Rough landing
A private airline is bracing for a final touchdown. Eman Youssef reports
The government has finally made public its intention to liquidate Al-Shorouk Airlines, a joint EgyptAir and Kuwait Airlines venture. Ever since government officials first said that support would be withdrawn from the debt-laden company some months ago, Al- Shorouk has struggled to remain above water.
The company's management said it has pleaded with the government to give it more time, citing plans to inject cash into the business. These plans included an offer by Libyan Airlines to lease Al- Shorouk's fleet, its chairman, Zaher Zaki, told Al- Ahram Weekly in an interview.
The deal, which was aborted by the government, would have entailed leasing Al-Shorouk's four aircraft to Libyan Airlines at $48 million for a two- year period.
But because Al-Shorouk was grounded, it was not legally allowed to conclude agreements. Egyptian law forces the liquidation of a company if its losses exceed half its paid up capital. Al-Shorouk's losses reached $61 million in fiscal year 2002-2003, exceeding its $55 million paid capital.
But even if the company management was allowed to conclude agreements, said EgyptAir Chairman Atef Abdel- Hamid, the Libyan offer would not have been the way out for the troubled company. Profits from the offer would not have exceeded $300,000 a month, which would not have even covered Al- Shorouk's monthly expenses, estimated at $2 million. In fact, Abdel-Hamid said, the deal would have increased the company's losses by another $20 million.
According to a Ministry of Aviation spokesman, various options are being considered for Al-Shorouk. "One of them is to liquidate the airline and transfer its assets and workforce to EgyptAir," he said.
Al-Shorouk Air, a charter carrier, was founded as a joint venture in September 1992 to cater to the private investment sector. Its main shareholders are EgyptAir, with 51 per cent of the stake, and Kuwait Airlines, with 49 per cent. Its fleet consists of four Airbus 320/200 aircraft, only one of which is owned by the company and the rest are leased.
"Despite strenuous efforts, every attempt to clinch deals sizeable enough to keep the company afloat were aborted," Zaki told the Weekly. "Al-Shorouk will appoint a liquidator of its choice and an extraordinary general governmental meeting will be held to close the case."
The liquidation decision will not be final until the company's general assembly meeting this month, Abdel-Hamid said.
As a last resort to save the company, principle shareholder EgyptAir had suggested an increase of $15 million in the company's paid-up capital during an extraordinary general assembly meeting held last April. The sum would have been shouldered jointly by shareholders EgyptAir and Kuwait Airlines. When EgyptAir said it would not actually inject cash into the company, but would consider the $8.5 million in debt owed by Al-Shorouk as its share of the payment, Kuwait Airlines refused the deal. Al- Shorouk's debts to Kuwait Airlines amount to only $200,000.
Meanwhile, Al-Shorouk's employees are far from optimistic. They told the Weekly they were apprehensive about the possibility of losing their jobs, despite assertions on the part of officials that finding alternative employment for the company's 321 staff members will be a priority.
The government has pledged to "do its utmost" to come up with solutions. Accommodating Al- Shorouk's employees, especially its pilots, will be the most pressing problem.
"I'm sure the shareholders are thoroughly fed up with the whole saga," a pilot in Al-Shorouk told the Weekly. "There are too many debts and losses. It doesn't look like a business that can be salvaged."
Another pessimistic insider predicted that the company would face problems even if it is floated for a short time. "If the management doesn't improve, it could be back in trouble very soon," he said.
For its part, EgyptAir has announced that after the liquidation, it would "take all necessary measures to safeguard the rights of Al-Shorouk's employees and to find suitable job opportunities for them".
