AFRICAN DEVELOPMENT BANK
MULTINATIONAL
MULTINATIONAL COMPANY AIR-AFRIQUE REINFORCEMENT PROJECT
PROJECT COMPLETION REPORT
COUNTRY DEPARTMENT OCDW WEST REGION November 1999 TABLE OF CONTENTS
Pages
EQUIVALENTS, UNITS OF MEASURES, ACRONYMS AND ABBREVIATIONS ...... (i) BASIC DATA ...... (ii)-(v) EXECUTIVE SUMMARY ...... (vi) PROJECT MATRIX ...... (vii) 1 INTRODUCTION...... 1 2 PROJECT OBJECTIVES ...... 2 3 PROJECT FORMULATION AND DESCRIPTION ...... 2 Project Formulation ...... 2 Project Description ...... 2
4 PROJECT IMPLEMENTATION ...... 4 Effectiveness, Start-up and Implementation Schedule...... 4 Modifications...... 5 Impacts of Modifications on Project Objectives ...... 5 Procurement of Goods and Services ...... 6 Reporting ...... 6 Project Outputs ...... 6 Costs, Financing and Disbursements ...... 7 Performance of Suppliers and Contractors ...... 8
5 PROJECT PERFORMANCE...... 8 Institutional Performance ...... 8 Operational Performance ...... 9 Economic Performance ...... 10 Financial Performance ...... 11
6 SOCIAL AND ENVIRONMENTAL IMPACT ...... 13 Social Impact ...... 13 Environmental Impact ...... 13
7 PROJECT SUSTAINABILITY ...... 13 Sustainability Factors ...... 14 Technical Sustainability ...... 14 Financial Sustainability ...... 14
8 PERFORMANCE OF THE BANK AND THE BORROWER ...... 15 Bank Performance ...... 15 Performance of the Borrower ...... 15 9 ASSESSMENT OF THE OVERALL PERFORMANCE OF THE PROJECT...... 16 Achievement of Project Objectives ...... 16 Project Costs ...... 16 Duration of Project Implementation ...... 16 Social and Environmental Impacts ...... 16 Sustainability of the Project ...... 17 Internal Rate of Return of the Project ...... 17 Assessment of Project Overall Performance ...... 17
10 CONCLUSIONS, LESSONS AND RECOMMENDATIONS ...... 17 Conclusions ...... 17 Lessons ...... 18 Recommendations ...... 18
LIST OF ANNEXES
No. of pages
Annex 1 : Air Afrique Organizational Chart 1 Annex 2 : List of Shareholders of Air Afrique 1 Annex 3 : Air Afrique Fleet 1 Annex 4 : Status of Air Afrique's Debt 1 Annex 5 : Project Cost and Financing 1 Annex 6 : Disbursements Schedule by Source of Finance 1 Annex 7 : Summary Table of Modifications 1 Annex 8 : Summary Table of the Financial Trends 1 Annex 9 :Implementation Performance 1 Annex 10 : Bank Performance 1 Annex 11 : Development Impact 2 Annex 12 : Matrix of recommendations and Follow-up Actions 1 Annex 13 : Conditions Precedent to First Disbursement 1
This Project Completion Report was prepared by Mr. J.B. NGUEMA-OLLO, Electrical Engineer, OCDW.6 and a Consultant Civil Aviation Engineer, following their mission in the project area in December 1998. Contributions were received from Mr. M. LEKE, Transport Economist, OCDW.6 on the economic performance and from Mr. H. KAMOUN, Financial Analyst, OCDW.6 on Financial Performance. Further inquiries should be addressed to : Messrs. C.R. SPENCER Ag. Director OCDW Ext. 4041 M.L.B. ASKOFARE Ag. Division Manager OCDW.6 Ext. 4683 J.B. NGUEMA-OLLO Electrical Engineer, OCDW.6 Ext. 5276 i
EQUIVALENTS, UNITS OF MEASUREMENT, ACRONYMS AND ABBREVIATIONS
* Monetary Equivalents
At appraisal At the PCR date Monetary Unit : CFAF CFAF 1 UA : 405.4120 CFAF 800.932 CFAF
* Measurement Unit
1 kilometer (km) = 0.62 mil 1 meter (m) = 3.28 ft 1 centimeter (cm)= 0.394 inch 1 square kilometer (km2) = 0.384 square miles 1 hectare (ha) = 2.47 acres 1 litre (l) = 0.264 gal 1 kilogram (kg) = 2.204 lbs 1 ton (t) = 1000 kg
* Acronyms and Abbreviations
AC : Afrique Centrale (Central Africa) ADB : African Development Bank AFRAA : African Airlines Association ALPHA 3 : Logiciel pour système informatisé de vente des billets AOC : Afrique occidentale (West Africa) ATAF : Association des transporteurs aériens francophones (Association of Francophone Airlines) ATLAS : (Air France - IBERIA - LUFTHANSA - ALITALIA - SABENA) CID : Centre Industriel de Dakar (Dakar Industrial Centre) CMA : Centre de Maintenance d’Abidjan (Abidjan Maintenance Centre) CMAB : Centre de Maintenance de Brazzaville (Brazzaville Maintenance Centre) DAC : Civil Aviation Directorate FAA : Federal Aviation Administration (USA) GAETAN : Gestion automatique de l'enregistrement et du traitement des passagers IATA : International Air Transport Association ICAO : International Civil Aviation Organization JAR 145 : Joint Aviation Requirement KSSU : (KLM - SWISSAIR - SAS - UTA) PCB : Personnel commercial de bord PKT : Passager au kilomètre transporté PNT : Personnel navigant technique SEN : Sénégal SKO : Siège Kilomètre Offert SOC : Coefficient d'occupation des sièges (Seat Occupancy Coefficient) SODETRAF : Société pour le développement du transport aérien en Afrique SOGERMA : Société girondine d'entretien et de réparation de matériel aéronautique UTA : Union des transporteurs aériens
Fiscal year
1st January - 31 December ii
AIR AFRIQUE PROJECT FOR THE REINFORCEMENT OF THE MULTINATIONAL COMPANY AIR AFRIQUE
A) BASIC DATA
1) Country : MULTINATIONAL 2) Project : Reinforcement of the Multinational Co. Air Afrique 3) Loan Number : B/AIR AFRIQUE/BEN/90/2 4) Borrower : Multinational Co. Air Afrique 5) Guarantors : * Republic of Côte d’Ivoire * Republic of Senegal 6) Beneficiary : Multinational Co. Air Afrique 7) Executing Agency : Multinational Co. Air Afrique
B) PROJECT DATA
N° Data Appraisal Actual Loan Amount in Gap 37 600 000.00 37 576 789.07 23 210.93 UA 7.41% per year on the amount disbursed None Interest rate No change and outstanding 1% per year on the undisbursed amount, Commitment charges starting forty five (45) days following No change None the signature of the loan agreement; Terms Fourteen (14) years, with a four-year (4) None Loan duration No change grace period; In twenty (20) equal and half years None instalments starting from the fifth (5th) Repayment No change year following the signature of the loan agreement. Date of approval 17/01/90 17/01/90 Date of signature 19/03/90 19/03/90 Date of effectiveness 11/05/90 11/05/90 Date of first 11/07/90 11/07/90 disbursement Date of last 12 31/12/93 31/12/94 disbursement months Number of extensions 1 1
C) PROJECT DATA
N° Data Appraisal Actual Gap 1 Total cost in UA 46 210 000 46 186789.07 23 210.93 2 Start-up date February 1990 March 1990 1 month 3 Completion date June 1992 March 1994 20 months Length of 48 months 20 months 4 28 months Implementation 5 Overall delay 20 months iii
D) PERFORMANCE INDICATORS
N° DESCRIPTION ASSESSMENT 1 Achievement of objectives Not satisfactory 2 Project cost Satisfactory 3 Duration of project implementation Not satisfactory 4 Social Impact Satisfactory 5 Environmental Impact Not applicable 6 Project sustainability Satisfactory 7 Overall project performance Not satisfactory 8 ADB Performance Poor 9 Performance of the borrower Not satisfactory
10 MISSIONS
Number of Date Missions Composition Men/Days People Civil engineer August 1989 Appraisal 3 Economist 102 Financial Analyst Civil engineer November 1991 Supervision 3 Economist 12 Financial Analyst Electro-mechanical engineer December 1998 Completion report 2 30 Civil aviation engineer
11 ADB LOAN DISBURSEMENT BY TYPE OF INVESTMENT
Financing in CFAF Component Request N° Gap Projected Actual RB 01 1 039 465.19 AIRCRAFT MAINTENANCE FR 02 1 802 750.76 GV DC10 TUTAM FR 03 3 765 116.28 GV DC10 TUTAL RB 05 2 032 086.20 GV A300-B4 TUTAS FR 06 213 026.91 134 403.77 14 200 000.00 GV A300-B4 TUTAO RB 13 2 124 013.25 GV A300-B4 TUTAT RB 16 687 089.49 RB 17 2 247 288.40 RB 24 154 759.75 TOTAL 14 065 596.23 RB 21 1 224 968.51 RB 22 1 909 832.48 RB 23 2 849 931.83 RB 24 473 514.72 AIRCRAFT SPARE PARTS RB 25 1 047 081.85 RB 26 37 161.85 -227 372.87 9 575 000.00 RB 27 1 004 428.05 RB 28 466 810.81 RB 29 668 048.47 RB 32 120 594.30 TOTAL 9 802 372.87 RB 05 273 798.53 AIRCRAFT RECONFIGURATION RB 07 290 122.66 RB 11 795 000.00 231 782.61 -273 541.91 RP 36 272 838.11 TOTAL 1 068 541.91 iv
FR 06 1 106 177.19 FR 06 B 43 886.80 RF 08 109 192.45 FR 09 1 736 911.70 FR 10 106 228.61 RB 11 2 933.44 STOP-OVER EQUIPMENT RB 12 197 280.70 FR 13 304 133.75 RB 14 6 190 000.00 203 176.35 - 304 448.22 FR 15 226 587.70 RB 22 574 570.90 RB 33 527 062.95 FR 34 378 312.70 FR 35 118 057.37 RP 36 574 638.49 RP 37 285 297.12 TOTAL 6 494 448.22 RB 24 30 212.20 COMPUTER EQUIPMENT FOR RB 30 891 331.30 REGISTRATION AND SALE RB 31 424 583.13 RB 33 53 224.55 664 147.65 2 590 000.00 FR 34 249 958.34 FR 35 81 898.26 RP 36 194 644.57 TOTAL 1 925 852.35 RB 01 1 090 725.27 RB 04 352 227.38 COMPUTER AND OFFICE AUTOMATION RB 07 62 962.36 EQUIPMENT FR 13 341 364.06 RB 14 133 487.66 -144 439.44 2 400 000.00 RB 22 100 521.09 RB 33 59 959.82 FR 35 125 056.20 RP 36 278 135.60 TOTAL 2 544 439.44 RB 24 747 772.29 RB 28 546 861.76 TRAINING O.M.N. RB 31 206 368.71 174 461.95 1 850 000.00 FR 35 121 023.98 RP 37 53 511.31 TOTAL 1 675 538.05 GRAND TOTAL 37 600 000,00 37 576 789.07 23 210.93
