VZCZCXRO9237
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHDR #0153/01 0631351
ZNR UUUUU ZZH
R 041351Z MAR 09
FM AMEMBASSY DAR ES SALAAM
TO RUEHC/SECSTATE WASHDC 8318
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHLU/AMEMBASSY LUANDA 0124
RUEHLGB/AMEMBASSY KIGALI 1283
RUEHKM/AMEMBASSY KAMPALA 3355
RUEHNR/AMEMBASSY NAIROBI 1194
RUEHBJ/AMEMBASSY BEIJING 0352
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 DAR ES SALAAM 000153 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR AF/E JLIDDLE, INR FEHRENREICH, AND AF/EPS 
COMMERCE FOR BECKY ERKUL 
STATE PASS USAID/EA, USTR, AND USTDA 
NAIROBI FOR FCS 
 
E.O. 12958: N/A 
TAGS: EAIR ECON PGOV PHSA PINR TZ
SUBJECT: AIR TANZANIA: SAVED BY CHINESE INVESTMENT? 
 
¶1. (SBU) Summary. The Government of Tanzania appears to have finally 
found an investor to keep troubled Air Tanzania aloft, but the 
carrier's long term viability remains in question.  After the 
Tanzanian Civil Aviation Authority (TCAA) revoked the airworthiness 
license of Air Tanzania Corporation Limited (ATCL) in December, only 
an emergency supply of USD 1.6 million from the GOT kept the airline 
in operation.  Subsequently, there have been strong indications that 
a rumored investment by China Sonangol International Holding Limited 
will come to pass, despite allegations of a quid pro quo for oil 
concessions in southern Tanzania.  End Summary. 
 
Background 
---------- 
¶2. (U) Formed in 1977 after the dissolution of East African Airways, 
ATCL was privatized in February 2002 under the government's 
Presidential Parastatal Sector Reform Commission.  In December 2002, 
ATCL entered into a partnership with South African Airways (SAA), 
the only airline to make a bid, giving SAA a 49 percent stake for 
USD 20 million that included the value of the shares and a USD 10 
million capital investment.  This relationship quickly soured as the 
new partnership recorded a USD 7.3 million pre-tax loss in the first 
year of operation. At the end of 2006, the relationship ended, with 
SAA selling its shares back to the GOT for USD 1 million.  At the 
time of dissolution, ATCL owed SAA approximately USD 4.1 million. 
This debt has not been serviced and the payments, as well as legal 
actions taken by SAA in November 2008, continue to haunt the 
management of ATCL.  Since the breakup with SAA, the GOT has been 
looking for an outside investor, until recently without success. 
 
Grounded Due to Mismanagement 
----------------------------- 
¶3.  (SBU) The Tanzanian Civil Aviation Authority (TCAA) revoked 
ATCL's license in December 2008, reportedly because of a pending 
International Civil Aviation Organization (ICAO) report that 
detailed a host of failures by ATCL to properly implement and 
document international requirements.  According to a senior ATCL 
pilot, one example of the company's deficiencies was that many 
pilots had not complied with international standards for training. 
With the damning ICAO report on the way, TCAA grounded ATCL before 
having to admit publicly that TCAA was not properly carrying out its 
own duties. 
 
¶4.  (SBU) Many insiders had forecast ATCL's downfall after SAA 
pulled out, so the revocation did not come as surprise.  The heavy 
debt load, combined with a fleet of only six planes, with an average 
age of almost 18 years, made it difficult for ATCL to compete. 
Given these overwhelming difficulties, the 2006 decision by 
President Kikwete to name David Mattaka, a former National Pensions 
Fund Director, as the CEO of ATCL is widely heralded as hastening 
ATCL's demise.  It was immediately clear that Mattaka - a friend of 
Kikwete's who had been fired from his previous position - did not 
have the experience needed to guide the airline out of its tenuous 
situation.  Mattaka reputedly handed out key positions on the basis 
of personal relationships rather than competence.  His leadership 
appears to have encouraged a further deterioration of the already 
lax oversight culture within ATCL. 
 
A Government Lifeline, and Chinese Investment on the Way? 
--------------------------------------------- ---------- 
¶5.  (SBU) In January 2009, the GOT provided an emergency injection 
of USD 1.6 million for working capital.  The funding enabled ATCL to 
resume flying on domestic routes only, but passengers have been 
scarce and cancellations frequent.  According to press reports, the 
GOT plans to sell 49% of ATCL to China Sonangol International 
Holding Company, with backing from the Chinese Development Bank. 
The investment would enable ATCL to resume its international flights 
and upgrade its fleet. (Note:  China Sonangol International Holding 
Company is largely connected to the vast petroleum-based 
relationship between China and Angola.  It currently holds 30% of 
the Angolan-based SonAir.  End Note.) ATCL official Thomson 
Byarushengo told Econoff that Chinese investment in ATCL is certain, 
but he could not confirm that an official Memorandum of 
Understanding (MOU) had been signed.  Another ATCL official told 
Econoff that an MOU had been signed, but not yet made public.  Zitto 
Kabwe, Chair of Parliament's Parastatal Oversight Committee (and 
noted opposition CHADEMA firebrand) has alleged that the GOT 
facilitated the deal by granting (unproven) oil concessions to 
Sonangol.  The government denied the allegations, claiming that the 
negotiations on oil concessions concluded long before the ATCL deal 
began. 
 
DAR ES SAL 00000153  002 OF 002 
 
 
 
¶6. (SBU) Comment: The GOT's commitment to supporting ATCL appears to 
be a matter of pride rather than business judgment (a competing 
private airline, Precision Air, which is linked with Kenya Airways, 
has operated profitably).  If indeed the GOT traded oil concessions 
for life support for ATCL, it may have gotten a bad deal.  The track 
record of ATCL, especially under current management, does not bode 
well for its future as an investment (or a reliable means of 
domestic transport). 
 
ANDRE