As second or third generations take over the reins of family businesses, they may be more open to outside investment to grow their companies. East Africa in particular has a rich seam of such businesses, which canny private-equity investors should be exploring.
Air Tanzania: a long-haul strategy set to soar
On a recent visit to Tanzania, I flew the country’s national airline from the lakeside city of Mwanza to the former capital, Dar es Salaam. It’s a short, one-hour-20-minute flight – rather uneventful but for one major detail. We were flying in the Air Tanzania’s new (and only) Boeing 787-8 Dreamliner.
As a traveler, flying in a luxurious plane for however long is always better than the other options, especially if it’s the same price or cheaper. As an analyst though, that’s a massive, expensive bird for such a short domestic flight. It translates to flying a fuel-guzzling airplane with a range of 13,621kms over just a distance of 853kms. The plane itself has become the subject of national conversation, mostly because it was paid for by the taxpayer. When the airline briefly grounded it late last year, for example, rumours forced executives to clarify that it was undergoing scheduled maintenance.
Air Tanzania took delivery of the Boeing in June last year, and of two Airbus A220s later in the year. At the time, it had no concrete plans for proper international flights and was still working on rejoining the International Air Transport Association (IATA), from which it was suspended in 2008 over accumulated debts. The airline decided to deploy the Boeing on domestic routes, even as it kept pushing its start date for long-haul flights.
When it took delivery of the Boeing, Air Tanzania had no concrete plans for proper international flights
So far, the plans to fly beyond domestic and some regional flights include a three-hour-15-minute flight to Johannesburg, scheduled to begin next month, and the six-hour-20-minute route to Mumbai, scheduled to begin in July. Dar’s new terminal will also be opened next month, four years behind schedule.
Then the true test of the Tanzanian government’s massive investments into its national airline will begin. Part of these investments have included knocking out Fastjet, a low-cost carrier that had made a name for itself in the region.
Fastjet has had a tough year, with its parent company divesting from the Tanzanian market and leaving the company to former minister for home affairs Lawrence Masha.
- Just weeks after Masha increased his stake in the company from 4% to 68% in December 2018, he said that the government had denied his airline an entrance permit for a new Boeing 737-500.
- Tanzania’s civil aviation authority also suspended Fastjet’s operations, citing management issues and huge amounts owed to the government.
Fastjet’s effective collapse leaves Kenya Airways-owned PrecisionAir as Air Tanzania’s only formidable domestic rival.
The decade-long plan to revive the national airline seems to be working so far. With government support and financing, the airline says it now flies more than 21,000 passengers a month, and as many as 40,000 during peak months.
- Like Kenya Airways, Air Tanzania began after the collapse of the East African Community in 1977. Both airlines were started with planes “stolen” from partners in the immediate commotion of the collapse.
- Last December, during a ceremony to take delivery of the first Airbus, President Magufuli presented retired pilot Naziz Peter Mapunda with a cash gift and a lifetime of free Air Tanzania flights. Mapunda took off from the Nairobi airport in 1977 without clearance.
- In Dar, a Kenyan pilot did the same thing, sharing his fuel with two other pilots and flying out of Dar after taking advantage of a communications hitch caused by an ongoing soccer match.
The second half of 2019 will be a pivotal time for Tanzania’s national airline, as it begins flying in an international market with more formidable competitors. Government support might be winning the domestic market for the airline, but on international routes, it will be largely on its own. It could take lessons from Ethiopian Airlines, the only successful, wholly government-owned airline in the region.
In neighbouring Uganda, Uganda Airlines is also set to take to the skies soon, meaning that nearly all countries in the East African region will have national airlines competing for the same markets and routes.
The proper thing to do, IATA’s special envoy to Africa, Raphael Kuuchi, told The East African last month, is to cooperate rather than compete: “There should be enough traffic for all to share. What we need is for airlines to talk with each other and enter into commercial arrangements that will make them stronger against competition from elsewhere.” Whether Air Tanzania chooses that flight path remains to be seen.