Sources of finance Number of disbursements Amount (million UA) 1 ADB 37 37.60 37.58 2 Air Afrique 8.61 8.61 v
12 Suppliers, Contractors and Enterprises
COMP. OPERATIONS SUPPLIERS EQUIPMENT PACKAGES QU. AMOUNT CURRENCY CONTRACTS DC-10 TUTAM 1 KSSU (SWISSAIR) DC-10 TUTAL 1 Direct Aircraft overhauling Airbus TUTAS 1 14065596.23 CFAF negotiation Aircraft SOGERMA Airbus TUTAO 1 Maintenance Airbus TUTAT 1 Air Afrique DC-10 TUTAM Luggage carriers Direct SWISSAIR DC-10 TUTAL 1068541.91 CFAF DC-10 negotiation UTA DC-10 TUTAN Airbus Industrie / Aviac / Snias:/ Efer / Intertechnique / Buderus / Aerospatiale / Sextant / Satair / Sundstrand / Abex Aerospace / Sell Spare parts for G.M. / Albert Muhlenb / Abb Petercem / Aerazur / Agam Bransom / Airbus A-310 Air Precision / Artus/ Auxilec / Safrance / Electro Pneumatique / 9802372.87 FCFA Limited Cerebus / Desgranges / Ece / Team/ Teleflex Synerava/ Precilex / Ametek / Lucas Air Equip / Labinal / Sully Produits / Eros. Liebher6aero6technik/ Messier Bugatti/ Air Part / Tecnoffan / Equipment (CMA) Honeykwell Inter / Rackwell Inter / Sextant / Sarma / Messier Hispano Cargo elevators 7 tons universal 3 3 Cargo elevators 7 tons 1 3 Passenger stair cases + platform KB 4 & Albert Industries /Sovan / 4 & 20 Erma / Aet / Tracma / Matforce 58 1 Bidding / Clark / Socida / Hobart / Baggage conveyors type CB02 6 6 6494448.22 FCFA Stop-over Manutention Africaine / Usimat Tow line tractors 10 & 23 3 Equipment / Karcher / Babb Et Cie / Forklifts 6 Tons 27 1 Hydro6gerate Beau / Star Auto Type TM 16 N Lift truck 28 3 / Unisys express plate diesel 25 & 30 3 Registration equipment 1925852.35 FCFA Sales equipment Unisys/ IBM / Bull. / Computer Equipment for the Central Office Computer and Direct Associates / Mannesman Tally / 2544439.44 Office Automation FCFA negotiation Cap Sesa Tertiaire / Ier / Its Equipment for Decentralized Offices Equipment France Training PNT Level 200 1675538.05 CFAF vi
EXECUTIVE SUMMARY
1. The financial, material and organizational situation of the Multinational Company Air Afrique Company deteriorated to the point that it could not continue its activities. In order to remedy the situation and save the Company, Member States adopted a Rehabilitation Plan whose implementation objectives included: the financial rehabilitation of the company, the settlement of past payments due, future installments and bank overdrafts, the financing of the social plan and aircraft maintenance. It is within this framework that the African Development Bank was requested to participate in the reinforcement of the Multinational Company.
2. The project involved a total amount of UA 46.21 million, comprising UA 37.6 million (81%) financed by the African Development Bank and the remainder financed through Air Afrique owners' equity. The project sought to strengthen the production machinery in order to restore the company’s transport capacity, as well as improve and master its management and maintenance of the human and technical operation resources. They were meant to enable the achievement of a level of human and technical productivity required for production cost reduction and ensure optimum operation of the Company's network. Over the long term. The project aimed at ensuring the stability of the Company through the diversification and extension of activities.
3. Project implementation took place in acceptable conditions, despite the delay registered vis-à-vis the initial schedule; project implementation that was to spread over 28 months recorded an overall time slippage of 20 months. The project underwent major modifications which required a reallocation of resources and a major changes in the list of goods and services. The extent of these modifications was such that the project is no longer the same, and has different objectives. Thus, even if it has contributed to the reinforcement of the Company's industrial capacities, the initial project objectives were not achieved. At project completion, Air Afrique did not prepare the borrower's project completion report. The loan amount has not been exceeded and the project sustainability has technically been ensured, but remains compromised from the financial standpoint owing to the Company's excessive level of indebtedness. The project is ranked in the category of operations with unsatisfactory performance .
4. Among the lessons learned and recommendations to be made, it appears that the lack of monitoring and supervision had a negative impact on the project’s implementation and could make the Bank partly responsible for its overall poor performance. It is recommended to the Governments to reduce the level of political interference in the management of the Company, and at least pay a portion of the capital. For Air Afrique, it is vital to put into application the Bank’s recommendations relating to cost accounting whose implementation will reinforce the Company's management capacity. As for the Bank, it should require from the Borrower and the Executing agency the timely preparation of the project progress and completion reports, in line with Bank procedures. vii
AIR AFRIQUE RETROSPECTIVE PROJECT MATRIX
Name of project : REINFORCEMENT OF THE MULTINATIONAL COMPANY AIR-AFRIQUE Start-up Date : 1990 Completion Date : 1992 Design team : J.B. NGUEMA-OLLO
HIERARCHY OF OBJECTIVES VERIFIABLE INDICATORS MEANS OF VERIFICATION ASSUMPTIONS Sector goal : Promote air transport as a development cooperation and The opening and reinforcement of international routes Increase in unit receipts integration of African airlines Increase in market share
Project objectives ; Turnover :CFAF 245 billion in 1995 ; 295 billion in 1997 Number of passengers : 807 000 in 1995 ; 937 000 in 1997 Statistics from the Civil Aviation Ministry Compliance with Member States' Company Strengthen the operational capacity of Air Afrique Freight in tons : 47 409 in 1995 ; 48 262 in 1997 Air Afrique statistics Rehabilitation Plan Improve and ensure efficient management and Passenger flight hours : 33 827 in 1995 ; 36 454 in 1997 Air Afrique activity reports Privatization of the Company maintenance of its operating human and technical means Cargo flight hours : 8 529 in 1995 ; 8 233 in 1997 of operations Productive capacity : 142 158 H/MO. In 1989 ; 149 831 H/MO in 1990 Implementation : Sizable reduction in sub-contracting costs Weak traffic demand Project completion report Restoring aircraft transport capacities Growth in industrial capacity Sub-contracting of industrial installations Project progress reports Improving the industrial capacity Repatriation of value-added (profits) and aircraft Supervision missions' reports Improving and ensuring the efficient management of the Repositioning on the industrial suppliers market States' interference and intrusion Company Training of 40 copilots Components : Financing : A Aircraft maintenance B Stopover equipment ADB : UA 37.58 million C Computer and marketing equipment Air Afrique : UA 08.61 million D Computer and office automation equipment Total : UA 46.19 million E Training and studies Activities : Status of disbursements Satisfactory performance of contractors and Supervision missions suppliers Major aircraft overhauls Financing Plan Procurement of aircraft spare parts Award of contracts Availability of financial resources Reinforcement of industrial centers Loan agreements Institutional capacity Procurement of stop-over equipment At Appraisal On Completion Compliance with conditionalities Sources % Procurement of the GAETAN System F.E L.C Total F.E. L.C. Total Procurement of computer systems ADB 37.60 - 37.60 37.58 - 37.58 81.36 Procurement of computer and office automation R.K. 5.10 3.51 8.61 5.10 3.51 8.61 18.64 equipment Total 42.21 3.51 46.21 42.68 3.51 46.19 100.00 Conversion of flight engineers into Copilots 1 INTRODUCTION
1.1 The Multinational Company Air Afrique was established in March 1961 to be the sole instrument for exercising international traffic rights of its Member States regarding international air traffic connections. Today, the eleven Member States are : Benin, Burkina- Faso, Central African Republic, Congo, Côte d’Ivoire, Mali, Mauritania, Niger, Senegal, Chad and Togo. The project context is characterized by a relatively low level of aeronautic infrastructure, the absence of economies of scale owing to the small size of national airline companies and very high operating costs. In accordance with its Charter, the joint company was to be managed in accordance with private law rules and enjoy full management autonomy untrammeled by any other consideration that does not contribute to the achievement of its objective under the best economic conditions while providing good quality service.
