EgyptAir flies through financial storm

Hisham Abdel-Aziz, Tuesday 26 Oct 2021

The national carrier is making huge financial losses amid crippling global conditions, writes Hisham Abdel-Aziz

EgyptAir flies through financial storm
EgyptAir flies through financial storm

EgyptAir’s request for a LE5 billion loan, guaranteed by the Ministry of Finance,on top of the LE3 billion it acquired last year, has stirred debate in the House of Representatives. During the discussions MP Amira Abu Shokarevealed the company already owes LE40 billion, more than half its capital.

Questions were posed about the company’s management, its leadership, and the reasons behind thehigh price of domestic and international flights compared to other carriers.

Some MPs arguedthat while it is necessary to support the company,there needs to be greater transparency. Deputy head of parliament’s Industrial Committee Mohamed Mustafa Al-Sallab said EgyptAir’s debt burden isalready impacting adversely on its performance, and there needs to be greater oversight on how funds for development are spent.Other MPs opposed the notion of theCentral Bank of Egypt backing another loan, pointing out that EgyptAir is currently losing an estimated LE1 billion each month.

The security situation following the January 2011 Revolution, the floatation of the Egyptian pound, and the fact thatin recent years the national carrier has had tooperate emergency flights to repatriate Egyptians from areas of conflict such as Afghanistan, Kuwait, Iraq, and Syria, had all contributed to the company’s current financial straits, said an informed source. He added that EgyptAir was also shouldering the costs of “state policies regarding annual appointment which have resulted in a payroll of 31,000 workers”.

At the time when EgyptAir’s competitors have been downsizing due to the coronavirus pandemic, not one EgyptAir employee has been laid off.

Just as the 2011 downturn in passenger numbers began to be reversed in 2014 with the return of stability, and theaviation sector was sighing in relief, the downing of a Russian flight over Sinai derailed the recovery, said the source.

A former senior EgyptAir employee suggested that frequent ministerial reshuffles had also served to undermine the company’s direction. “One of the main reasons the company lost its way is that the aviation portfolio has seen nine ministers since 2011, each of whom changedEgyptAir’s management and policies,” he said.

In the wake of the coronavirus pandemic air travel ground to an almost complete halt. With the easing of lockdowns traffic began to improve, but extremely slowly given continuing travel restriction and a halt in flights to key destinations, including pilgrimage flights to Saudi Arabia.

“Even though losses skyrocketed from LE14 billion to LE40 billion EgyptAir was able to endure the storm while other international airlines shut down or declared bankruptcy,” said another source.

Many international carriers have been forced to turn tostate support. Air France has received backing worth nine billion euros from the French government, and Lufthansa eight billion euros from the German government.

The International Air Transport Association(IATA) estimates that airlines will collectively lose $202 billion by the end of 2023. So dire is the situation that governments have pumped $243 billion into the sector in order to keep airlines open.

WhileEgyptAirdoes not receive direct government support it has been forced to seek loans, and arrears on salaries have grown to LE500 million. Even so,says AmrAbul-Enein, head of the EgyptAir Holding Company, the company has recently paid its external financial dues, including maintenance fees and installments for renting planes.

“It is difficult for EgyptAir to carry all these burdens when air traffic is slow and at the same time pay plane installments and wages, keep up with the rising cost of fuel which has more than doubled in price, and service domestic loans,” said an expert on the aviation industry.

He believes “the company needs financial support from the government until the storm passes” and pointsout that air traffic is expected to return to normal within two to three years. In the meantime, he suggests that the government should cut some slack for the national carrier by reducing the taxes and fees it collectson tickets.

Supporters of the national carrier sayMPs needto undertake a serious study of the aviation sector’s financesbefore comparing EgyptAir’s losses to those of other international airlines. Even the most successful airlines, they point out, make meagre profits,with the real money coming from affiliate companies providing ground services, maintenance, free zones, and air freight.

 

*A version of this article appears in print in the 28 October, 2021 edition of Al-Ahram Weekly

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