- 01 July, 1995
- SOURCE: Flight Airline Business
Egyptair has seen off domestic competition and traffic is returning after a couple of years of decline. Chairman Mohammed Rayan talks to Sara Guild about his lofty plans for the carrier's future. There appears to be a discrepancy between the plans and ideas of Egyptair's chief executive and those of the Egyptian government. Engineer Mohammed Rayan is mapping out his plans for partial privatisation for the carrier even though the Egyptian Ministry of Transport has never indicated its desire to initiate this process. Rayan insists that by his accounting system the carrier made a profit of E£70 million (US$20.5 million) in 1993-4. The government version, as evidenced in the annual report, shows a net loss of E£197 million. Indeed Rayan's comments would seem to indicate more than slight dissatisfaction with the government. 'This past year was a good one for us. Despite the government and its taxes, airport and civil aviation authority charges, and the minister of transport's threat of open skies.' But the man who is described as a 'firebrand who gets his own way' by one supplier and more reverentially as 'a very influential man in Egypt' by his righthand man, has managed to wield power in the competitive skies of Egypt. For once, it would seem government and Rayan are united. That is, both have taken a tough stance against competition according to the management of the recently demised ZAS Airline of Egypt. For his part Rayan says, 'They [ZAS] are dead. They failed to pay their obligations and have gone broke. We have killed them.' Former ZAS executives have said that it was the state's overprotection of Egyptair from any form of competition that led to the cancellation of its route rights to the Gulf. And when Egyptair's domestic traffic fell 24 per cent in 1993-4 the Civil Aviation Authority promptly cancelled ZAS' domestic licence. With rising losses at Egyptair - an accumulated loss of E£203 million was carried forward to the 1993-4 balance sheet - perhaps the government felt something had to be done to protect the carrier. This is not the first instance of competition being heavily stamped on. Shorouk Air, equally owned by Egyptair and Kuwait Airlines, ran into trouble when it began to operate on routes in competition with both carriers. It parents retaliated by leasing out the carrier's two A320s to other airlines and replacing the former chairman, Ismail Sherif, with a former Egyptair executive, Mohamed el-Sayrafi. Now the carrier is operational again, flying charters from Frankfurt and Basle to Cairo and onwards to tourist destinations like Hurghada and Sharm el Sheikh on the Red Sea, and Rayan estimates the carrier will make a profit of between $2 and $3 million in 1995. Rayan attributes the carrier's most recent difficulties to the way in which it was managed. 'The management was too ambitious. They tried to grow it [Shorouk] too quickly.' For Egyptair, however, Rayan is concentrating heavily on growth, and the strategic goal of making the carrier a global airline. 'I do not believe in putting all my eggs in one basket,' he says. 'I do not want to concentrate on one market.' This is already evident in the carrier's international route network, which is closer to that of its Middle East rivals than to those of other African carriers. Most major European and Middle Eastern cities are covered, in addition to New York, Los Angeles, Bangkok, Manila, Tokyo, Entebbe, Dar Es Salaam, Harare, Johannesburg, Kano, Lagos, Accra and Abidjan. Domestically Egyptair has begun point to point services to destinations that are likely to attract tourists, like Alexandria-Hurghada, instead of hubbing all its flights through Cairo. On the African continent, Rayan says the carrier will go 'to nations where the economy will sustain growth' and that 'sell in hard currency'. South Africa is particularly attractive and Rayan wants to increase frequencies to Johannesburg and open routes to Durban and Cape Town. Service from Cairo to Addis Ababa is due to commence in August. In Europe the carrier will begin flying to Leipzig in October. Further afield Rayan sees potential in the Far East and, with the carrier due to start scheduled operations to Kansai once a week in August, it is 'invading the Japanese market'. On this route Gulf Air will have a block space arrangement with Egyptair. In return, Rayan says, Egyptair will buy seats on Gulf Air's Singapore-Sydney route, which will begin in early to mid-1996. More cooperation will involve Gulf Air buying space on Egyptair's Los Angeles flight, says Rayan. Gulf Air is also leasing an A340 to Egyptair to begin the Kansai route, until delivery of three A340s begins in December 1995. In late May an Egyptair team was in Beijing, exploring the possibility of launching services at the end of 1995, via Bangkok. As Air China already flies to Cairo, Rayan says he does not expect traffic rights to be a problem. In keeping with the trend of finding alliances, Egyptair has set its sights high. Rayan says he met with Swissair in April to discuss joining the Global Excellence alliance, which includes Delta and Singapore Airlines. 'We would provide the African feed the alliance is missing,' says Rayan. The killing of eight tourists in the past three years in Egypt by muslim fundamentalists has not helped the airline's traffic figures. Traffic in 1992-3 was most heavily affected, with a 10.4 per cent drop, while last year traffic was down 7.7 per cent. The most noticeable downturn was on the domestic routes (down 24 per cent) and Europe (down 11.8 per cent). According to the government's audit the revenue fall reflected this drop: in 1993-4 total revenue was E£1.86 billion, down 13.5 per cent on the previous year. While operating costs fell 2.5 per cent, at E£2.14 billion in 1993/4 they still outstripped revenue by E£280 million ($82 million). Rayan says high yield traffic is doing well, however, boosted by business traffic to Saudi Arabia travelling from Europe through Cairo. The carrier is working hard to maximise its yields and, in the year due to end June 1995, he estimates yields will be up 25 per cent. The partial privatisation scheme that Rayan talks about is tied to the financing of the three A340s. Rayan wants to issue bonds which will offer 'the prevailing interest rate plus a discount voucher to use on any Egyptair flight'. The idea is that the bonds will be held for three years, at which time they will be convertible to shares. About 20 per cent of the carrier would be on the table in bond form, says Rayan. He estimates the carrier's total assets at some E£8 billion. Egyptair has already put down a $1 million deposit on the aircraft and must pay a further $14 million or 5 per cent of the total cost. A further 20 to 25 per cent should come from the bond issue, with the remainder financed through loans. Airbus is also buying back three A300B4s from Egyptair. Unlike his Gulf Air counterparts, Rayan wants both the A340 and the Boeing 777 and an order for 777s is in the pipeline. Rayan says he feels 'the 777 is more economical over a certain range' and will use them for the US routes. But history played a role in his decision to buy the A340s. About six years ago, Egyptair took delivery of a B767-200 which, according to Rayan, then lost its Etops certification for a year due to 'difficulty with the engines'. Past lessons learned, Rayan says: 'If for any reason the 777 should lose its Etops or fail to get it, we will have the A340s as a back-up'. It is perhaps an interesting explanation, but as one supplier points out: 'It is just the way business is done here. Everyone gets a little business and everyone is happy.' The new fleet will be maintained in-house, as Egyptair is currently investing E£100 million in a new hangar facility. When complete in two to three years the operation will also undertake third party work. Rayan is not keen for the hangar to become a profit centre as he is worried about losing control of the operations. 'If it is a profit centre, they will dictate the circumstances of what project is done when. I do not want that,' he says. What Rayan does not want is unlikely to occur within Egyptair, though there are no guarantees he will convince the government to go along with his privatisation plans or his view of the airline's financial affairs. Come what may, the government seems unlikely to let Africa's oldest carrier go the way of Zambia Airways. What Rayan does not want is unlikely to occur within Egyptair, though there are no guarantees he will convince the government to go along with his privatisation plans or his view of the airline's financial affairs. Come what may, the government seems unlikely to let Africa's oldest carrier go the way of Zambia Airways.