1.2 In 1989, the financial, material and organizational situation of the Company deteriorated considerably to the extent that it could no longer pursue of its activities. Its institutional framework had deteriorated owing to the cut in the Company's operation revenues as a result of Member States granting traffic rights without reciprocity to competitor airlines, the loss of accountability, authority and management autonomy on the part of the Company's top management organs (the Board of directors and Management), the competition from national airline companies of Member States which no longer comply with regulations on proximity flights, the multiplicity of regular foreign carriers and charter flights.
1.3 To redress the situation and save the Company, Air Afrique member States unanimously adopted a rehabilitation plan with the following main objectives: i) the partial and immediate replenishment of the Company's equity capital through a new capital increase from its shareholders and subsidies in the form of equity resources; ii) the settlement of the Company's arrears vis-à-vis all of its suppliers and creditors as well as the commensurate re- establishment of its credibility that had been seriously eroded; iii) the sustainable rehabilitation of the Company's situation through the recovery of its business, the strict management of its expenses, the renewal and strengthening of part of its equipment. The attainment of these objectives required: the rehabilitation of the Company's financial situation, the settlement of installments due on past borrowings (arrears) and those not yet due as well as bank overdraft facilities, the financing of the social plan (termination benefits) and aircraft's major overhauling.
1.4 The present report is prepared on the basis of the last progress report from the borrower, information gathered on the project sites during the mission and the exploitation of the Bank's documents and archives. The content of the present report takes into account the degree of attainment of the project objectives, the sustainability of its results, the Bank's performance, the development impact, lessons learned and the recommendations to be made. 2
2 PROJECT OBJECTIVES
2.1 The project's sector objective is to promote air transport as a factor of development, cooperation and integration of African airlines, to spread an efficient and viable air transport system vital to the economic and social development of African countries and in particular those landlocked .
2.2 The project specifically sought to reinforce the production machinery with a view to restoring its transport capacity, improving and ensuring the efficient management and maintenance of its operating human and technical resources.
3 PROJECT FORMULATION AND DESCRIPTION
3.1 Project Formulation
3.1.1 The Multinational Air Afrique Company's financial, material and organizational situation had deteriorated to the point that its activities could no longer be continued. To remedy this situation and save the Company from collapse, member States adopted a rehabilitation aimed at achieving the following objectives: rehabilitation of the Company's financial situation, settlement of instalments due on past borrowings (arrears) and those not yet due as well as bank overdraft facilities, financing of the social plan ( termination benefits) and aircraft's maintenance. It is within this framework that a request was made to the African Development Bank to participate in financing the reinforcement of the Multinational Company.
3.1.2 The coverage of the rehabilitation plan cost was to be provided by subsidies, advances from shareholders current accounts financed through a borrowing external to the member States, the rescheduling of bank credits, a long-term borrowing and internal financing. It is within this context that the African Development Bank was requested to participate in the financing of the Company's rehabilitation plan.
3.1.3 Following a financing request introduced by Air Afrique, the Bank appraised the project in August 1989. It involved a total cost amounting to Bank Unit of Account 46.21 million (BUA), of which UA 37.6 million (81%) was earmarked for financing by the African Development Bank (the Bank), in accordance with the terms of the loan agreement signed between Air Afrique and the Bank on 19 March 1990 and which became effective on 11 May 1990. The deadline for the mobilization of funds was contractually set at 31.12.93 or any later date agreed upon by the parties.
3.2 Project Description
The Bank loan was to finance the following project components :
A. Aircraft Maintenance :
3.2.1 Air Afrique fleet maintenance programme together with the different overhauling operations scheduled throughout the lives of the aircraft were carried out by the RSSU/UTA for the 3 DC-10, Air Afrique for the 3 AIRBUS and UTA for the DC-8 with regard to A and C types of overhauling. The D overhauling operations for the DC-10 were carried out by KSSU/SWISSAIR for the AIRBUS, by SOGERMA and for the DC-8 by UTA. This was 3 highly costly for the Company. The Dakar industrial center covered under the same authority an aircraft shop and an equipment overhaul shop. These shops currently provide for the maintenance of the Company's AIRBUS planes and that of some third party companies in so far as overhaul operations A and C are concerned. The new policy that was put in place aimed at retaking a portion of the maintenance expenses sub-contracted outside. Thus, the maintenance of the Company's 3 DC-10 and the DC-8 Cargo will be gradually transferred to the Dakar industrial center. All the Company's airplanes will after 2 years, be maintained up to the equivalent of inspection in the Company's aircraft shops in Dakar, by its own technicians trained for these kinds of duties through training workshops funded under this project.
3.2.2 The Abidjan accessory overhaul center is mainly oriented toward radio repair and servicing. It also comprises a workshop for the service and repair of on-board instruments, electro-mechanic workshop and a meteorological workshop geared to the verification and adjustment of precision instruments.
3.2.3 The Brazzaville industrial center mainly deals with aircraft production activities, related workshops, works planning and preparation, supplies and storage, line maintenance, garage, industrial management and production control. In view of the fact that the current workload of the Brazzaville industrial center is not sufficient to cover the employment of the staff allocated to it, it will be necessary for these centers to find external markets for the maintenance of light aircraft in view of the fact that the current installations and equipment do not allow to handle heavy carriers. The first investigations carried out showed that a potential market whose maintenance could be carried out by the Brazzaville center exists in the region.
3.2.4 Thus, the Company will recover part of the maintenance expenses sub-contracted externally with a view to totally carry out in the future, all the inspections (with the exception of the main overhaul) on its own site by its own technicians. It will also have to diversify its maintenance activities to meet the demand by local companies for maintenance of some airplanes in the central sub-region. This decision will have to be based on the Company’s definition of an industrial policy. The latter will be established following specific studies. The production of the Company's industrial strategy policy paper will be made a loan condition.
B. Airplanes Reconfiguration :
3.2.5 This component consists in increasing in the number of seats of aircraft and the installation of luggage carriers on the Company's DC10s.
C. Stop-over Equipment :
3.2.6 The stock of operating equipment and was no longer reliable because it was not replaced often enough. Equipment of more than 10 years of age were the greater in number, most of which needed to be recondition.
D. Computer Equipment for Marketing :
3.2.7 The computerized registration system (GAETAN ) and the Alpha 3 marketing applications system used by Air Afrique were installed in May 1973, for passenger registration and handling and for the processing in real time of all operations related to the 4 handling of passengers and freight (passenger reservation and services related to air transport, automatic treatment of prepaid ticket and automatic tariff and ticket issue system). Both systems required upgrading.
E. Computer and Office Automation Equipment :
3.2.8 The performance levels of the Abidjan computer center and the computer center of the Port -Bouët freight were unsatisfactory owing primarily to the problems posed by the growth in the volume of data and the obsolescent mechanical power, communication networks and the operating system
F. Training - Studies:
3.2.9 The training programme comprised internships in Abidjan as well as abroad. These training modules were focused on commercial correspondence, computerized operations, marketing/reservation/control, on operations/automatic bookings, on financial/management control and on training technical flying staff from Air Afrique member States. The component also provides for the procurement of teaching aids. The implementation of the Company's Recovery Plan calls for a number of studies on marketing, data processing, human resources and development studies.
4 PROJECT IMPLEMENTATION
4.1 Effectiveness, Start-up and Implementation Schedule
Effectiveness
4.1.1 The entry into force of the loan agreement was subject to seven conditions precedent and three other conditions contained in the loan agreement (cfr. Annex 7). All these conditions were fulfilled by Air Afrique and the loan became effective in May 1990 with the joint guarantee of the Republic of Côte d'Ivoire and the Republic of Senegal.
4.1.2 Furthermore, following the Bank's recommendations to ease measures imposed on other airlines regarding traffic limitation, agreements were negotiated and concluded with the latter in November 1991.
Start-up
4.1.3 At appraisal, the start-up date was set for March 1990. Works effectively started on 12 March 1990 with the overhauling of the first aircraft.
