenya Airways, one of the continent’s most respected aviation companies. Kenya Airways is quoted on the Nairobi Stock Exchange and its largest shareholder is KLM of the Netherlands. The Kenyan company is an associate member of the Sky Team airline alliance led by KLM and Air France.
Precision Air now serves 15 destinations. The domestic route network links all major centres throughout Tanzania. One of these is Lindi in the south of the country, which has been a target of Finnish bilateral development cooperation since the 1980s.
The airline also flies to Kenya, Uganda and Mozambique. In total it operates more than 320 flights a week.
Precision Air has some 400 employees. Continuous training of its staff is one of the ways that it invests in high-quality service and safety.
In 2006 the company became the seventh African airline to pass the Operational Safety Audit of the International Air Transport Association IATA. Precision Air became an IATA member in April 2007.
Fleet modernization offers an important competitive edge in a business where the key issues are cost effectiveness, reliability and safety. Another competitive advantage comes from the partnership with Kenya Airways, which gives passengers diverse onward connections with Kenya Airways flights to Africa, Europe and Asia.
Cost effectiveness has been enhanced by its rapid adoption of e-ticketing. It began issuing electronic flight tickets in March 2007, the third airline in Africa to do so.
“Already 95 percent of our tickets are issued in electronic form,” says Precision Air’s managing director Alfonse Kioko.
In 2006 Precision Air was ranked the third most respected service company in East Africa in a survey conducted by the auditing company PriceWaterhouseCoopers.
Spread of a new generation of African airlines
Precision Air is a good example of the new generation of airlines that has been sweeping Africa in the past few years. The opportunity for these airlines comes from the inefficiency and poor customer service of older airlines that are often state-owned. In Tanzania the market outlook for aviation is further enhanced by strong economic growth of this poor developing country. Its economy is forecast to expand by more than 7 percent in 2008.
At the same time, however, economic growth is increasing competition in aviation. Apart from the state Air Tanzania, there are three smaller airlines operating in the country and all are aiming to expand their fleets.
Among the greatest financial challenges faced by airlines is the steep rise in the price of kerosene, which has eroded aviation profitability throughout the world. Precision Air faces the same but the company has good prospects for meeting the challenge with its new fuel-efficient fleet.
For more information at Finnfund please contact Mr Mikko Kuuskoski tel. +358 9 3484 3380, email firstname.lastname@finnfund.fi
