THE cash-strapped government has rolled out an ambitious plan to overhaul struggling flag-carrier Air Zimbabwe (AirZim) that will see Treasury expunging the airline’s legacy debts by way of liquidation before acquiring new planes from Asia and rebranding to Zimbabwe Airways, it has been established.
By Taurai Mangudhla/Bernard Mpofu
It is understood that Auditor-General Mildred Chiri was tasked with overseeing and auditing the airline with a view to winding up operations before the proverbial rise of the phoenix.
After failing to court new investors due to the company’s weak balance sheet, government is now seeking partnerships with international airlines instead of engaging a strategic partner to turn around AirZim.
At independence in 1980, the airline had 18 planes in its fleet, but today it is operating at less than a third of its all-time peak.
This comes as Transport minister Joram Gumbo is in Malaysia, where he is understood to be engaged in a series of meetings to acquire new aircraft for AirZim.
He told tourism industry players in Victoria Falls last Sunday that his Malaysia trip could From Page 1
provide a much-needed breakthrough. The airline is also reeling under a debt in excess of US$330 million that has hampered its efforts to engage strategic partners in a bid to claw back market share.
This came as managing director of Ethiopian Airlines (international services), Esayas Woldemariam, told the Zimbabwe Independent this week that the resuscitation of AirZim will depend on the “political will” of the Zimbabwean government.
He said Ethiopian Airlines, Africa’s biggest cargo and passenger carrier, is ready to rescue Air Zimbabwe, either through a joint-venture deal or a management consultancy.
“It all depends on the political will of the government of Zimbabwe, and on how they want to put it, whether it is going to be a joint venture or management consultancy. Ethiopian Airlines is ready for all that,” said Woldemariam.
“We have all the human resources, the material resources and the financial resources. We are looking forward to co-operating with Zimbabwe in a very big way so that we can be able to revamp the whole thing so that Zimbabwe and the rest of Africa are capable of combating the other airlines so that we can defend Africa’s resources and defend the traffic of African airlines,” he added.
Woldemariam said AirZim lacks “focus” but expressed hope that the ailing airline could be revived.
Aviation industry sources told the Independent that following cabinet approval paving way for the turnaround of the loss-making entity, the airline will carry out a major restructuring exercise expected to result in the rebranding of the airline to “Zimbabwe Airways”.
“The first step is to clean up the balance sheet by way of government taking over the entire debt, then the airline is liquidated so that the new entity is free from legacy debt,” a source close to the process who requested not to be named said this week. “After the new unit is formed, all new aircraft and other assets are then brought to its books including part of the personnel.”
Internal sources said government had decided to go it alone in turning around the airline, abandoning previous considerations to get a technical partner.
Late last year, government engaged five international carriers from Kenya, Ethiopia, Singapore, Turkey and Malaysia to partner the troubled Air Zimbabwe with hopes of turning around the fortunes of the ailing and debt-ridden flag carrier.
This came after cabinet gave Gumbo the nod to seek private partnerships. “AirZim has a lot of debt and nothing in terms of assets so you can’t put it into a partnership that is expected to be fair and yield results when they have nothing to bring to the table,” another source privy to the strategy said.
“An African airline at some point wanted to partner us and the terms were that they would take over management of the airline including handling all the cash for two years and have majority board seats.”
It is understood the restructuring will lead to massive retrenchment of staff before the formation of the new company.
The sources said the airline’s board resolved that it would employ cost-effective, up-to-date regional aircraft that will be sized right for the market and route, leading to improved and higher load factors; reduced costs; improved efficiency and flexibility and higher margins.
“AirZim is also seeking the development and implementation of co-operations, associations and partnerships with other larger more established and highly regarded airlines and the disposal and leasing out of assets currently utilised including buildings and planes,” a source familiar with the developments said.
The national airline has continued to struggle, incurring cumulative losses and relying on Treasury for survival. In 2011, Air Zimbabwe’s Boeing 737-500 was impounded in South Africa after failing to settle a
US$500 000 debt owed to Bid Air Services for ground handling services.
Its largest aircraft, a Boeing 767-200, was seized by American General Supplies in London over a US$1,2 million debt in the same year. The plane was later released after the airline paid the debt, but Air Zimbabwe immediately stopped flying to London, one of its most lucrative routes.
As reported by the Independent last week, the AirZim restructuring has been at the centre of a tiff between the airline’s chief executive and chief operating officer.
President Robert Mugabe’s son-in-law and AirZim COO Simba Chikore took over the day-to-day running of the ailing flag carrier, relegating CEO Ripton Muzenda to a figurehead. The rift has sucked in the AirZim board, Gumbo and the First Family, given Chikore’s proximity to the Mugabes.
In 2013, cabinet approved a proposal by the AirZim board to raise US$15 million through 180-day commercial paper.
The airline also proposed the issuance of ordinary shares to raise US$30 million through private placement to local investors and the issuance of ordinary shares and preference shares to international investors and partners.
To clean its balance sheet and solve legacy issues, the then AirZim board led by banker Ozias Bvute also proposed the restructuring of the current debt through the issuance of money-market instruments to current creditors.
The company also planned to issue 10-year corporate bonds to current creditors and other third-party investors of up to US$200 million to reduce the debt overhang affecting the entity. Following the approval of the plan, officials embarked on road shows, canvassing for investors. During that same year, the Transport ministry commissioned audit firm Ernst & Young to develop a business plan for AirZim which was approved by cabinet.
Government has already agreed to take over the debts, through the Air Zimbabwe Debt Assumption Bill, to allow the airline and its technical partner to start on a clean slate.