Implementation Schedule
4.1.4 At the time the project was appraised, the implementation schedule envisaged the completion of all the project components by the end of June 1992, i.e., over a two year period. Even though the project was completed in March 1994, it registered an overall time overrun of 20 months compared to the initial programme. The deadline for the last disbursement was set at 31/12/93, then extended to 31/12/94 at the Borrower's request. 5
4.2 Modifications
4.2.1 The project has undergone modifications needed to adapt it to the growth of Air Afrique Company. The modifications concerned primarily the B component of the project which had become practically irrelevant following the decision by the Company's Board of Directors in May 1990, to renew the fleet. The other modifications were minor and concerned rather some readjustments within the same component. The project was implemented on the basis of these revised components.
Aircraft Maintenance
4.2.2 After the overhauling scheduled for the five airplanes, Air Afrique proceeded with the sale of one DC-10 and put the second on lease. This change derives from the decision by the Company to immediately acquire four new Airbus A-310 planes. The funds earmarked for the acquisition of spare parts (for the A-300, DC-8 and the DC-8 replacement engines) were utilized to rebuild the initial stock of spare parts, required for the operation and maintenance of Airbus A-310 planes. In the procurement of equipment for the industrial centers, specific tools for the maintenance of the Airbus A-310 planes were incorporated. Aircraft Reconfiguration
4.2.3 This component was canceled; only the installations of the overhead lockers in the DC-10 were implemented.
Training and Studies
4.2.4 Resources earmarked for this component were utilized for the conversion of DC-10 flight engineers into copilots for the Airbus A-310 planes.
4.3 Impacts of the modifications on project objectives
At appraisal, the fleet renewal was scheduled for the medium-term and was not part of the project objectives. In July 1990, or two months after loan effectiveness, Air Afrique proceeded with the firm order of four Airbus A310-300 planes. This decision is the basis of the modifications referred to above and that led to the need for the reallocation of resources and an in-depth modification of the list of goods and services. The extent of these changes was such that it led to completely different objectives. The table in Annex 2 gives a summary of the components that were affected by these changes. The latter were approved by the Bank in April 1992.
4.4 Procurement of Goods and Services
The requirements for procurement of goods and services were met but with some difficulties concerning the following: i) The procurement of aircraft spare parts and equipment for the industrial maintenance centers was to be procured through international competition limited to package dealers. The difficulties encountered in the procurement of this equipment were due to the fact that the 6 building of the initial stock of spare parts and the specific equipment for new planes was not provided for at project appraisal. ii) The procurement of equipment for the computerized booking system (GAETAN) and the computer equipment for marketing (ALPHA3) were to be on the basis of international competition limited to manufacturers of the specified equipment. The procedure envisaged was not followed by the Company. For reasons of compatibility with the existing equipment, Air Afrique requested the Bank's authorization for the procurement on the basis of direct negotiation with its old suppliers. The Bank gave its consent for direct procurement direct.
4.5 Reporting
During project implementation, Air Afrique submitted two progress reports on the project to the Bank, the first in July 1991 and the second in September 1993. The Executing Agency did not prepare the project completion report, nor did it submit audit reports to the Bank.
4.6 Project Outputs
All the components of the modified project were implemented as follows:
Aircraft Maintenance
4.6.1 This component comprised major aircraft servicing, the procurement of spare parts for airplanes and the strengthening of industrial centers (procurement of tools required for the maintenance of new airplanes). All these sub-components have been implemented in accordance with the pre-established timetable. The Company's industrial centers have at their disposal spare equipment allowing them to undertake the variety of scheduled servicing for the entire new fleet. The component on aircraft reconfiguration comprised two sub- components: Increasing the total number of seats in old airplanes which was scrapped in view of the fleet renewal and the installation of overhead lockers which was implemented on the DC-10.
Stopover Equipment
4.6.2 The programme concerning the partial renewal of equipment for handling airplanes on stopover was implemented fully and on schedule. However, it is worthwhile mentioning the fact that the implementation of this component relieved only partially the Company's needs, in view of, on the one hand, the obsolescence of the fleet, and the growth in activities, on the other. The stopovers visited, Dakar and Abidjan, in particular, their performance is strongly affected during the high seasons. The stopover station managers and the equipment department have deplored incidences connected with the shortage of equipment, stock the spare parts supply policy and the choice of some equipment.
Computerized Registration and Sale System
4.6.3 This concerns the "GAETAN" equipment (for the automated booking of passengers and flight management) and ALPHA 3 and PELICAN (for transport and freight sales). These equipment comprised screens (162), boarding pass and luggage tag printers (150), control desks (8), optical scanners (2), printers (94) and telecommunications equipment (modems, 7 inverters, connectors, cables, etc..). These were procured during the first quarter of 92 and the deliveries were spread over until March 93, depending on the Company's requirements.
Computer and Office Automation Equipment
4.6.4 This component groups together the Headquarters’ computer equipment. This concerns the procurement of 200 micro-computers, 210 printers, software, the setting up of the Company's training center in Abidjan, of the required logistics for personnel training on this equipment. The procurement of the Headquarters' equipment was fully implemented before year-end 1990. With regard to office automation equipment, the item was modified taking into account the Company's real needs. These needs were met and constituted the starting point of Air Afrique's computerization policy. This component was implemented within schedule.
Training of Flight Engineers (OMN)
4.6.5 This component concerns the conversion of flight engineers (OMN) into copilots on the Airbus A310, in view of the removal of this specialty post on the A310 Airbus planes (piloting at 2 on the A310 instead of 3 on the DC-10 and A300 aircraft). This training concerned 40 staff members and was completed towards year-end 1994.
4.7 Costs, Financing and Disbursements
Costs
4.7.1 The total project cost was appraised on the basis of economic conditions prevailing in October 1989 using existing studies and historic costs. The cost stood at UA 46.21 million, of which UA 42.70 million in foreign exchange and UA 3.51 million in local currency. 8
Financing
4.7.2 The ADB loan totaling UA 37.60 million, was used to finance the entire foreign exchange cost representing 88.06 % of the total project cost. The balance of the financing was covered by Air Afrique. Disbursements
4.7.3 The initial deadline for the last disbursement was set at 31/12/93. In view of the delays recorded in the implementation of the project, the deadline was extended once to 31/12/94. The project was the subject of 37 disbursements from the Bank for which no particular difficulties were encountered.
4.8 Performance of suppliers and contractors
4.8.1 The implementation of the components "aircraft maintenance" was satisfactory, in view of the rigor required in the air transport industry. Aircraft servicing was carried out within the established schedule and the deliveries of spare parts, tools and equipment for the industrial centers in conformity with the orders. The same applies for stopover equipment.
4.8.2 The delay registered in the procurement of computer equipment for the automated booking and sales, was due to the non compliance by Air Afrique with the Bank's rules of procedures for procurement of goods and services as stipulated in the loan agreements. However, this did not have any significant impact on the project and had no bearing on the suppliers.
4.8.3 Overall, the technical performances of the contractors and suppliers were satisfactory.
5 PROJECT PERFORMANCE
5.1 Institutional Performance
5.1.1 Air Afrique was the project’s Executing Agency. It ensured the preparation of tender documents, analysis of bids, award of contracts as well as the supervision of the project implementation. A project monitoring committee made up of heads of the various departments concerned was put in place headed by a coordinator reporting to the General Directorate. In March 1989, a study on the Company’s restructuring was carried out with the view to better control the important rehabilitation plan. The new organizational chart is characterized by a concentrated structure and a reduction in the number of decision-making centers. At the management level, the Company continues to suffer from the lack of cost accounting, thus making it difficult to identify less performing units
5.1.2 From the technical viewpoint, the implementation of the project has been carried satisfactorily manner, but not rigorously. From the administrative viewpoint, shortcomings were identified in the preparation of quarterly and project completion reports.
