Precision Air sees brighter days ahead with five-year strategic plan

Precision Air's Board Chairman Michael Shirima

PRECISION Air (PW) predicts a rosier future in the years ahead with full implementation of the company’s five-year strategic plan as approved by the company’s board, the Precision Air's Board Chairman Michael Shirima said.

Speaking during the company’s Annual General Meeting in Dar es Salaam yesterday, Shirima said the company’s half year results(unaudited) for the period April to Sept indicates a very positive outlook with the actual results  in line with the strategic plan,

Shirima said the company is now focused to remain a profit making company even after posting a Tshs 30 billion loss during the year ending March 31st 2013.

“Precision Air PLC has weathered the storm of the past few years and remained intact amid challenging environment of soaring jet fuel prices and slowdown of the global economy.

“Amid this challenging environment, Precision Air recorded a loss of Tshs 30 billion for the year ending March 31^st 2013. Prior to this loss, the company had posted an average of a net profit margin of 4 per cent for the preceding seven years from 2006,” he said.

He said during that period, the company’s total assets increased more than ten-fold from Tshs 23 billion in 2006 to Tshs 276 billion as on March 31^st 2013.

“The growth of assets was at par with the growth of the company’s capacity to airlift more passengers. From moving 340,000 passengers in 2006 to 896,000 passengers in 2013 is not a small achievement. Indeed moving a total of close to 5 million passengers over this period, all arriving at their respective destinations in “one piece” is an enviable feat.

“Unfortunately, growth in the number of passengers did not translate into profitability growth for reasons some of which are pointed out below. The reported loss in 2013 brings down the average net profit margin for the past 8 years to just one (1) per cent,” he added.

Shirima said businesses with such narrow profit margins are highly sensitive to external shocks affecting either revenue stream or cost elements.

“This is further complicated by the currency mismatch Precision Air’s cash flow: revenues are mainly denominated in local currency while larger percentage of costs (fuel and maintenance) is in foreign currency. For example, a large part of Precision Air’s income  is in shillings, while most of the expenditure is in foreign currency (aircraft purchase, spare oil and large repairs), therefore that possibility of losses arising reductions in the value of the Tanzanian shilling compared to the American dollar,” he said.

He said the company’s management foresaw these challenges and oncoming storms and acted proactively to steer the company clear of turbulences adding that one of the steps deployed was seeking long-term capital inviting new shareholders through Initial Public Offer (IPO) and subsequently listing ordinary shares on the Dar es Salaam Stock Exchange (DSE) in 2011.

“We did not succeed in raising the amount we needed and this shortage roused many problems. The lack of the capital expected put the Airline in a compromising position because the aircrafts had already been ordered in advance since aircraft orders require earlier placements and fifteen percent (15%) deposit of the price of these aircrafts was paid.

“Cancellation of the aircraft orders would have attracted heavy penalties and also slowed the company's growth plans. As a result, the company experienced pressure on its cash flow and eroded the company profitability but despite the above, the value of shares in the DSE market, although rarely traded, have held steady at a price of Tshs 475 per share.

Shirima said external factors played part in this dismal performance, but admitted that there were some internal manageable factors that had a significant share on the reported results.

“After thorough performance review for the past few years, the Board has noted key possible source of trouble. These are: inefficient network, costly fleet type, low productivity, lack of cost control and un-optimized ancillary revenue opportunities.

“The lesson has been learned. The Board made significant change in management and is optimistic that these problems presents an opportunity to drive back the company to profitability for the days ahead.