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15.07.2004 Business & Finance

"Scramble" for Ghana Airways Over?

By Chronicle

...ONE-MAN BIDDER SEEKS 5-YR TAX HOLIDAY The Chronicle's investigations have revealed that Ghana Air Partners, one of the final two companies selected for the partnership takeover of Ghana Airways, has been sensationally disqualified, making the Utah-based Ghana International Airline sole bidder in the race.

Meanwhile, industry experts have already began raising eyebrows over the situation and described some of the demands of Ghana International Airlines as outrageous - a situation they attribute to the fact that the company realizes that it is the only bidder in the race.

But, Ministry of Transport spokesmen have told The Chronicle that Ghana Air Partners could not provide timely information - “necessary information to enable an efficient evaluation of their business plan.”

Ghana Air Partners is reported to have complained that they were not given adequate time to submit the information but the spokesman for the Ministry of Transport, Mr. Ken Anku, told The Chronicle on Monday that the company had up to one month to provide the required information in their business plan.

Documents sighted by The Chronicle investigators have revealed that Ghana International Airline has proposed that the government of Ghana grants them at least five years tax holiday, as a condition for the partnership takeover.

But, experts say this request is outrageous, considering the fact that the company wants government to service the debt of Ghana Airways.

According to Ghana International Airlines, “Our proposal is to have our financial partners, Sentry Financial Corporation, restructuring, using various methods including taking over the entire debt from the government of Ghana.”

The company has proposed that to solve the Ghana Airways debt and mitigate against resultant social costs of downsizing resulting from the setting up of Ghana International Airlines, “Ghana Airways' debt would be ring-fenced by the government of Ghana.”

The condition attached to this move is that an escrow account be set up, “into which government's earnings from the operations of Ghana International Airlines would be deposited and used to pay off the debt.”

It proposed that as an option, their financial partners, Sentry Financial International, would restructure the debt by “meeting with creditors, examining the possibility of converting some or all of the debt to equity”

The company further stated that one of the options they could also look at would be to examine the possibility of purchasing the debt at a discount to give government what they termed as the “much-needed relief.”

Ghana International Airlines is also asking government, which is listed as a shareholder, in proposal, to ensure that Ghana International Airlines obtains the necessary licenses and routes with full rights. They have also proposed that government be responsible for negotiating bilateral agreements with other governments on their behalf.

The company reminded government that Ghana Airways was indebted to the tune of about US$150 million and underscored that out of this debt, US$80 million “has to be paid by government regardless of whether the airline is declared bankrupt or not.”

Ghana International in their situation analysis said that the problems of Ghana Airways had to do with high initial investment and recurrent costs, poor quality service, legacy systems and outdated technologies which are very difficult to migrate to new technologies.

Another problem of Ghana's ailing national carrier pointed out was the existence of an old and inefficient fleet made up of 3 DC10s, and 2 DC-9 51s, with an average age of 19 years.

In a summary of the problem analysis the company said, “Ghana Airways is plagued with: poor on-time performance, low load factor, poor management and accounting controls, poor marketing strategies, third world business practices, poor customer relations, lack of employee commitment and dedication.”

According to the company's proposed shareholding structure, Ghana government (Ghana Airways) would have 49% shares whilst other Ghanaian investors, who have at least 2%, the remaining shares would go to other equity investors and stock options.

The company said it was their hope that the equity investors would raise the working capital. They said that stock options would also enable them attract well-qualified management at affordable salary levels.

“Different class of shares would be established to give operational control to investors.”

RISKS & REWARDS

Ghana International stated that they anticipated six main forms of risks, namely: Government interference in management, sequestration, nationalization, transfer of capital, price war and political instability.

To address the specific problem of political instability, the company stated, “Ghana has successfully gone through three peaceful democratic elections, with the most recent one ushering in a new party that won the democratic elections conducted in the year 2000 through smooth transition from the government and party.”

On the anticipated government interference, the company said that data would be maintained and hosted in the US, which would allow board members and shareholders to access and monitor activities of Ghana International Airlines Ltd.

On the issue of capital flight, the company noted that the Ghana Investment Act allowed the free transfer of profits outside Ghana.

To solve the risks of price war, the company said, “Cut throat prices would be avoided by Ghana International Airlines and our scheme would be maintained when a commanding presence had been established.”

The company said they hoped to capture 50% of the total traffic for the West African-Europe-US routes and 65% regional traffic within the first year of operation.

Ghana International said in their proposal that they were going to make the airline a special purpose airline using the JetBlue model and acting as a feeder airline in the West African sub-region to other airlines flying the European routes.

The company said if they became the new partners to Ghana Airways, they would enter into partnership with SkyWest, Continental and Delta airlines as feeders to their US operations, as well as apply to join global alliances such as One World Sky Team.

The company stated that it was their expectation that Ghana Airways would reposition itself to take over ground operations from AFGO after the expiration of its monopoly.

FATE OF GHANAIR STAFF

It further noted that Ghana Airways reservation offices can be turned into agencies to be management by retrenched staff under a deal that will allow them to own the business.

The company said, “Some reservation staff would be retrained and employed by Global Response to provide Contact Center Services for Ghana International Airlines. Qualified staff of Ghana Airways would be interviewed and employed by Ghana International Airlines in operations.”

The company also noted that, Ghana Airways pilots would be retrained to fly Ghana International Airlines planes under a conversion program adding, “Cabin Crew would be interviewed and those selected would be retrained to provide cabin services on Ghana International Airlines flights.”

Ghana International proposed to create an airline on the “no frills” model to service the West and Southern African routes, by offering cheap services - more JetBlue than EasyJet - in terms of quality of service and provide competitive service on the European and US routes.

MINISTRY OF TRANSPORT In an interview with The Chronicle, the Public Relations Officer of the Ministry of Transport (MOT), Mr. Ken Anku, said the fact that the company had made the request did not mean that they would get it.

According to him, evaluation of Ghana International Airlines' business plan had been completed by the evaluators and may be sent to Cabinet for an input.

“We are still evaluating the technical details, because we don't want to asleep and fall down.”

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