5.2 Operational Performance
5.2.1 In the appraisal report, the implementation was scheduled to take place from March 1990 to June 1992. Works were effectively launched in March 1990. These were completed 9 in March 1994, with a 20 month delay compared to the initial programme. The delay is due to the cancellation of the reconfiguration component (increase in total number of seats) of older aircraft, following the decision to renew the fleet, difficulties encountered by the Company in complying with some procedures for the procurement of goods and services (aircraft spare parts equipment). In July 1991, Air Afrique and the Bank had discussions on the modifications that the Company wished to introduce to the project. Furthermore, the acquisition of Airbus A.310 planes necessitated the conversion of flight engineers on DC-10 into copilots. This training not envisaged at project appraisal, went on until year-end 1993, thus having an impact on the project implementation. 5.2.2 On the industrial plan, the Company had three centers: Dakar for aircraft and equipment maintenance, Brazzaville for aircraft maintenance and Abidjan for maintenance of radio and meteorological equipment. The Dakar Industrial Center (CID), the most important is currently oriented toward heavy maintenance of Airbus planes («A» and «C» types checks and soon «IL» checks for 25 000 hours labor, «D» check for 35 000 hours labor). The «D» overhauling has always been done outside. The Brazzaville Center for Aircraft (CMAB) was in large part destroyed by the various civil wars in the country. The remainder of the equipment was transferred to Pointe-Noire, Abidjan and Dakar according to the Company's needs. Regarding this unit, the Company should undertake a study on its future industrial policy, in view of the heavy losses already incurred. The Abidjan Maintenance Center (CMA), which from the start was responsible for the maintenance of radio and meteorological equipment, in addition took the task of repair and maintenance of B-737-200 and 737-300 planes leased by Air Afrique. 5.2.3 With regard to the management of spare parts, an emphasis should be put on the very high level of stock: approximately CFAF 52 billion (41 for the rotating and 11 for the consumables). This item ought to be the subject of study between the account and the technical units. Indeed, this amount does not reflect the real value of this inventory and comprises further some of the Company's fixed assets. The improvement in the inventory management is necessary and requires the recruitment and training of inventory store-keepers with a better computer mastery. 5.2.4 The maintenance costs represented 6.5% of the net costs and stood at CFAF 16.5 billion in 1997. Compared to the means put in place, the workload remains low. A dynamic marketing policy was carried out (especially with regard to African countries) to make these investments more profitable. The industrial labor cost at Air Afrique is very competitive; it was quoted at CFAF 18000/hour of work compared to nearly CFAF 35000/hour in Europe. This very low rate, was revised and increased to CFAF 25886 / hour as from year-end 1997. 5.2.5 Air Afrique has at its disposal high level industrial and human resources and holds the certification (the American Federal Civil Aviation Administration - FAA) for the maintenance and control of aircraft equipment. Currently, the Company is preparing for the award of the JAR 145 Certification (new European Agreement) required to allow Air Afrique undertake aircraft repair and maintenance works incumbent on their administrative services. The only works still being sub-contracted are ones for which it is not economically profitable to invest for their maintenance locally (such engines). The Company's operational performance is very satisfactory. 5.3 Economic Performance 5.3.1 At appraisal, the project which fits within the global framework of Air Afrique Company's restructuring programme should, from the economic view point, resulting in: i) 10 the strengthening of the market for air transport in terms of traffic growth at the rate of 3 % per year on the average; ii) the reduction in the maintenance cost of the fleet thanks to new installations provided for Dakar and Abidjan; iii) the improvement in human resources through training modules suited for the requirements. 5.3.2 At completion, it was noted that the gap between the projected traffic and actual traffic was relatively small as shown in the table below : Traffic in million per km transported (PKT)
Years 1990 1991 1992 1993 1994 1995 1996 1997 Projected traffic 2505 2581 2658 2733 2818 2905 2991 3081 Actual Traffic 2397 2068 2233 2293 2352 2454 2514 2904
5.3.3 Based on the table, the average growth rate of actual traffic stood at nearly 2.9% as against 3% at appraisal. It can therefore be inferred that the objective of traffic growth was nearly achieved. 5.3.4 With regard to the saving on the maintenance cost of equipment, installations effectively put in place in Abidjan and Dakar should have been enough to enable the Company undertake on the site the major servicing, which until then were provided abroad. The intended objective is to bring the rate of external sub-contracting which represents 40% of the aircraft maintenance activities down to 20%, which would represent a saving of approximately CFAF 3 billion per year. 5.3.5 Following the purchase of new airplanes by the Company, purchase which represents one of the major elements of modifications registered at the level of the overall programme, the overhauling have not yet started according to schedule at appraisal. The modernization of the fleet thus decided by the Company management, contrary to the appraisal estimates, constitutes the single major cause of this delay. The very first overhauling was carried out at the Dakar Maintenance Center from March to April 1999. The savings expected from this first operation is estimated at nearly CFAF 250 to 300 million. When completed, the industrial plants will therefore enable the recovery of a large portion of maintenance costs for new aircraft, with the secondary effect of substantial savings in foreign exchange, the development of technical staff and the improvement in the Company's cash position. 5.3.6 In contrast, the objectives of the “Training” component were fully achieved. In fact, not less than 626 staff were trained as planned through training of one to three weeks in areas such as commercial correspondence, data processing, the automated operation/reservation, management, etc. The most important sub-component is the conversion of flight engineers into copilots for certain types of aircraft; this training has been implemented at the level 40 staff against 36 at appraisal. 5.3.7 With regard to the project’s economic rate of return on completion, it was not calculated for a principal reason: the overhaul to be carried out locally (Abidjan and Dakar), and that constitute the key source of projected economic benefits have not yet started. As a result, no trends in the growth of savings on the maintenance costs can yet be assessed which would allow to make medium-term estimates on a real basis. 5.4 Financial Performance 11
5.4.1 Air Afrique financial position was characterized, at the time of the project appraisal, by an operating result in deficit, a declining trend in revenues and low parameters of profitability and balance that fall below the usual benchmarks. At the time of the preparation of the project completion report, the analysis of this situation gives indications of a slight improvement between 1992 and 1994, and then a worsening situation thereafter. This is the result of inadequate programming of investments and marketing planning : for instance, in the financial projection assumptions, a Bank loan of CFAF 15.226 billion and an allocation of CFAF 30 billion are taken into account for the renewal of fleet in the medium-term. In actual fact, with the acquisition of new airplanes, Air Afrique took another commitment of nearly CFAF 90 billion through internal financing over the same period. This new commitment, given its size, strongly affected the Company's repayment capacity. Air Afrique's financial statements are summarized below: Operating Accounts (in million CFAF)
1989 1990 1991 1992 1993 1994 1995 1996 1997
Income from flight operations 111 117 113 120 120 213 223 215 229 220 397 766 618 741 110 549 983 612 Other income 15 13 14 13 12 21 19 22 25 736 744 068 477 483 615 500 923 410 Miscellaneous revenues (PF and 16 7 237 12 12 12 17 16 9 617 23 commissions) 786 825 878 025 856 648 283 Reversals 1 051 1 403 2 990 923 611 764 2 641 951 2 350 Total income 144 139 143 147 145 253 262 249 280 793 781 649 896 860 345 338 474 655
Flight expenses 78 83 80 80 83 145 154 150 155 294 185 986 725 998 337 410 697 262 Structure Expenses (sale, stopover) 31 35 33 36 40 52 61 65 65 214 448 532 062 239 979 593 129 944 Other expenses (FF, exchange loss) 24 12 16 19 18 35 37 32 34 821 204 584 090 197 658 557 457 808 Allocations to depreciation and provisions 10 8 784 12 11 11 21 24 24 31 097 329 754 869 321 715 754 214 Total expenses 144 139 143 147 154 255 278 273 287 426 621 431 631 303 295 275 037 228 Net income 367 160 218 265 -8 443 -1 950 -15 937 -23 563 -6 573
Cash Flow 10 8 944 12 12 3 426 19 8 778 1 191 24 464 547 019 371 641
5.4.2 The analysis of this table shows stagnating revenues and a worsening income position. In addition to inadequate planning, it is worth pointing out that that as from 1994, the devaluation had a negative impact owing to an inadequate offsetting at the level of receipts. The different lines of expenses increased by more than the receipts. The cash flow was low and led Air Afrique to revert to long-term borrowing, as well as overdraft and other short-term facilities.
