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21.04.2004 Business & Finance

Why Ghanair is Collapsing (1)

By Ghanaian Chronicle

Board lacks biz focus; Daily ministerial interference; Internal politics & Self-interest Chronicle investigations have revealed that a road map to recovery report for Ghanair which was conducted late last year after the Price Water House Coopers forensic audit in 2002 has been quietly bobbited by the Ministry of Road and Transport and the board of directors of the airline.

The boiling and bone chilling forensic report, which was commissioned by the immediate past Chief Executive of Ghanair, Mr. Phillip Owusu, who was whipped out of office by both the Ministry and the Board, indicted both the board of directors of the airline and the sector Ministry. It also revealed gory losses of the airline and why these losses occur.

It also mentioned that the management team of the airline was dysfunctional with too much internal politics, adding that, the situation seemed largely due to the lack of direction and accountability that existed at all levels of the airline.

According to the report, Ghanair was suffering from a defective governance syndrome, coupled with the problem of a board, which lacked independence and the business focus to lead the airline from its current situation to that of recovery.

"Examination of internal governance activities shows a lack of defined roles of the board of directors The board seems to lack the business focus, with a significant amount of the board's time being taken up with management matters," the report said.

As a precondition for recovery, the report had suggested that it was vital that the board had the necessary business skill and independence to carry out the mandate of the shareholder and be able to resist attempts to deflect it from the agreed course.

The Brian Davies report suggested that the airline should have a smaller board of no more than seven members, who should be recruited from the business, legal and financial community.

It added that " the focus should be on highly respected, independent minded, individuals with strong business skills rather than those with strong political connections" According to the report, although aviation experts would be an advantage in the recruitment of the board, finding people who had no conflict of interest may be difficult in a country as small as Ghana, given the limited size of the aviation sector.

The Chronicle was hinted that some of the board members were representatives of international aviation companies who had sought to do business with the airline, using their company while maintaining their positions on the board.

A case in point was one of the board members who was alleged to be representing an aviation company in the USA and who was seeking to lease aircraft to Ghana Airways, a situation which presented a clear case of conflict of interest.

The Ministry of Roads and Transport also caught a bullet from the report. The Brian Davies report said as a precondition for recovery of the airline, the role of the parent Ministry should be to create an enabling environment for the sector rather than involve itself in the running of the airline.

The report also indicated that there was too much government interference in the running of the airline, adding that as one of the conditions of recovery, government must remove all interference in the running of the business.

"Unfortunately, there has been a history of almost a daily interference in the running of the company and the replacement of the Chief executive approximately every 18 months. There had been five different chief executives in the last two years," it said.

Other key issues raised in the report were that even though a comprehensive business plan was produced for the period of 2000-2004, there was no evidence that it was accepted by the board and converted into a short-term budget and action plan for individual management action and accountability.

It also indicted the board of Ghanair for not implementing the recommendations of the forensic audit carried out by PWC in 2002, a year after the Brian Davies report.

"It is suspected that by this time, the plight of the airline was so dire that without urgent action on behalf of the shareholder (Government of Ghana), any plan for continued operations was irrelevant," it said.

The Brian Davies report observed that even though there was a comprehensive profitability data available to the airline which could enable them to determine the profitability of many routes, the date was only published in the aggregated form, thus showing profitability for geographic regions rather than individual routes and that it was also produced nine weeks after the event, making it a "useless" tool for improving route performance.

The June 2003 figures from Ghana Airways, according to the report, indicated that the number of passengers carried on the European route was 21% lower than budgeted, but the cost of passenger in-flight meals and drinks was 66% over the budget.

"There are many other glaring inconsistencies in the route performance numbers that would normally warrant an urgent investigation, but there is no mention of any action being taken within the department responsible, or even any discussion of route performance at the weekly meetings," the report said.

The report however admitted that many of the changes needed to achieve a successful recovery of the airline would be politically uncomfortable. Examples of such unpalatable changes given in the report included route closures, debt restructuring, removal of government interference.

According to the report, experience of other transformations had shown that without a clear mandate from the very highest level, these changes would be resisted either overtly or covertly by elements within the organization.

It added that "this resistance adds significantly to the risk of failure, slows the process of recovery and gives some people hope that if they can resist change for long enough, their personal interest will prevail over the long term interest of Ghana Airways."

THE MINISTRY's POINT

According to insiders, the Ministry of Roads and Transport dissociated themselves from the report and refused to commission it but the embattled ex-Chief Executive, Philip Owusu, went ahead and commissioned the report as a work plan.

Speaking in an interview with The Chronicle, the Deputy Minister for Roads and Transport, Emmanuel Adjei Boye, said that the Brian Davies report was nothing new to them and that as far as the Ministry was concerned it was a duplication of the forensic audit carried out by Price Water House Coopers (PWC).

But the introduction section of the Brian Davies Report states, "Although the terms of reference require a diagnosis of the current state of the airline, it was not intended to duplicate the work already carried out in 2002. The study concentrates on developments since those reports (PWC) and seeks to identify the key aspects that have prevented recovery to date.

It concludes with a "Roadmap to Recovery."

According to the Minister, the Brian Davies report could not be implemented because, as far as they were concerned, at the time the report was being commissioned by the ex-Chief Executive, he had not read the PWC audit well.

The Deputy Minister told The Chronicle that the ex-Chief Executive had commissioned the report without the knowledge of the Ministry and that they only got to know of it at a certain meeting when it was first mentioned.

"We asked many questions about the report, he (Brian Davies) promised to input our concerns in the report.

I have read the report and to me it was nothing new from the PWC audit," the Minister added.

Outside the report, the Deputy Minister had been fingered by key Ghana Airways officials for his alleged daily interference in the day-to-day running of the airline and that at one time he held the hand of one William Glay to Phillip Owusu and asked him to give a contract to lease aircraft to Ghana but Philip refused because the price quoted by William was too high.

The Minister however denied ever doing that and added that William Glay had been dealing with Ghana Airways before he got to know him and that "if I wanted to do that, all I needed to do was to send him to Philip with my card and a note asking him to consider Glay's proposal."

On the state of Ghana Airways, the Minister said the search for a rescue package for Ghana Airways had passed the stage of the Brian Davies report and that he was optimistic that Ghana Airways would return to the skies as the nation's star in the sky.

When Chronicle asked whether it was possible to stabilize the airline if the troubles, as highlighted by both the PWC forensic report and the Brian Davies report were still in existence, he said he was sure that they were going to find the best deal for Ghanair.

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