House’s approval of EGP 5 billion loan for EgyptAir a hard win, but will it be effective?

Amr Kandil , Thursday 21 Oct 2021

In a matter of weeks, state-owned EgyptAir Holding Company will get a loan of EGP 5 billion from national public banks as per a final approval by the Egyptian House of Representatives on Monday.

EgyptAir
An EgyptAir plane. File photo/EgyptAir

The latest loan is the third funding allocated by the state in less than two years to help the 90-year-old flagship carrier overcome the coronavirus-related implications.

The company found itself in hot water during the Monday session at parliament, with the civil aviation adviser advocating the request for a loan, and a number of House members alleged that there has been mismanagement inside the company.

Why EgyptAir Holding wants the loan

The lower house parliament convened to discuss a two-article draft law issued by the Cabinet allowing the minister of finance to issue the guarantees necessary to open the door for EgyptAir obtain the loan from the National Bank of Egypt and Banque Misr.

A joint committee formed from different House committees approved the draft law earlier this month, saying this long-term financing is part of the state’s efforts to back its sectors affected by the coronavirus fallout.

In a report, the joint committee said the company over the past period has suffered from numerous consecutive crises, the last of which was the pandemic’s effect on the global economy and international air transport.

“Financial losses have led many of these [aviation] companies to go bankrupt, while the others are struggling to survive in light of these circumstances,” the report said.

EgyptAir's operations have decreased to their lowest due to the pandemic, and therefore, the company's cash inflows are no longer enough to meet its financial obligations, said the report.

It added that this can lead foreign banks and international financial organisations to declare that EgyptAir is in a state of default.

Globally, over the course of 2020, international air travel fell dramatically, with airline industry bearing losses estimated at $137.7 billion, according to a report in October by the International Air Transport Association (IATA).

Adaptation opportunities and cutting costs will cut losses to $52 billion throughout 2021, IATA added.

The Italian national airline Alitalia, as a case in point, has stopped operation since 15 October over financial problems flared by the pandemic.

In remarks to the press in UAE last March, Roshdy Zakaria, chief executive officer of EgyptAir Holding Co, said EgyptAir has been burning cash at a rate of around EGP 500 million per month.

He said the carrier currently operates 40-50 percent of its pre-pandemic level in 2019.

As EgyptAir suspended flights for a few months since March 2020, Civil Aviation Minister Mohamed Manar said in June of the same year that the company had racked up losses of over $3 billion due to the flight suspension.

Amgad Ahmed Aref, advisor to the civil aviation minister for parliamentary affairs, told the House on Monday that EgyptAir had endured huge losses even before the pandemic, in the wake of the two revolutions in 2011 and 2013.

Aref said there are official reports confirming EGP 201 billion in losses by the aviation companies due to the pandemic.

The civil aviation ministry adviser said the debts owed by the company include instalments for the purchase of planes, costs imposed by suppliers abroad, fuel prices consumed by planes, as well as instalments for the maintenance of the aircraft abroad.

The joint committee said it has approved the draft law to help the company recover from the pandemic repercussions and pay off its financial obligations.

Will the loan be effective?

Last year, a loan and a long-term funding by the state were granted to EgyptAir Holding Co. at a total value of EGP 5 billion to assist the company against the pandemic.

“We are not asking for assistance from the government, we are asking for a loan that we are able to pay off,” Aref told MPs.

Aref said the losses are estimated at EGP 1 billion per month, but the company is currently recovering.

According to the 2018/2019 report by EgyptAir, its last published annual report, the total liabilities of the holding company at the time were almost 9.3 billion.

“If the losses were estimated at EGP 1 billion monthly, should I grant an EGP 5 billion loan to [Egypt Air Holding] to only cover the losses of the next 5 months?” said MP Ehab Ramzy, who strongly rejected the draft law during the session.

Ramzy said he is afraid that the approval of the loan would be a waste of public funds, as the loan would be a failure as the previous ones were.

The MP also mentioned complaints about surplus staff at the company, with tickets being more costly than competitors, blaming the failures on “obvious mismanagement.”

On Monday, Aref put the number of the current EgyptAir fleet at 67, saying it was planned before the pandemic that the company possess a total of 107 planes.

The number of employees in EgyptAir is around 29,500, according to Zakaria in March this year. This means that staff-to-plane ratio at EgyptAir is 440.3 and could get much better to 275.7 if the fleet was raised to 107.

This is better than the state-owned Pakistan International Airlines (PIA), with one of the world's worst staff-to-plane ratios of about 500 staffers per plane at the time, but far worse than Ireland's Ryanair for example, whose ratio stood at only 29.7 in 2016.

Although many aviation companies worldwide have downsized staff due to the economic implications of the pandemic, Aref told MPs that EgyptAir “has not fired a single worker or deducted salaries.”

According to Bloomberg calculations in July last year, around 400,000 workers at airlines worldwide have been fired, laid off or had their jobs threatened thanks to the pandemic.

How will the company cope amid accusations of mismanagement and MPs’ demand for guarantees?

Aref said a restructuring of the company is taking place, with the company’s subsidiaries being merged in order to reduce expenses.

Aref said EgyptAir also adopts an international system enabling passengers to obtain tickets at low prices.

According to Aref, the company is contracting to get 12 planes to add to the current 67-plane-fleet. This falls short of the 107 planes the airline aimed to acquire before the pandemic.

“I reassure the MPs that we are able to pay off,” Aref said.

Before the pandemic, EgyptAir achieved one of its highest revenues over the past decade, totalling EGP 32.96 billion in FY 2018/2019, according to the annual report.
However, the costs totalled EGP 32.67 billion, including EGP 1.66 billion spent on wages; EGP 9.57 on raw material, requisites, fuel, and spare parts; and EGP 20.77 billion on “expenditures”, according to the financial statement.
The company achieved a profit of EGP 279.5 million through FY 2018/2019, up from a loss of EGP 1.91 billion in the previous FY.

During Monday’s session, MP Diaa El-Din Dawood urged the company to not get involved in wrong policies given its significance to the country, and urged more transparency and explanation.

Secretary of the House’s legislative committee Ali Badr said the loan should include training sessions for the staff at the company.

Badr called for creating new horizons that can help the company gain real profit. He also affirmed the need to develop the capabilities of the company and invest in its human resources.

MP Mohamed El-Sallab, deputy chairman of the House’s industry committee, said the loan should be spent to develop the company based on scientific foundations so that it can compete with international companies.

The young renowned economist and businessman said EgyptAir owes heavy debts to many organisations, which affect the company’s performance.

Debts burdened by the company allegedly amount to EGP 40 billion, which is more than half of the company's capital, MP Amira Abu Shoka said during the session.

Abu Shoka called for providing the parliament with the actual values of the company’s debts.

MP Mohamed El-Husseini called for filtering out incompetent officials at the company.

MPs have called for the company to explain its plan during the coming period before the House, including how it will employ the EGP 5 billion loan.

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