Comparative Balance Sheets (1989-1997) (in million CFAF)
1989 1990 1991 1992 1993 1994 1995 1996 1997 Assets Fixed assets 423 454 889 774 641 882 775 736 441 Intangible assets 47 736 58 051 75 163 100 707 111 806 228 432 219 669 203 523 190 557 Financial fixed assets 3 274 3 660 4 024 3 816 2 703 7 107 5 372 5 413 6 717 Total fixed assets 51 433 62 165 80 076 105 297 115 150 236 421 225 816 209 672 197 715 12
Stocks 22 634 25 879 4 926 6 248 6 210 13 391 11 492 11 062 9 811 Current assets 22 276 3 609 22 917 26 552 27 867 41 624 39 156 45 622 43 486 Liquid assets 1 872 2 883 126 136 6 762 11 989 8 504 10 726 11 810 Adjustment accounts 8 695 12 602 11 137 13 675 17 667 18 043 18 174 18 090 23 591 Current assets 55 477 44 973 39 106 46 611 58 506 85 047 77 326 85 500 88 698 Total 106 910 107 138 119 182 151 908 173 656 321 468 303 142 295 172 286 413 Liabilities Equity 9 961 10 327 10 487 15 749 16 314 55 898 53 948 38 011 14 749 Provisions for losses and exchanges 8 429 8 560 5 909 7 294 8 721 14 161 13 804 17 262 16 470 Long-term debt 34 087 34 569 50 352 80 234 107 615 200 211 199 304 191 807 120 317 Operating debt 40 667 34 880 32 325 32 470 34 984 37 472 37 273 50 565 124 490 Adjustment accounts 13 399 18 642 19 891 15 896 14 465 15 676 14 750 21 090 16 960 Income for period 367 160 218 265 -8 443 -1 950 -15 937 -23 563 -6 573 106 910 107 138 119 182 151 908 173 656 321 468 303 142 295 172 286 413
Key financial indicators
Working capital 1 411 -8 549 -13 110 -1 755 9 057 31 899 25 303 13 845 -52 752 Liquidity ratio 1.03 0.84 0.75 0.96 1.18 1.60 1.49 1.19 0.63 Debt-equity ratio 0.65 0.64 0.75 0.77 0.87 0.75 0.79 0.86 0.83
5.4.3 Air Afrique’s financial structure improved between 1994 and 1995, but as from 1996, the situation started to deteriorate before worsening in 1997. The liquidity position was tight and the level of indebtedness worsened. The new ambitious investment option without a supporting marketing plan was at the source of this indebtedness beyond proportion, and which was not eased by a surplus operation. 5.4.4 After the overhauling and the utilization of new airplanes in the fleet, a net growth in receipts and expenses related to new aircraft and to the stability of the fleet was observed during this period. The Company's gross revenues increased from CFAF 139.582 billion in 1992 to 255.595 billion in 1994 and 295.401 billion in 1997. Concurrently, expenses increased from CFAF 124.831 billion in 1992, 212.735 billion in 1994 and 242.785 billion in 1997. In spite of a sharp cut in personnel that took place as from 1990, the workforce going from 5240 to 4150, personnel expenses were not under control; on the contrary, the expenses increased from CFAF 17.418 billion in 1992, 20.244 billion in 1994 and 24.567 billion in 1997 (excluding expenses related to flight personnel). 5.4.5 Furthermore, equipment and spare parts should have allowed the Company to carry out the overhauling on its own which until then were done outside. Out of Airbuses, this overhauling took place after 12000, 20000 and 29000 hours of flight (type D) and represent nearly the equivalent of 35 to 40000 hours of work. Done outside, an overhauling operation costs about 2.2 billion. The first overhauling which will be carried out at the Dakar Maintenance Center was programmed for March 1999. The expected saving from this operation is estimated at CFAF 250 to 300 billion. This estimation is based on the experience acquired by Air Afrique which has just carried out an intermediate servicing (type IL) covering 25000 hours of work on an Airbus and which cost CFAF 877 million to the Company, as against CFAF 960 million, if it was carried outside. The rate of sub-contracting outside stands currently at 40% and Air Afrique aims at bringing that rate to 20%, which will generate savings of nearly CFAF 3 billion per year. 5.4.6 In the area of stopover assistance, procurement of hauling equipment made it possible to strengthen the capacity to handle airplanes. This activity technically called «handling », created nearly 1520 jobs and in 1997 generated total revenues of about CFAF 23.8 billion for 13 services rendered to third party companies. The cost savings realized by Air Afrique through self-assistance reached nearly CFAF 29.6 billion. 5.4.7 The Executing Agency did not provide the project completion report. In view of the major modifications to project (cfr. para 4.2), the original assumptions are no longer applicable, and it is no longer possible to calculate the IRR on a new project configuration. The financial performance of the project remains very worrisome.
6 SOCIAL AND ENVIRONMENTAL IMPACT
6.1 Social Impact
The acquisition of new aircraft made it possible for flight engineers to be converted into copilots on the Airbus 310. This promotion from the career standpoint is an illustration of improvement in their standard of living in terms of salary. The project had positive impact on the lives of 40 flight engineers. Furthermore, as an integral part of the overall rehabilitation plan, the project made it possible to save the Company, thus leading to social impact of even greater magnitude.
6.2 Environmental Impact
Air Afrique's planes are of the last generation. They are equipped with engines that meet the acoustic standards of the International Civil Aviation Organization (ICAO), in its requirements in the area of noise nuisance. This applies equally to fumes issuing from the aircraft engines. The project had only negligible environmental impact.
7 PROJECT SUSTAINABILTY
The sustainability of the project is doubtful in view of the Company's current situation, but a plan for the optimal utilization of the Dakar and Abidjan Maintenance Centers for the requirements of Air Afrique, together with sub-contracting for other airlines will make it possible to save the project financed by the Bank. 14
7.1 Sustainability Factors
To make the project's achievements more sustainable, it is necessary that :
i) the industrial installations should not be underutilized and the capacity for maintenance of aircraft and handling equipment at stopovers be maintained and reinforced; ii) The company should improve its productivity and develop alliances with bigger European and other African companies, iii) Member States should give priority to the Company's financial return at the detriment of lax management and settle their payment arrears on transport tickets issued on Air Afrique, iv) Institutional support should be given to the Company with the view to reinforce its financial structure and consolidate its control and management procedures.
7.2 Technical Sustainability
7.2.1 From the technical standpoint, the procurement of new equipment enabled the Company to reinforce and make notably sustainable its industrial capacities. At project appraisal, the objective was to enable the Company to carry out aircraft checks up to the level «C». With overhaulings of the «IL» and «D» types which are currently being provided at the Dakar Center, this objective is outdated. The project’s technical sustainability is therefore satisfactory.
7.2.2 Furthermore, the handling equipment for major stopover airports, i.e., Abidjan and Dakar is obsolete and inadequate. This constraint is much more acute during high seasons, to the extent that the «clearance » services encounter the problem of congestion and do not manage to absorb the surplus traffic from the standpoint of stopover assistance. This seriously jeopardizes the Company's sustainability.
7.3 Financial Sustainability
The renewal of the fleet, whose effects have not been adequately determined, has strongly impacted on the Company's financial position. Besides, in the area of tariff fixing, the Company encounters difficulties to have member States approve the tariff ranges recommended by IATA (International Air Transport Association) and by ATAF (Association of Airlines, Zone Franc), organs which regulate this activity in consultation with airlines. These tariff adjustments enable airline enterprises to ensure financial balance of their operations, every time they are adopted. Moreover, the sale of one DC10 which came from repair within the framework of this financing, jeopardized the financial sustainability of the project. 15
8 PERFORMANCE OF THE BANK AND THE BORROWER
8.1 Bank Performance
8.1.1 The Bank appraised the project in August 1989 and undertook a supervision mission in November 1991. It did not, therefore, ensure regular monitoring of the project.
8.1.2 Given the scope of the modifications requested by Air Afrique and their future impacts on the Company's financial situation, the project ought to have been resubmitted to the Board for approval. Furthermore, discussions between Air Afrique and the Bank on the modifications started in July 1991 and the Bank gave its approval in April 1992, that is with a 10-month delay. The Bank reaction time was too long compared to the urgency of the problem at hand.
8.1.3 Furthermore, the Bank did not adequately apprehend the impacts of the modifications on the Company's financial position before their approval. The project concerned commercial air transport with a strong industrial bias. The Bank expertise in this project follow up was not appropriate in order to control the risks involved in these sensitive fields that are in perpetual motion. For all these reasons, the Bank performance was unsatisfactory.
8.2 Performance of the Borrower
8.2.1 The conditions precedent to first disbursement were fully met by the borrower. The Company financed the foreign and local costs that were attributed to it in accordance with the financing plan and representing 18.63% of the total cost of the project.
8.2.2 Before project appraisal, the Company’s organization was highly organized into a hierarchy, rendering the implementation of the rehabilitation plan uncertain owing to very high operating costs and poor performance. In March 1989, a study on the restructuring of the Company was carried out. The new organizational chart is marked by a concentrated structure and a reduction in the centers of decision-making.
8.2.3 In the area of management, the computer equipment delivered in the framework of the project should lead to the complete revamping of the Company's computerized accounting and financial system, one of whose major objective was to establish a cost accounting system, which would have made it possible for the Company to better assess the economic contribution of each activity and each line, and thus their profitability. In addition, the Company registers a significant delay in recording receipts, thus making the clearing with other companies difficult. To this date, cost accounting is still not operational; Air Afrique, therefore makes a bad utilization of the computer equipment put in place.
8.2.4 The Borrower has prepared two work progress reports during the entire duration of the project, whereas the latter were to be prepared on a quarterly basis. It did no submit the project completion report either as provided for in the Bank's procedures.
8.2.5 With regard to loan repayment, the Bank took as safeguard to request the guarantees of Côte d’Ivoire and Senegal. The installments due on 31 January 1999 were settled by these two States for a total amount of French Franc 23,621,218.16. The amount outstanding covers 10 installments payable until January 2004. This guarantee has enabled the Bank to receive 16 reimbursement to this date. For all these reasons, the borrower's performance is unsatisfactory.
9 ASSESSMENT OF THE OVERALL PERFORMANCE OF THE PROJECT
The analysis of results relating to each criterion of the overall performance is given below. 9.1 Achievement of Project Objectives
9.1.1 All the project components were implemented after the modifications approved by the Bank. The performance relating to the physical implementation of the project was satisfactory.
9.1.2 However, the project should enable the Company to achieve a high level of productivity on the equipment and personnel with the view to cutting costs and ensuring an optimum operation. In the long term, through these diversified and strong actions, the project aimed at reinforcing the Company, However, Air Afrique is currently going through a difficult period owing to the deterioration in its financial situation. The project objectives in this area were not achieved.
9.2 Project Costs
After the implementation of the project, there was a balance of UA 23,210.93 for which Air Afrique requested cancellation in December 1995. In spite of reallocations made in the list of goods and services, requiring supplementary resources for some project components, and in spite of delays recorded in the implementation of the project, the Bank loan amount has not been exceeded. The performance from this standpoint was satisfactory.
9.3 Duration of Project Implementation The implementation of the project recorded a 20-month time delay. The implementation performance was not satisfactory.
