Friday, October 21, 2011

Air Zimbabwe now US$138 million in debt

Air Zimbabwe is losing US$3.5 million a month and currently has US$138 million of debt, according to the airline’s head, versus US$6 million of debt in 2006.
“Our cost of operating the business sits at about US$6 to US$7.5 million,” Air Zimbabwe Chief Executive Officer Innocent Mavhunga said on Tuesday, Radio VOP reports. “Our income is between US$2.5 and US$3.5 million. So simple mathematics would tell us there is a deficit averaging US$3.5 to US$5 million every month." He said that the state owned airline has US$137.7 million of debt, US$112.7 of which is owed to local creditors.
Mavhunga made the comments at Parliament’s Portfolio Committee on State Enterprises and Parastatals, which asked airline management to discuss the current state of affairs and explain how the airline will overcome its problems.
“On internal debt, statutory obligations to companies like the Zimbabwe Revenue Authority and the National Social Security Authority account for US$38 million, loans from the ministry of transport are up to US$26 million, deferred staff salaries and allowances are US$20 million plus US$12.3 million from our overdraft facility with our banks,” Mavhunga added.
“Our external debt comprises US$4.6 million to the International Air Transport Association and another US$4 million to Global Systems. We also owe our aircraft spares and parts suppliers some money and I think we have about US$5 to US$8 million for navigation services.”
Mavhunga said Air Zimbabwe’s dismal financial situation was due to sanctions and, during the era of the Zimbabwe dollar, the government’s refusal to charge in foreign currency. Other reasons for the airline’s poor performance were repeated pilot strikes, high operational costs from ageing aircraft, reduced passenger confidence in the airline and government interference.
“AirZim has been operating under a deficit since the 1990s and this worsened at the inception of the multiple currency regime,” Mavhunga siaid. “We have become less competitive, hence we have to price our fares slightly below our competitors.”
Several Air Zimbabwe aircraft were earlier this year grounded due to safety concerns and a leased aircraft was taken back after Air Zimbabwe could not pay for it. Of the airline’s fleet of eight aircraft, three are grounded. Such incidents have resulted in a big drop in passenger numbers and some Air Zimbabwe flights this year have flown almost completely empty.
Declining passenger numbers have forced the airline to reduce the number of destinations it services. It currently flies to Harare, Johannesburg, Lusaka, Bulawayo, Victoria Falls and Lubumbashi locally and Malaysia, China and the UK internationally.
Foreign carriers have been taking over the domestic market. “Our market share versus South African Airways is quite low. We control 30% of the Johannesburg route and market, whilst SAA accounts for about 50% of the market and British Airways slightly below 20%,” Mavhunga said.
Mavhunga said that Air Zimbabwe needs to be privatised and needs to retrench 400 employees from its bloated workforce of more than a thousand employees in order to cut costs. The airline consistently struggles to pay its workforce – something that has led to repeated pilot strikes. The airline last paid its workers in June.
“We immediately require US$40 million as working capital because we are operating on a cash-upfront basis with all our service providers and we need to service our creditors. We immediately need to restructure the airline, look at change management, recapitalise and inject a new fleet,” Mavhunga said, adding that it will take up to a year to overcome damage from the recent strikes.
The airline’s general manager Moses Mapanda told the parliamentary committee that attempts to assist Air Zimbabwe by encouraging government officials and MPs to travel on the state airline were not working. “If government officials do not support their own business, how does the shareholder expect Air Zimbabwe to survive?” he asked.