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Precision Air predicts brighter future ahead with five - year strategic plan

PRECISION Air (PW) predicts a rosier future in the years ahead with full implementation of the company’s five-year strategic plan as approved by the company’s board, the Precision Air's Board Chairman Michael Shirima said.

One of Precision Air's ATR72

Speaking during the company’s Annual General Meeting in Dar es Salaam yesterday, Shirima said the company’s half year results (unaudited) for the period April to Sept indicates a very positive outlook with the actual results in line with the strategic plan.

Shirima said the company is now focused to remain a profit making company even after posting a Tshs 30 billion loss during the year ending March 31st 2013.

He said during that period,the company’s total assets increased more than ten-fold from Tshs 23 billion in 2006 to Tshs 276 billion as on March 31st 2013.

“The growth of assets was at par with the growth of the company’s capacity to airlift more passengers.From moving 340,000 passengers in 2006 to 896,000 passengers in 2013, is not a small achievement. “Unfortunately, growth in the number of passengers did not translate into profitability growth for reasons some of which are pointed out below. 

The reported loss in 2013 brings down the average net profit margin for the past 8 years to just one (1) per cent,” he added. Mr Shirima said businesses with such narrow profit margins are highly sensitive to external shocks affecting either revenue stream or cost elements.

“This is further complicated by the currency mismatch Precision Air’s cash flow: revenues are mainly denominated in local currency while larger percentage of costs (fuel and maintenance) is in foreign currency.
For example, a large part of Precision Air’s income is in shillings, while most of the expenditure is in foreign currency (aircraft purchase, spare oil and large repairs), therefore that possibility of losses arising reductions in the value of the Tanzanian shilling compared to the American dollar,” he said.

He said the company’s management foresaw these challenges and oncoming storms and acted proactively to steer the company clear of turbulences adding that one of the steps deployed was seeking long-term capital inviting new shareholders through Initial Public Offer (IPO) and subsequently listing ordinary shares on the Dar es Salaam Stock Exchange (DSE) in 2011.

“We did not succeed in raising the amount we needed and this shortage aroused many problems. The lack of the capital expected put the Airline in a compromising position because the aircraft had already been ordered in advance since aircraft orders require earlier placements and fifteen per cent deposit of the price of these aircraft was paid.

“Cancellation of the aircraft orders would have attracted heavy penalties and also slowed the company’s growth plans. As a result, the company experienced pressure on its cash flow and eroded the company profitability but despite the above, the value of shares in the DSE market, although rarely traded, have held steady at a price of 475/- per share.

Mr Shirima said external factors played part in this dismal performance, but admitted that there were some internal manageable factors that had a significant share on the reported results. “After thorough performance review for the past few years, the Board has noted key possible source of trouble.

These are: inefficient network, costly fleet type, low productivity, lack of cost control and un-optimized ancillary revenue opportunities. The lesson has been learned. The Board made significant change in management and is optimistic that these problems presents an opportunity to drive back the company to profitability for the days ahead.

He said his company is currently pursuing other means to raise long-term capital in order to meet expected huge capital commitments, some of which were postponed during the last two years.

Mr Shirima noted that rationalization of the airline’s networks and fleet will be done by reviewing current situation and utilization of sub-optimal capacity which was averaging below 65 per cent for the past eight years.

“This will include phasing out costly fleet and introducing single isle jets three years from now. Such jets have belly capacity to also increase more revenue from cargo.”

He said Revenue enhancement opportunities will focus on key revenue drivers: passenger revenue – yield improvement and fuel surcharge improvement, excess baggage – tighter control to improve collection, cargo – increase rates and ancillary revenues – third party aircraft maintenance and various advertisements.

“Other measures are aimed at business consolidation and re-thinking of business model given the external competitive environment. More importantly value enhancement will involve optimal deployment of existing assets to increase cash flow, improving operational efficiency and reduce cost of financing. Cost control measures will not compromise fleet safety.

He said successful implementation of the above measures, coupled with securing long-term capital will put the company back into profitability path and reward shareholders for the patience endured during the turbulence period.


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