9.4 Social and Environmental Impacts The project enabled the conversion of flight engineers into copilots on the A310, thus contributing to the improvement in their standards of living in terms of salary increase. Generally, the project has contributed to the recovery of Air Afrique and to the improvement in working conditions within the Company. Furthermore, the project had only negligible environmental impacts, in view of the nature of operations and the contexts in which these were implemented. 17
9.5 Sustainability of the Project
From the technical standpoint, the sustainability of the project was ensured given the availability of competent personnel, efficient equipment, the stock of spare parts sufficient enough to fully cover the scheduled maintenance. However, the sustainability of the project is likely to be affected by the Company's financial position marked by an excessive level of indebtedness.
9.6 Internal Rate of Return of the Project
At appraisal, the project financial rate of return was estimated at 13.1% and the economic rate of return at 21.26%. The change in the initial design of the project no longer allows for the calculation of the project’s internal rate of return.
9.7 Assessment of the Project’s Overall Performance
9.7.1 The assessment of the project’s overall performance can be summarized as follows:
Assessment Rating Weighting Criteria Ratio Over 5 Overall Attainment of objectives 6 2.5 15 Project cost 3 3.5 10.5 Length of project implementation 3 1 3 Social and environmental impact 3 3 9 Project sustainability 5 2.5 12.5 Total out of 100 50
9.7.2 The application of the assessment and rating scales resulted in an overall ranking of 50 over 100, thus classifying the project in the category of operations with unsatisfactory performance.
10 CONCLUSIONS, LESSONS AND RECOMMENDATIONS 10.1 Conclusions The project was executed in March 1994, despite some difficulties in implementing some components started and an overall time overrun of 20 months compared to the initial schedule. The project was implemented in acceptable conditions, however its did not achieve its objectives even though it contributed to the reinforcement of the Company's industrial capacities. The loan amount was not exceeded. The project sustainability was ensured from the technical standpoint, but remained at a disadvantage from the financial standpoint, owing to the Company's high level of indebtedness The project was ranked in the category of operations with unsatisfactory performance. 18
10.2 Lessons The lessons to be drawn from the project’s implementation are the following : i) A significant change in one or several project components can lead to considerable delays in its implementation and its operational and financial performances; ii) A bad decision in the investment programme can have serious consequences on the Company's financial position; iii) The deterioration in the institutional framework, reduction in business, loss of accountability, authority and management autonomy of the Company's natural decision-making organs had a negative impact on the operational and management results; iv) Inadequate monitoring and supervision can have a negative impact on the implementation of the project and can make the Bank in part responsible for the project’s poor performance overall. 10.3 Recommendations 10.3.1 For Governments i) Undertake a good assessment of the Company's restructuring policy primarily focusing on the efforts, strategies, measures and orientations on the financial viability of the Company and the sustainability of the projected project results; ii) Carry out an optimum planning of investments that take into account the relation between «operational expenses and debt service » in order not to exceed the Company's debt repayment capacity; iii) Reduce political interference and divest from the direct management of the Company, or at best, open up part of Air Afrique’s capital; iv) Reinforce the institutional support of the Company and meet, on a timely basis, the transport tickets issued on Air Afrique. 10.3.2 For Air Afrique i) When preparing the investment programmes, account should be taken of financial constraints whose bad assessment can jeopardized the Company's debt repayment capacity; ii) Improve the management of aeronautic stock whose value is very high, with a view to bringing it to an acceptable level; iii) Formulate the policy for the renewal of handling equipment by taking into account a plan for the reform and standardization of equipment with the aim of achieving the interchangeability of some equipment ; iv) Establish an alliance with foreign partners with the view to draw toward the industrial centers workloads whose cost is competitive based on quality/price; v) Put into application the Bank's recommendations regarding cost accounting whose implementation would reinforce the Company's management capacity. 19
10.3.3 For the Bank i) Before approving any modification, adequately assessment the extent of its impacts on project objectives and overall performance to establish whether the project should be reconsidered by the Board; ii) Reinforce the capacity and the frequency of the project supervision missions; iii) Determine the appropriate expertise for project appraisals and monitoring; iv) Require from the Borrower and the Executing Agency the timely preparation of project progress reports and completion reports, in accordance with Bank procedures. LIST OF ANNEXES
Number of pages
Annex 1 : Air Afrique Organizational Chart 1 Annex 2 : Table of Air Afrique's Shareholders 1 Annex 3 : Air Afrique Fleet 1 Annex 4 : Air Afrique's Debt Status 1 Annex 5 : Project Costs and Financing 1 Annex 6 : Disbursements Schedule by Sources of Finance 1 Annex 7 : Summary Table of Modifications 1 Annex 8 : Summary table of financial trends 1 Annex 9 : Implementation Performance 1 Annex 10 : Bank Performance 1 Annex 11 : Impact on Development 2 Annex 12 : Matrix of Recommendations and Follow-up Actions 1 Annex 13 : Conditions Precedent to First Disbursement 1 Annex 1 ORGANIZATIONAL CHART OF AIR AFRIQUE d e z i l a r t n e C s n o i t c n u F s n o i t c n u F d e z s i l a r t n e c e D Annex 2
TABLE OF AIR AFRIQUE SHAREHOLDERS
N° Shareholders Percentage 1. Eleven Member States (6.40% each) 70.40 % 2. SPAO/Air France Finances 12.17 % 3. Agence Française de Développement 9.12 % 4. BOAD 4.56 % 5. DHL 3.20 % 6. Abidjan Catering 0.55 % Total 100.00 %
Annex 3
AIR AFRIQUE FLEET
Variant In Leased Leased Activity From Type service Out in Airbus A310- Repossession by the credit Ownership 4 Passage 300 insurers and Airbus A300- Borrowings 3 Passage B4 Airbus A300- 2 2 Passage ILFC 600R B 737-300 3 3 Passage 2ILFC 1 JAT Long-term B707-320 C 1 1 Cargo World Air lease DC8-62F 1 1 Convertible Arrow Air Antonov AN12 1 1 Cargo Chapman Lease with buy option DC 10-30 1 Passage AOM
Annex 4
AIR AFRIQUE DEBT STATUS
Amount N° Debt (in billion CFAF ) 7. Aircraft Debt 129.30 8. ADB (guaranteed and non-guaranteed) 36.41 9. BDEAC 0.61 10. BOAD 1.18 11. AFD 8.36 12. PROPARCO 0.15 13. CREDIT LYONNAIS 0.48 Air Afrique debt status as at 31/12/98 176.49
Amount outstanding : 125.21 billion CFAF Arrears : 043.33 billion CFAF Late Interest charges : 007.95 billion CFAF Total : 176.49 billion CFAF Annex 5
REAL PROJECT COSTS AND FINANCING
Appraisal Completion CFAF million BUA million CFAF million BUA million % L.C. F.E. Total L.C. F.E. Total L.C. F.E. Total L.C. F.E. Total ADB - 15239 15239 - 37.60 37.60 - 16179 16179 - 37.58 37.58 81.36 Air Afrique 1425 2073 3498 3.51 5.10 8.61 1425 2073 3498 3.51 5.10 8.61 18.64 Total 1425 17312 18737 3.51 42.70 46.61 1425 18252 19677 3.51 42.68 46.19 100.00
Annex 6
DISBURSEMENTS SCHEDULE BY SOURCES OF FINANCE (million UA)
1990 1991 1992 1993 1994 TOTAL ADB 9.04 8.76 16.19 1.84 1.66 37.58 Air Afrique 2.07 2.01 3.71 0.42 0.38 8.61 TOTAL 11.11 10.77 19.90 2.26 2.04 46.19 Percentage 24.06 23.31 43.08 4.90 4.42 100.00
Annex 7
SUMMARY TABLE OF MODIFICATIONS
INITIAL MODIFIED COMPONENTS (in million UA ) (in million UA) F.E. L.C. Total F.E. L.C. Total Aircraft maintenance Aircraft overhauling 10.12 0.00 10.12 14.20 0.00 14.20 Aircraft spare parts 2.09 0.00 2.09 6.97 0.00 6.97 Equipment for industrial centers 3.64 0.00 3.64 3.59 0.00 3.59 Sub-Total 15.85 0.00 15.85 24.76 0.00 24.76 Aircraft Reconfiguration Aircraft Reconfiguration 4.86 0.07 4.93 0.80 0.00 0.80 Sub-Total 4.86 0.07 4.93 0.80 0.00 0.80 Stopover Equipment. Handling equipment 5.09 0.85 5.94 1.05 6.19 7.24 Computerized Registration 1.37 0.26 1.63 0.00 0.00 0.00 System GAETAN equipment 0.00 1.48 0.28 1.76 Alpha III/Pelican equipment 0.00 1.11 0.83 1.94 Sub-Total 6.46 1.11 7.57 3.64 7.30 10.94 Marketing computer Marketing computer equipment 1.05 0.79 1.84 equipment Sub-Total 1.05 0.79 1.84 Headquarters' computer 1.37 0.82 2.19 1.51 0.86 2.37 equipment Computer and office Decentralized computer 0.63 0.11 0.74 0.00 0.00 0.00 automation equipment equipment Office automation equipment 0.89 0.39 1.28 0.89 0.41 1.30 Sub- Total 2.89 1.32 4.21 2.40 1.27 3.67 Training 5.13 0.00 5.13 Studies 0.37 0.00 0.37 Training and studies Training flight engineers 0.00 0.00 0.00 6.06 0.00 6.06 Sub-Total 5.50 0.00 5.50 6.06 0.00 6.06 Base cost 36.61 3.29 39.90 37.65 8.57 46.22 Annex 8
SUMMARY TABLE OF FINANCIAL TRENDS (in million CFAF)
