A new take-off?
A year after the landmark restructuring of national carrier EgyptAir, Amira Ibrahim discovers a company still searching for a proper new start
In May 2002, national carrier EgyptAir was restructured into a holding company overseeing seven affiliated companies that each had its own separate management. The move was meant to improve the efficiency of the airline's performance, as well as its bottom line.
A year later, with the airline in the midst of a rather turbulent phase of operations, observers are speculating about whether the restructuring was truly beneficial, or whether geopolitical circumstances and bad luck have contributed more than their share to the company's woes.
Some analysts said the sheer mix of unfortunate circumstances had a lot to do with the timid progress made on the airline's ambitious plans for reform. A war broke out in the region, economic conditions deteriorated worldwide, and a global medical epidemic all directed serious blows to air transport activity around the world.
According to Atef Abdel-Hamid, chairman of the EgyptAir Holding Company, "these factors have truly affected our performance, as well as our opportunity to progress. The war on Iraq reduced air transport rates by 30 per cent. This happened just as we were still reeling from the pressure of the government's decision to float the Egyptian pound," Abdel-Hamid told Al-Ahram Weekly.
"Ironically enough," said Abdel- Hamid, "SARS had a dual effect. It forced us to temporarily halt the China route we had just begun operating, which burdened us with tremendous losses. On the other hand, we think that large numbers of Arab tourists will now be adjusting their vacation plans away from the Far East and towards the Middle East, and Egypt of course," he said.
Abdel-Hamid, however, blamed most of the serious problems the airline is facing on "the old management system". Overemployment is at the top of the list. At 22,000 employees, EgyptAir employs nearly two times the number of staff it really needs.
Even though, according to Abdel- Hamid, hundreds had been retrained to work on different projects, with hundreds more still being retrained and redirected to other projects affiliated to the company, "we still have a huge number of excess employees."
"Having been managed by the government for so long," Abdel-Hamid said, "EgyptAir's employees have become used to waiting for someone to look after them, and give them bonuses even if they do not do the work to deserve it. These kinds of incorrect concepts do not suit our reform plans or the targets we are working towards achieving -- establishing a new image for EgyptAir, competing regionally and internationally, and finally and mainly, making profits."
Increasingly worried about mounting losses, the national carrier recently decided to abandon one of its main investment projects -- Shorouq Airlines, which was established in partnership with Kuwaiti Airlines in the early nineties following the Gulf War. The project's $55 million in capital were divided between the two companies, with 51 per cent of the shares belonging to EgyptAir and 49 per cent to Kuwait.
According to Abdel-Hamid, shutting down Shorouq was "unavoidable, in order to stop the tide of losses, which had reached $61 million, thus exceeding its paid capital. We studied a number of alternative solutions to help Shorouq survive, but the company -- which has no operational revenues -- would need $2 million monthly to continue working".
In a press conference on Tuesday, Aviation Minister Ahmed Shafiq dismissed Kuwaiti accusations that EgyptAir's management had destroyed the joint company and placed the rights of its 321 staff members in jeopardy. On the contrary, Shafiq indicated that the Kuwaiti side had actually exploited EgyptAir financially.
Negotiations over how the breakup will take place are currently in progress. The staff's fate is amongst the issues on the table, with Abdel-Hamid predicting that they would be EgyptAir's responsibility. Observers think they will end up being part of EgyptAir, thus adding to the company's already serious excess employment problem.
In any case, Shafiq told reporters, "the Shorouq file is absolutely closed, and there is no reason to make the Egyptian side open it again. The Egyptian government will not stand behind a losing project."
At EgyptAir itself, drastic modifications are being made to the airline's domestic and international route network, in an attempt to reduce operating losses.
Several long distance routes have been suspended, including the Sydney route, which generated over LE70 million in losses. Direct flights to Tokyo and Osaka are also no longer available, and the Montreal via New York route was stopped in January due to decreased demand. Early this week, however, the company abruptly announced that the route would be re-established in June, with two flights running per week.
"We are okay with operating the routes when occupancy rates are high, and cutting them off when they are not," Shafiq said. "This gives the company more flexibility." Shafiq skipped around questions concerning whether or not this type of policy makes it much more difficult to market the airline's routes.
Abdel-Hamid, meanwhile, disclosed that the company had nearly reached an agreement with American airline solutions consulting company Sabre to help reorganise EgyptAir's network. "This will help us achieve the optimum conditions for the fleet and the network, as well as improve our methods of managing revenues, and our price and marketing systems."
The American experts are expected to complete their work within 10 months. "There is no shame in seeking out foreign experience," said the aviation minister. "But it is a crime to pretend that you don't need help and ignore the damage that's taking place."
Nine months into last year's restructuring, the new management team that had been put into place was suddenly replaced with Abdel-Hamid and his team. According to ministry sources, the original management team seemed to be moving the holding company away from the idea of having its new affiliated companies cooperate with each other.
Abdel-Hamid has only been at the helm for three months, and although he says he is still not satisfied with the way reform plans are being carried out, "it is too soon to judge the process as a whole. What we have achieved does not meet our ambitions in any way, but I am optimistic and determined that reform is on its way."
C a p t i o n : The national carrier is still taxiing on the runway to success
Al-Ahram Weekly Online : 29 May - 4 June 2003 (Issue No. 640)
Located at: http://weekly.ahram.org.eg/2003/640/eg9.htm