Airlines are well known for being capital-intensive, but the cost of capital and its availability are a serious obstacle to the growth of airlines in Africa.
One of the main problems facing African Airlines in the exploration of aircraft finance is that almost all airlines are unable to operate profitably and therefore have low financial risks, as they are less sustainable.
Mark Tierney, CEO of Dublin-based Crabtree Capital, has cited five points about the current situation in the African aviation industry.
• The industry is unable to perform “utilities” functions. •Current insufficient air connections in Africa is extremely expensive in terms of positive economic growth. To correct the “system” itself: •Current policies and practices will continue to fragment relatively small markets, making streamlining more than ever possible. . High unit costs (which are many causes) result in higher ticket prices (especially within Africa).
To address these challenges, Tierney proposed the “Commercial Aircraft Finance Enterprise (CAFE).” This will be the Public Private Partnership (PPP) of Commercial Aircraft Finance Enterprises in Africa.
The unique purpose of the cafe is to “motivate shareholders and management of African airlines to change their behavior for the better. The new Aircraft Finance Enterprise will be the multilateral development bank (MDB) (such as Afreximbank), development finance institutions. (DFI), jointly funded by the private sector,” Tierney said.
Tierney argued that the proposed cafe is “a low-risk, high-reward proposal to give airlines a strong motivation to change practices, streamline air traffic and embark on a noble circle of action.” It's there. He said there's no reason not to do that. After a certain period, if it fails for catalytic purposes (“emphasis on positivity and eliminate denial”), the assets will be monetized and the shareholder/lender will likely be repaid with profits.
Thus, Tierney advocates “… as a user, a new disruptive change agent in the supply chain's financial chain, upstream of the airline.” This new change agent will promote more commercial action among airlines in the sense that it streamlines what they are doing. Such rational actions give momentum to the noble circle of causal relationships when they begin to move. Improved operations will lead to better creditworthiness, reduced financial costs, greater reinvestment, reaching the Holy Grail to African airlines… profitably lower airfares. ”
“This catalyzes what I call SEACAT (safe, efficient, affordable commercial air transport), and it is a number of fragmented airline actions that hinder growth. This kind of action will cause losses by many African Air,” he said.
He said that the key to the success of the cafe is the ownership/management structure that allows partial ownership by MDB/DFI on the one hand, and partial ownership/management by the lessor team of the Blue Chip aircraft. He adds that there is.
Tierney argues that the ability of countries to create beneficial jobs due to the massive population growth coming in the next 10-20 years will be so weakened by all cents lost by airlines.
Tierney argues there is no shortage of lenders and African airlines supporting this concept. But progress was made as he first proposed that the concept was slower. Kenya Airways was the most active promoter until it met opposition from potential airline partners.
“Safe, efficient and affordable air transport has been shown to add this compound to GDP growth by 1-2% per year over time. And you can be safe, efficient and affordable Unless you have air transport at a price, that's a loss in Africa,” concluded Tierney.
