Uganda Airlines started operations in 1977 has been defunct since 2001 after plans to privatise the debt-ridden airline failed.

It used to operate scheduled services to destinations within Africa, Europe and the Middle East.

Fast forward, in 2018, the government of Uganda opted to revive its national carrier after a feasibility study and wide consultations.

Commitment

Uganda Airlines earlier this week signed two Memorandum of Understandings with Canadian jet Manufacturer Bombardier Commercial Aircraft and Airbus.

It signed a firm order worth $190 for four new CRJ900 regional jets with the Canadian jet company -- then two Airbus A330-800 but there were no details about the cost.

In May, country's works and transport minister said the government made initial deposits of about UGX4.4bn for the 4 CRJ900 passenger planes and two A330-200 aircrafts

Also Read: Inside the airplanes Uganda Airlines agreed to purchase

But there is something wrong

Uganda Airlines committed to purchase Airbus A330-800, a model whose only customer, Hawaiian Airlines, cancelled all its 6 orders earlier this year opting for Boeing 787 or its sibling, the popular A330-900 which has over 200 orders.

This makes the Uganda's national carrier the only customer for the A330-800.

Most customers opted for the A330-900 which was introduced with 287 seats to compete with Boeing 787-9. A330-800 has a capacity of 257 seats.

Why A330-800 then?

Uganda's government is pegging not so much money on the revival of its national carrier. The budget is limited, meaning Uganda Airlines CEO and his team have to get the best aircraft for the lowest deals.

Government of Uganda will inject equity of US$ 70 million required in operating capital for the airline.

Since there was no any other customer for the A330-800, Airbus had to lower the sales price. They know the prospect for the -800 isn't bright so they have to offer attractive terms.

And boom! Uganda Airlines came through.

No customers for the good offers?

In simple economics, attractive offers arise because of limited demand for a product or maybe because there is a better and almost similar product in the market -- I mean, no one wants your product anyway.

Yes, the -800 deal with Airbus is absolutely a diamond in a rough in the short run. What happens when Uganda Airlines wants to lease or finance the aircraft with a loan, as it plans do with the most of the aircrafts it plans to acquire?

Leasing the aircraft

It will be stuck. No other airline has that variant and this completely weakens its backing and lowers its appeal.

Uganda's national carrier will find a challenge finding an airline prepared to operate the aircraft. This also means higher lease rates and pressure on value retention -- I mean, no one wants it anyway!

Risky loan financing

Uganda Airlines is stuck and it looks like its vicious cycle of operations is happening again.

Being the sole customer for the -800 will also be very challenging when it comes to financing the aircraft with a loan.

If it gets a loan to finance the A330-800 and it defaults, the loan provider will be stuck will an aircraft no one is interested in -- I mean, nobody wants it anyway!

This means two things; the loan provider will give offer no loan or maybe offer a high-interest rate in case they are stuck with an aircraft no other airline wants.

Remember, according to the feasibility study by the National Planning Authority, the government will purchase the aircrafts using loan finance sourced internationally.

Bad deal? I think so!