RwandAir is set to sign three aircraft lease agreements worth $300 million as it seeks to operate deeper into Africa by adding new routes, to create longer haul connections to Europe, America, and Asia.
In a letter to Christine Lagarde, the managing director of the IMF seeking a raise in its ceiling on new external debt, Rwanda reveals that in the first quarter of 2018, RwandAir contracted a lease for additional aircraft to expand its fleet.
This breached the country’s indicative $500 million ceiling on external debt by public enterprises by $87 million.
“The rationale behind fleet and route expansion is to operate deeper into Africa by adding new routes, and creating longer haul connections to Europe, America, and Asia.
“Although the initial plan was to acquire two aircraft during the next fiscal year, an opportunity arose to acquire new aircraft following the folding of a European airline company, so RwandAir management quickly engaged the lease contracts,” Rwanda’s Finance and Economic Planning minister Uzziel Ndagijimana said.
“Going forward, leases for three additional aircraft are likely to be signed in 2018, to replace two aging aircraft. Hence, the government requests an increase in the indicative limit to $800 million to accommodate these leases,” the minister added.
The EastAfrican understands that the airline is planning to retire two of its ageing Bombardier as it seeks a relatively newer fleet of Boeing aircraft. It is expected that the new aeroplanes will only start generating debt service payments in 2019.
This government support will mark the first huge rise in the grant it received, having recorded dips since 2014 as it was left to fend for itself through its revenues.
From its financial documents, the airline has seen its grant allocation from the government reduce from $56.2 million in 2015 to $53.8 million in 2016 and $47 million last year.
The Rwandan national airline a week ago received a nod by Washington, allowing it to operate through a code-share agreement. This is a significant step as the Rwanda national carrier awaits approval for direct flights between Kigali and the US.
RwandAir sunk back into loss in 2016, posting $1.01 million loss, from an operating profit of $2.8 million in 2015.
The airline has in the last three years reduced its loss position from $37.3 million in 2014 to $1.01 million last year, even as the government grant it normally receives also recorded a dip.
The documents also show that the airline’s revenue is steadily growing, reaching $99.85 million in 2016, from $95.2 million the previous year and $86.8 million in 2014.
The government has in the past borrowed to finance operations of the airline as it hopes that it will break even by the end of next year.
In 2013, Rwanda said it would use part of the proceeds of its first Eurobond ($400 million)to finance RwandAir.
It did not indicate how much of the money went to the airline.
In the revised budget for 2013/14, RwandAir’s allocation rose from $32.3 million to $47.9 million as more money was committed to repaying loans for the airline.
In 2015, the airline received $160 million from asset finance bank PTA Bank (the East and southern Africa trade and development bank) to acquire the two new Airbus aircraft that it received last year.
The airline is currently servicing a $60 million loan from the same bank, which it took in 2011 and is due to mature in 2021.
RwandAir boasts of a fleet of two Airbus A330, two Boeing 737-800, two Bombardier Q-400s, two Bombardier CRJ-900s and two Boeing 737-700.
The airline hopes that it will use two of the new leases to push through its US route later this year or early next year, once it gets a nod from the US Federal Aviation Administration audit in September.
A FAA audit is a mandatory procedure for airlines seeking a permit to operate direct flights to the US. The FAA provides oversight to determine if federal aviation regulations are followed.
“There are still things RwandAir needs to put in place if they are to ready themselves for the FAA audit. The audit is harder and stricter compared with the International Civil Aviation Organisation (ICAO)’s and others. To get the FAA permit, you have to score 90, not ICAO’s 74,” The EastAfrican was told.