Banks fight over deal to finance Uganda aircraft acquisitions

September 22, 2018 in Business, Companies, Infrastructure, Travel & Tourism by Editor

Uganda Airlines will operate a mix of A330 neo’s for the long haul network and shorter range Bombardier CRJ’s for the regional feeder network

September 22, 2018 -The Uganda Airlines project team is spoilt for choice as lenders inundate it with proposals to finance the comeback carrier’s aircraft acquisitions.

256BN has been told that following recent reports that Canadian financiers had backed out of a deal to provide export credit for the four Bombardier CRJ-900 series aircraft Uganda Airlines ordered during the Farnborough Airshow last June, twelve lenders from Australia, Europe and the Middle East have stepped forward with bids. That is in addition to two Uganda based banks that also want a piece of the action.

“We are shocked by the quality of offers whose terms are far superior to what Canada Exim Bank was giving us,” says a Uganda Airlines board source.

The source who declined to reveal the identities of the lenders involved “because evaluation is ongoing,” added that the new offers were substantially lower than the 3.5pc interest that Canada Exim was proposing.

Sources attribute the unusual interest to the near negative yields on capital in western markets which has created a huge pool of surplus funds that are not earning. The same situation explains the interest by Ugandan banks that are also holding surplus reserves because of the low appetite for credit by local business.

Although it had been suggested at some point that Uganda would look east to China to fund the airline project, the project team has kept them at arm’s length.

“The Chinese have been out of play from the beginning because the project is being managed by a team of rigid cadres that have kept the rent seekers and commission agents from both within the government bureaucracy and State House at bay. So they have not been in contention,” another source revealed.

Dismissing reports of a possible backpedalling on the deal, the board source said Canada Exim Bank has been going through internal restructuring and had asked for a two week extension to deliver the Term Sheet for the loan. A term sheet is a non-binding agreement setting out the terms and conditions of a contemplated business agreement. It is considered an important document because it is a major step to signing the final business agreement.

According to sources at the Ministry of Finance, that document arrived on Thursday and a team from the airline and technocrats from the ministry of finance met last evening to review it.

Uganda expects to take delivery of the initial batch of CRJ’s in January with commercial operations planned for the first quarter of 2019. Besides the CRJ’s which will be used to develop a regional feeder network, the carrier has also signed up for two Airbus 330-800neo aircraft whose delivery is expected in late 2020.