RWANDAIR REPLACES CEO - CANCELS FLIGHTS TO

UNCLAS SECTION 01 OF 02 KIGALI 000264 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EAIR ECON EFIN EINV AMGT CASC RW SUBJECT: RWANDAIR REPLACES CEO - CANCELS FLIGHTS TO JOHANNESBURG, NAIROBI REF: KIGALI 00202 ¶1. (SBU) Summary. Former CEO of Rwandair, Manzi Kayihura, was arrested March 28 on charges of abuse of office. Rwanda's national airline has been battered recently by safety concerns, poor customer service and financial woes (reftel). Incoming CEO and former Board Chairman Gerald Zirimwabagabo confirmed that the airline has been forced to cancel flights to Johannesburg and Nairobi, but asserted that it was continuing flights to Bujumbura, Entebbe and Kilimanjaro. The new CEO admitted that the long-hoped for privatization was unlikely to happen anytime soon because "Rawandair is too weak to be privatized." Zirimwabagabo asserted the airline is now looking at rebuilding its business plan and restructuring operations. End Summary ¶2. (U) The March 28 arrest of former CEO Kayihura follows months of erratic service, mechanical failures and safety concerns on leased Boeing 737 aircraft that provided service to Johannesburg and Nairobi for Rwandair (reftel). The local press reported that Kayihura was arrested on charges of "abuse of office." Kayihura has since been released from police custody but reportedly continues to be under investigation pending formal charges. New CEO Zirimwabagabo told Econoff that Rwandair's problems were due to mismanagement and admitted that the airline did not have a good business plan, suffered from poor customer service and lacked sufficient business to be profitable. ¶3. (SBU) Zirimwabagabo confirmed that Rwandair has been in negotiation with Meridian Airlines and SN Brussels for privatization. These negotiations are still ongoing, but the CEO was doubtful of the outcome. The prospective buyers were supposed to have submitted bids in January, but as of now the parties are still tied up in due diligence and renegotiation of the sale conditions, he said. Zirimwabagabo claimed that the sale of the airline was poorly packaged from the beginning and candidly stated "Rwandair is too weak to be privatized." ¶4. (SBU) If the privatization fails, the airline's new management will attempt to rebuild the business model and restructure operations. Zirimwabagabo admitted he does not have any aviation experience, so his first priority will be to hire an aviation expert to advise the airline. The CEO noted Rwandair will continue to fly its CRJ aircraft to Entebbe, Bujumbura and Kilimanjaro and asserted these planes were reliable and the routes profitable. However, the CRJ aircraft have limited range and cargo capacity making them impractical to use on the Nairobi and Johannesburg routes, he said. In the interim, Rwandair is attempting to negotiate a joint route agreement with one of three regional carriers (Kenya Air, Jet Link and an airline based in Uganda) to cover the Kigali-Nairobi run. Zirimwabagabo said he hoped to conclude these negotiations within two weeks. ¶5. (SBU) Separately, the South African Ambassador told Charge on April 7 that he raised the cancellation of service to Johannesburg with South African Airways and asked SAA to consider reinstating once-a-week service to Johannesburg. SAA, however, did not appear to be interested. The QSAA, however, did not appear to be interested. The Ambassador noted there was a possibility that Namibia Air might consider starting a Windhoek-J,burg-Kigali run in the future, adding that SAA serviced Nambia Air,s planes in South Africa so he was confident that the planes were safe. With regard to Rwandair,s use of several South African-based charters, the Ambassador noted that two of the charter companies did not have good safety records and one (Nation-wide) had in fact been grounded. ¶6. (SBU) Looking forward, Rwandair hopes to add cargo capacity and expand its routes. Zirimwabagabo claimed that Rwandair is interested in looking at a "lease to purchase" of a used Boeing 737-300. This aircraft would provide Rwandair with the capacity to service Nairobi and Johannesburg without relying on the use of a wet lease aircraft and would also offer the opportunity to explore new routes such as to Dubai. He also said that Rwandair will need to focus on better training of its customer service staff, establish stronger KIGALI 00000264 002 OF 002 alliances with other regional airlines and market the airline more effectively to travel agencies and tour groups. ¶7. (SBU) Comment: Rwandair appears to be confronting the serious safety, management and financial issues that have burdened the airline of late. The airline has been hoping for a white knight to rescue it from its financial woes -- this does not now appear to be a viable option. While management's recognition of the weaknesses confronting Rwandair is a step towards resolving them, it is too soon to say that the airline's problems are behind it. Much will depend on the restructuring that airline management claims are in the works, and the willingness of the Rwandan Government to continue to fund an unprofitable business. Reaching out to other regional airlines to pick up routes may provide a short-term solution, but we anticipate that travel on Rwandair to Nairobi and Johannesburg will continue to be erratic at best. SIM