New agreements pertaining to Air Seychelles and SCAA | 16 November 2019
Reshaping Air Seychelles to enhance growth and profitability
The Minister for Tourism, Civil Aviation, Ports and Marine, Didier Dogley, met the press on Thursday to explain about the decisions approved in the last cabinet meeting which focused on our national airline and the Seychelles Civil Aviation Authority (SCAA).
Minister Dogley was accompanied by the chairman of the Air Seychelles board, Jean Weeling-Lee; the chief executive of SCAA, Garry Albert and the special finance adviser, Sidna Cesar.
In his statement, Minister Dogley spoke about the steps that have been taken to support the business transformation plan of Air Seychelles, in particular the form of the financial support and the role that ground handling plays in the arrangement.
“Air Seychelles has a rich aviation history. From its earliest days, aviation has forged critical tourism links and created vital domestic connections. On both the domestic and international fronts, Air Seychelles has been at the heart of our economic success for 41 years, serving as our national insurance policy. Air Seychelles has faced tough times before and 2017 is only the latest,” Minister Dogley said.
He explained that as a result it was in 2017 that the board and shareholders of Air Seychelles agreed to restructure the airline, in the face of intense competition from Europe, to downsize and cancel long-haul flights, return two A330-200s, and re-engineer as a regional airline with new A320 neos, as part of an approved five- year business transformation plan with deliverables.
Minister Dogley said that to meet the airline’s immediate cash requirements through the transformation, Etihad Airways contributed US $34 million in 2017 and, on behalf of the government of Seychelles, contributed US $30 million in 2018, which under the terms of the deal would be repaid by the government of Seychelles in US $6 million installments from 2019-2023, along with other protections for Air Seychelles to ensure its future.
Why would government support this restructure? The minister noted that the objectives were four-fold: to provide certainty and reassurance of the shareholders’ confidence in the business plan; to honour our airline’s and government’s debts; to safeguard the interests of end users and the travelling public and the efficient development of the passenger and cargo handling experience; and to assure ownership, and control of ground handling services.
Through the efforts of the Ministry of Tourism, Civil Aviation, Ports & Marine, the Ministry of Finance, Air Seychelles, the SCAA and Etihad Airways, the following objectives have been attained through four documents:
- Subscription and Waiver Agreement (“Subscription Agreement”) (b) Put Option Agreement (“Put Option Agreement”) – This agreement converts the 2018 US $30 million of debt into non-voting preference shares, which in turn are secured by a bank guarantee.
- Put Option Agreement – the Put Option contains multiple protections for the government, including but not limited to, an advance notice requirement of 12 months if any trigger events are possible and a 60-day remedy period following an event.
- Exclusivity Agreement (“Deed of Agreement Relating to Exclusive Rights to Provide Ground Handling Services”). An agreement between the government of Seychelles, the SCCA and Air Seychelles for Air Seychelles to be the exclusive provider of ground handling services at the Seychelles International Airport and Praslin Airport, securing an important revenue stream for the airline and recognising 41 years of practice.
- Ground Handling Services Permit (“Permit”). This is the first ever to be issued to Air Seychelles by the SCAA, containing performance targets, agreed service levels, audits, and requirements for good industry practice, and investment.
According to Minister Dogley, the four agreements have secured the future of Air Seychelles by preserving a critical revenue stream; bounded public financial obligations and kept payments manageable; preserved ownership and effective control of Air Seychelles and its ground handling business; created incentives for ground handling to operate in the public interest, with performance driven service delivery and investment targets and set minimum safety standards and regulate a critical part of the aviation.
Air Seychelles’ board chairman Jean Weeling-Lee added that “the strategy we are using right now is to try to clear the debts of the past years. With this board, I do not think Air Seychelles will undergo a similar situation. The airline business is highly competitive and we had to take some tough decisions like removing the non-profitable flight routes and focusing on other profitable ventures. Air Seychelles has acquired two new airplanes A320 neo, another arriving next year where we expect to save on fuel and also be more efficient. We have also looked into our workforce and bring back our local expertise. Today we are proud to say that out of 726 staff, 720 are Seychellois.”
To reassure the nation about the future of Air Seychelles, Mr Weeling-Lee said: “We have completed only 23 months in the five-year transformation. Our plan is to reshape the airline with a view to enhancing growth and profitability and looking for a strong focus on targeting newly identified and profitable regional routes. Yes, the effect of Air Mauritius coming to Seychelles has been felt but we are certain that after a few months, the market will stabilise again through competitions and service improvement. Our aim is to arrive at a break-even point and deal once and for all with the debts of the past.”
Regarding the two agreements concerning the SCAA, Mr Albert noted that “the primary role of the SCCA is to safeguard the interest of the travelling public, especially in the context of safety, security and service levels. Established under the SCAA Act of 2005, SCAA is mandated by this act to manage the operations of its airports, to provide air traffic services, to provide fire and rescue services, to regulate and promote the development of air transport, to advise the government on civil aviation matters and to act internationally as the body representing Seychelles in respect of matters to civil aviation.
The Act reaffirms that the SCAA shall have the power to discharge its functions as per its domestic and international obligations. The SCAA governing body, International Civil Aviation Authority (ICAO), also makes provision for the strict regulation of safety, security, and airport services such as ground handling.
In fact, ICAO has just released the guidance document this week. As we go forward in the context of this agreement and beyond, SCAA will continue to uphold safety and security and overall services related to its airports. The exclusivity agreement and ground handling services permit agreement will allow SCAA to implement a new framework that will ensure proper accountability, monitoring and better service delivery.
To note, cabinet was informed that the Etihad Aviation Group Investment Holding Company (EAGIHC) had accepted a bank guarantee instead of the call option on the ground handling component of the Air Seychelles operations. The bank guarantee will be supported by a sovereign guarantee. Barclays Bank and the Trade Devlopment Bank have agreed to guarantee Air Seychelles for US $30m.