I have already dealt with the first
part in my previous posting, "The Eritrean Airlines: The Golden
Pot That Feeds the Hungry Masses." In this posting, I will focus
on the second one - i.e., on the economic aspect of this foolish endeavor.
Specifically, I will focus on the various ignored constraints mentioned
above.
Putting all its eggs in one basket:
The first thing that strikes us about this project
is the sheer magnitude of its cost, especially when compared to the
overall annual budget of the nation. Imagine the government of the
United States spending almost half, or a third, or even a quarter
of its budget (say, half a trillion dollars) on a single commercial
project! I am sure that almost every concerned citizen would be up
in arms. The question that these citizens would ask would not be whether
the company would turn out to be profitable or not; that would be
conceding too much - it would mean that the people are willing to
entertain its viability. Rather, it would be simply taken as a gamble
not worth taking a risk at all, for too many eggs are being put in
a single basket - i.e., even if the basket is believed to be a sturdy
one. In the Eritrean Airlines case, the jeopardy is a doubled one:
not only is the GoE putting all its eggs in one basket, but it is
also a case where the basket turns out to be a flimsy one.
In my previous posting, "The Eritrean Airlines:
The Golden Pot That Feeds The Hungry Masses", I first brought
to attention the cost of the essentials needed to launch the airlines:
"Here is what the price-tags of these two
airplanes say (i.e., prices of 2002), prices-tags that one could easily
check by visiting the Boeing website (www.boeing.com):
For a Boeing 767-300ER, the price ranges from 115.5 to 127.5 million
(and if it is a Boeing 767-300, the price ranges from 122.5 to 134.0
million); and for a Boeing 757-300, the price ranges from 82.0 to
89.5 million (all in USA dollars)."
After adding various other expenses (taxes, infrastructure,
insurance, maintenance, training, landing fees,advertisement, jet
fuel, salaries, etc.), I summed up the estimation by saying:
"I wouldn't be surprised if the total cost of
launching the Eritrean Airlines would end up hovering somewhere around
the whopping $300 million - an amount that is more than half of all
the total budget of the nation for a whole year, and, incidentally,
equal to all the money that the nation gets from Eritreans in diaspora
in remittances and all other forms of extortions (2 per cent tax,
bonds and various forms of contributions) every year! Talk about putting
all your eggs in one basket - and what a flimsy basket it is!"
[And then I added, to be on the safe side (especially if it is going
to buy one and lease the other), to put the estimation somewhere around
$200 and $300 million.]
Unlike most African nations, Eritrea lacks any raw
material that plays a central role in its economy. Nor is there any
manufacturing sector that significantly contributes to the nation's
economy. And when it comes to its agricultural sector, what is currently
being produced is not even enough for subsistence living. So how does
the nation survive? The largest two sources of its income come
from outside, sources that has nothing to do with internal productivity:
the Eritreans in diaspora and donor nations and organizations.
The soft loans and aid that it has been getting from
the latter group has been rapidly dwindling due to a self-generated
political crisis. So, at this point of time, the only income worth
mentioning comes from the former group only - the Eritreans in diaspora.
The hard currency that the GoE gets from this group - in the form
of remittances, visitations, 2 per cent tax, etc. - makes up the biggest
chunk of its budget - almost 300 million US dollars annually. Now
imagine putting all that money into a single project! It is an insane
endeavor, alright. But don't expect the citizens to complain; in fact,
the zealot ones are already celebrating!
Well, we have seen how the GoE has put all (or, at
least, most) of its eggs in one basket. Now, let's see how flimsy
that basket is.
The sorry state of the airlines industry:
One need only look at the poor state of the airlines
industry all over the world to see the poverty of judgment that has
motivated the GoE in its latest economic blunder. Let alone a poor
and small (i.e., with a small population base) nation like Eritrea,
veteran airlines like United, US Airways and American, with billions
of dollars of assets, decades of experience behind them, a large population
base and a dependable safety net, are finding it extremely difficult
to survive in the current cut-throat environment of the industry.
