* Govt plans to transform it into budget airline
* First privatisation attempt flopped
By Fumbuka Ng'wanakilala
DAR ES SALAAM, March 24 (Reuters) - Tanzania is in talks with investors interested in buying a stake in the state-run Air Tanzania after its previous privatisation to South African Airways failed, a senior government official said on Thursday.
Tanzania's national flag carrier has been forced to suspend operations after its sole aircraft, Bombardier-built Dash 8 Q300, was flown to South Africa for maintenance.
"Several companies have expressed keen interest to invest in Air Tanzania. We are proceeding with talks with some of these companies," Deputy Transport Minister Athumani Mfutakamba told Reuters in an interview.
"The airline has a lot of assets, including its routes. We are confident that we will attract suitable strategic investors."
This is the second time Tanzania has sought a partner for the loss-making carrier. In 2006, South African Airways gave up a 49 percent stake in the airline for $20 million after only five years of being a shareholder.
The government announced in 2009 that a Chinese firm, China Sonangol International, was interested in a 49 percent stake in the airline.
Sonangol is largely involved in exploration for oil, gas and minerals, crude oil trading and large-scale national reconstruction projects. In Africa, it has a stake in Angola's Sonair airline.
Mfutakamba would not confirm if the Chinese firm was among companies in talks with the government for a stake in the troubled carrier.
"Investors interested in Air Tanzania will benefit from bilateral air service agreements. We support the idea of having a national flag carrier and Tanzania will remain to be the principal place of business for the airline," he said.
LOW-COST CARRIER
He said the government planned to re-capitalise Air Tanzania under a public-private partnership arrangement.
He said the government was keen to transform Air Tanzania into a budget airline to lower air transportation costs in east Africa's second largest economy.
"We want to concentrate on low-cost carriers and introduce cheap flights, such as $70 tickets for some domestic destinations," he said.
"A vibrant Air Tanzania will help boost tourism activities in the country and ease transport problems."
Mfutakamba said an investor that will be picked to run the airline would be required to gradually expand its operations.
"We suggest the investor should initially focus on internal routes before moving to regional routes and finally international flights," he said.
Air Tanzania has lost out to Precision Air as the country's leading airline.
A low-cost carrier, Fly 540, and other smaller airlines have also taken up the void left by the state-run airline.
Since establishment in 1977, Air Tanzania has made operating profit in one or two years only and was unable to meet its direct operating costs for the whole of 2008, according to documents from the government's audit office. (Editing by George Obulutsa and Jon Loades-Carter) (Email:nairobi.newsroom@reuters.com; +254 20 2224 717))(For more Reuters Africa coverage and to have your say on the top issues,visit: http://af.reuters.com/)