1990 1991 1992 1993 1994 1995 1996 1997 PKT Traffic 2,400.00 2,038.00 2,187.00 2,219.00 2,362.00 2,456.00 2,472.00 2,664.00 Passenger revenues 82,295.00 80,462.00 88,860.00 85,147.00 149,768.00 153,390.00 151,289.00 166,199.00 Unit/revenues 34.29 39.48 40.63 38.37 63.41 62.46 61.20 62.39 Other traffic revenue 36,370.00 34,792.00 32,172.00 35,391.00 63,278.00 70,573.00 66,146.00 73,944.00 Sundry revenues 15,884.00 16,528.00 18,550.00 19,357.00 29,506.00 25,903.00 28,963.00 43,677.00 Total revenues 136,983.29 133,859.48 141,809.63 142,152.37 244,977.41 252,384.46 248,931.20 286,546.39 Intermediate consumption 75,519.00 71,387.00 72,613.00 74,660.00 125,907.00 131,952.00 132,269.00 139,949.00 Value added without the 61,464.29 62,472.48 69,196.63 67,492.37 119,070.41 120,432.46 116,662.20 146,597.39 project Personnel expenses 14,107.00 15,179.00 17,418.00 17,503.00 20,244.00 23,722.00 25,336.00 24,567.00 Other expenses 36,777.00 36,025.00 34,800.00 39,811.00 66,584.00 73,966.00 73,180.00 78,269.00 Total expenses 126,403.00 122,591.00 124,831.00 131,974.00 212,735.00 229,640.00 230,785.00 242,785.00 Net Cash flow 6,954.00 9,627.00 11,096.00 2,815.00 18,607.00 6,137.00 3,236.00 25,361.00 Annex 9
FORM #1
IMPLEMENTATION PERFORMANCE
EVALUATION CRITERIA RATING RATING COMMENTS 1 Adherence to implementation schedule 2 The project’s implementation was delayed by 21 months. 2 Adherence to costs schedule 3 The project was implemented within budget limits and had an unspent balance of BUA 23,211 3 Compliance with contractual conditions 3 All conditions were fulfilled to comply with loan agreement clauses 4 Adequate supervision of accounts rendered 1 Air Afrique only provided 2 project status reports in 4 years and the Bank only carried out one supervision mission The quality of operations is satisfactory. Orders were respected, the equipment’s specification were in conformity with those spelled 5 Satisfactory operations (if any) 3 out in the requirements and bidding documents. 6 Total 12 7 Overall evaluation of implementation performance 2.4 The overall assessment is satisfactory
Annex 10 FORM # 2
BANK PERFORMANCE
EVALUATION CRITERIA RATING OBSERVATIONS 1 At identification 1 Did not take part in project identification 2 At project preparation 1 Did not take part in project preparation 3 At appraisal 3 Project costs were well estimated. However, the Bank did not adequately assess the impact of the modification of components 4 At supervision 1 The Bank’s project monitoring is not satisfactory; only one supervision mission during the entire duration of the project Overall assessment of Bank performance 1.5 The overall performance of the Bank is not satisfactory
Annex 11
FORM # 3 IMPACT ON DEVELOPMENT
EVALUATION CRITERIA RATING RATING COMMENTS Objectives relevance and 1 2.6 The project has not fully achieved its objectives. implementation 1.1 Macro-economic policy 2 The project is in keeping with the company’s recovery policy. The implementation of the project, by reinforcing the country’s 1.2 Sector policy 2 capacity, contributes to the promotion of air transport. It also enables the industrial promotion of the enterprise. All the project components have been fully implemented. The Physical implementation (including maintenance and servicing are carried out comply with the 1.3 3 production) standards required by the manufacturers and the aeronautical services. The operating expenses are very high. The company encounters difficulties in making the States accept the tariff scales 1.4 Financial policy 3 recommended by IATA and ATAF to enable carriers to balance their operations. 1.5 Poverty reduction, social and gender N/A The project has no significant impact on poverty. The project did not cause any damage to the environment. Engines 1.6 Environment 3 in the airline’s aircraft meet the acoustic norms imposed by ICAO. 1.7 Private sector development N/A The project has no privatization component. 2 Institutional development 2.5 The project needs an institutional support Institutional development, including The restructuring of the company has been envisaged following the 2.1 2 restructuring project’s implementation. The accounting and financial information system is not very efficient and renders the liquidation of pools difficult. The same Management and financial information 2.2 2 applies to the posting of revenues, thus making it impossible to system (including audit) analyse the results and determine cost-effectiveness. There is no cost accounting. The project made it possible to convert the DC 10 flight engineers 2.3 Transfer of technology 3 to new types of aircraft at the term of replacement of the fleet. Human resources (including turnover The technical staff and supervisors master the working tools 2.4 3 rate, training and counterpart staff) acquired under the project and the productivity increased slightly. 3 Sustainability 2.8 The Borrower had difficulties in meeting its deadlines and States 3.1 Sustain commitment of the Borrower 2 had to give their guarantees to regularise the situation. The company falls in line with the air transport environment. It is a result of the cooperation so often recommended by the donors and 3.2 Environmental policy 3 decision-makers on African integration. It is also a member of the major international air transport institutions. The Executing Agency is competent to ensure the management of 3.3 Institutional framework 3 the project. Equipment and tools delivered are well serviced periodically due to 3.4 Technical viability and staff supervision 3 the norms required in the air transport industry. The staff in place have the requisite skills to use and maintain this equipment. Financial viability including the cost Another restructuring plan is underway which will be followed by 3.5 recovery system 1 privatization 3. 6 Economic viability 2 3.7 Environmental viability 3 The project has no negative environmental impact. Operation and maintenance availability The company has a stock of spare parts large enough to cover its 3.8 of recurrent funds, exchange rate, spare 3 needs and pools with other carriers. parts, workshop equipment, etc. There was no completion report and therefore no elements for 4. Internal rate of return (IRR) N/A calculating the IRR. Overall assessment of impact on 5. 2.6 The project has had a satisfactory impact on development. development Annex 12
MATRIX OF RECOMMENDATIONS AND FOLLOW-UP ACTIONS
MAIN OBSERVATIONS RECOMMENDATIONS FOLLOW-UP ACTIONS RESPONSIBILITIES AND CONCLUSIONS Alliances with the other companies Project Formulation especially African Financial support on- and Objections: the airlines going financial Member States project is in keeping adjustment with the company’s Prepare a plan for the Air Afrique replacement of restructuring plan. Boost competitiveness handling services equipment Project implementation: Take steps to ensure Pay more attention to Air Afrique The project had an the rapid start-up of procurement procedures The Bank overall time overrun of the project for specific projects 21 months Compliance with Familiarize the Strengthen the training loan conditions: Air Afrique project staff with and retraining capacity of The general loan The Bank Bank procedures project staff conditions were met Assessment of the Develop the strategy of Control operating overall performance: alliance with other HUB expenses Financial performance companies Strengthen the unsatisfactory Development of Air Afrique institutional capacity, Institutional customer loyalty the financial structure performance Improve the aircraft and management inadequate occupancy rate Discuss and study thoroughly the Sustainability : sustainability of the Consolidate the The sustainability of project’s management and control Air Afrique most of the outcomes achievements as a systems of the company is uncertain. section in the appraisal report Annex 13
CONDITIONS PRECEDENT TO FIRST DISBURSEMENT
It was recommended to grant Air Afrique Multinational Company a loan not exceeding UA 37.60 million, with the joint guaranty of the Republic of Côte d'Ivoire and the Republic of Senegal, subject to the following conditions :
A) Conditions precedent to first disbursement
Prior to first disbursement, the multinational Air Afrique Company shall : i) Undertake to prepare and transmit to the Bank, later than December 1990, the Company's industrial policy as well as the full and detailed study of the extension of the industrial centers; ii) Show evidence of the rescheduling of the consolidated debt; iii) Undertake to submit to the Bank its fleet plan in terms of modules, within 6 months starting from the date of the loan agreement signature; iv) Show evidence of full payment, by the company's shareholders of the 1979 capital increase, as well as evidence of full payment of the advance on the current account as decided under the Company's 1989 Recovery Plan; v) Show evidence of the creation of the project implementation follow-up committee which will be attached to the headquarters. This committee will be made up of the heads of the various departments; vi) Show evidence of the appointment of the Coordinator of the Implementation monitoring committee; vii) Undertake to adopt the Company's staff regulations not later than 31 December 1990.
B) Other Conditions
Air Afrique shall in addition : i) Submit to the Bank for notification, every year starting from the 1991 financial year, its budget estimates for the coming year before the end of the on-going financial year; ii) Extend the terms of reference of the external auditors to cover all aspects of external auditing.