The same holds true on the other side of the Atlantic, where some
airlines are being either subsidized or outright bailed out.
Closer to home, we can also take a look at another
veteran airlines - the Ethiopian Airlines. With a longer tradition
at the business, a large population base to serve, a cheap and dependable
maintenance crew and a recognizable brand name, it has been having
a hard time to survive for years, managing only to put its neck above
waters. At its best, it has been breaking even, with a few millions
of dollars, in minus or plus side; and at its worst, it has been tittering
towards bankruptcy, often with rumors of mergers floating around.
Captain Asress Araia ("Progress
Report by Captain Asress Araia to all friends and supporters of Eritrean
Airlines") seems to recognize this problem when he says:
"We are embarking on this daunting task at a time when most Airlines
are facing financial challenges that are threatening their very existence,
therefore it is legitimate to ask whether the timing for the start
of this airline makes sense."
And, as an adequate response to this legitimate worry
- which many concerned Eritreans share -, he goes on to add: "All
of us in Eritrean Airlines believe that the timing is not only right
but also opportunistic. The project is starting with the basic must
have elements- the demand ( the market), the ability to foster the
growth of the market- and the availability of key personnel with Technical
and other Aviation Expertise."
After taking a look at Captain Asress' response,
we cannot help but wonder why he finds it sufficient enough to placate
our doubts and worries. Does he really believe that there has been
any airlines that has been launched without those "basic must
have elements" he mentions? Does he believe that those airlines
that are currently experiencing severe survival problems, it is because
they have been all along lacking in these basic elements? Simply mentioning
the basic elements that every airlines starts with, and then deceptively
elevating those elements into some kind of a crucial advantage, would
only end up trivializing the point that the Captain wants to make.
A history of bankruptcies:
Most probably, the Captain has something more in
his mind when he follows up his last statement quoted above with:
"Over the last fifty Years many Eritreans have worked in the
Airline industry and have been part of its growth and survival. Many
of these experts are still active in Aviation and as the operation
grows they will be part of this nascent Airline."
Could it be then that one of those critical edges
that Eritrean Airlines is depending upon is the collective experience
of its work force? In fact, the latest "Eritrean Airlines Press
Release" (Shaebia.com - April 10) seem to corroborate this emphasis,
for it this particular point that is being made the subject matter
of its posting, "The Launching Of The Eritrean Airlines"
(in Tigrigna). What mostly transpires through that release though
- although they don't seem to realize it - is the history of bankruptcies
that preceded the airlines. Already, there has been two false starts,
both ending in abortive ends.
The press Release mentions that the first attempt
to launch an airlines (a privately owned endeavor) was in September
1992 ; an attempt that abruptly came to an end on January 1993, after
a short life-span of four or five months only! The reason provided:
"because the airlines discontinued its flights" (please
notice the oxymoron). Yet, the Eritrean Airlines believes that this
provided valuable experience to its work force (since it is keeping
much of that work force).
The second attempt was to take place on December
1999 (with the collaboration of Saudi businessmen). This too came
to an abrupt end in on February 2001, after a lifespan of one year
and two months! The airline though, after admitting that losses
were incurred (almost dismissively), goes on to emphasize on the
valuable lessons its work force got out of this experience.
Someone who has carefully gone over that Press Release
would have drawn this lesson from it: why would anyone attempt to
undertake such a costly project in airlines business preceded by bankruptcies
only? To the contrary, the GoE seem to draw an amusing lesson from
it: three is a charm! Let's give our work force a third chance, and
this time with full speed ahead!
The toxic atmosphere:
Captain Asress never explains why he finds this
particular timing opportunistic. ["All of us in Eritrean Airlines
believe that the timing is not only right but also opportunistic."]
In fact, with all the bad tidings - both internationally and nationally
-, just the opposite seems to be true. At a time of great political
and economic uncertainty - again, both internationally and nationally
-, when the tourism industry and businesses have drastically slumped,
undertaking a project of this magnitude is downright quixotic. In
particular, there are two facts that would work against this project,
facts that one could only ignore at one's own peril:
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