Friday, 28 May 2021

THE US$137M LOSS THAT SUNK AIR ZIM

NATIONAL flag carrier, Air Zimbabwe (AirZim), chalked over a US$137 million loss in four successive years which helped sink the airline deep into the abyss under the yoke of corporate malfeasance, incompetence, government interference and systemic corruption, a confidential document which has hitherto been kept under wraps shows.

Though the embattled airline had been on a gradual decline, its four-year loss-making streak, which marked the climax of its spectacular crash, coincided with the appointment of former president Robert Mugabe’s son-in-law, Simba Chikore, to the helm, and the setting up of a shadowy outfit called ZimAirways through public funds.

At that time, Chikore, who has appeared in court over his controversial role in the financial affairs of AirZim, doubled as the head of both airlines.

The loss-making streak stretching from 2014 to 2018 is revealed in the entity’s Reconstruction Report which also highlights the depth of the crisis. The report was prepared by the airline administrator Grant Thornton.

As shown in the yet-to-be-published report, seen by the Zimbabwe Independent this week, a timeline marking the trajectory of how the entity airline plunged into insolvency reveals that it completely grounded operations in 2011, buckling to a headwind of challenges characterised by an acute shortage of foreign currency.

The state-run airline only resumed operations in 2013, albeit with a leaner staff complement, flying routes and a fleet of antiquated aircraft, most of which had been phased out by modern airlines.

In the report prepared by Grant Thronton’s administrator, Reggie Saruchera, AirZim posted a loss of US$40 106 258 in 2014 with expenses totalling US$71 500 902.

The following year, the airline posted a US$28 857 563 loss and incurred US$61 736 856 expenses. Revenue generated stood at US$32 879 293.

As operational challenges persisted, compounded by a liquidity crisis gripping the economy, the state-run airline posted a loss of US$22 289 335 while expenses stood at US$56 506 380. Revenue stood at US$34 217 046.

From 2017 to 2018, AirZim posted losses of US$33 110 078 and US$14 287 913, respectively. In 2017, expenses stood at US$62 243 488 and dropped by almost 50% in 2018 at US$31 383 917.

The airline was placed under reconstruction in 2018. Grant Thornton, summarising the grim financial affairs of AirZim, noted that: “Historical unaudited financial statements for the four-year period ending 31 December 2017, shows that the airline recorded persistent losses characterised by a decline in revenue.

“Air Zimbabwe’s operating aircraft reduced from a peak of seven in 2009 to two in 2018. In addition, the equipment in use is over 25-years old resulting in high operating costs. The airline is operating in an environment where it is earning most of its revenue in local RTGS. We note however that most of the airline’s costs are denominated in foreign currency.”

The confidential document, which was prepared on November 28, 2018 was submitted to the late Transport minister Joel Biggie Matiza, Justice minister Ziyambi Ziyambi and AirZim’s creditors.

When the document was prepared, AirZim’s liabilities ballooned to US$380 million with an asset portfolio worth US$127 million. Cumulative debt rose to US$370 million, with US$30 million constituted by foreign liabilities. Subsequently, it was declared a non-going concern.

In its reconstruction report, the administrator highlighted: “As at October 4, 2018, AirZim’s total liabilities exceeded assets by US$253 429 048, therefore, the company is insolvent.”

Over the years marking its systematic collapse, the struggling airline was suspended by various international aviation affiliated organisations for defaulting on membership subscription fees and other related charges.

For example, in May 2011, the airline was suspended from International Aviation Ticketing Association’s (Iata) booking system over unpaid fees which had accumulated to US$4,4 million.

Amadeus, the main supplier for the South African market, disconnected AirZim in March 2018 over an outstanding debt of 399 634,81 euro.

Resultantly, AirZim lost its ability to “tap into the interlining passenger and cargo revenue. It now relies solely on-point-to-point traffic revenues”.

Challenges of swiftly and efficiently moving funds “to and from counterpart airlines and travel partners” also set in, as observed by the administrator’s reconstruction report which the government has not made public but seen by the Independent.

In May 2017, AirZim was also banned from flying into or over the EU airspace after an adverse audit Iata Operational Safety Audit (Iosa).

It was also suspended by Travelport, an international passenger booking inventory management and departure supplier.

At the time the embattled airline was placed under reconstruction, it owed government related entities a total of US$205 995 263 and a debt of US$86 415 987 to its parent ministry.

The confidential reconstruction exercise proposes a range of short-term measures to stop the airline from haemorrhaging, cutting operational costs and boosting revenue, among other interventions to resuscitate the ailing entity.

It proposes to “rationalise operations, redeploy current fleet, increase flight frequencies on profitable routes and expand route networks targeting Lilongwe, Lusaka, Cape Town and Durban”.

“In this regard, we propose that the government should reserve an allocation of between 2-5% foreign currency generated from the tourism, commerce and industry sectors to enable the airline to meet its foreign currency commitments.”

Saruchera’s report also highlighted that it was imperative for the grounded airline to rejoin international aviation associations through settling its arrears.

At least US$42 000 was required in 2018 to regularise the Iosa certification while US$4,4 million was needed to “attain the Iata clearing house membership”.

At the time the report was compiled, the administrator had engaged the central bank to guarantee a loan facility which would be channelled towards the purchase of modern aircraft.

“Proposed immediate measures (include) arranging loan facilities to secure the procurement of aircraft. This loan will be accorded super priority over legacy debt. The RBZ has confirmed they have an LC (Letters of Credit) facility through which they can support the acquisition of narrowbody aircraft.”

 

The administrator also highlights the importance of coming up with a debt settlement plan with the airline’s various creditors.

The report proposes to “consider rescheduling the pre-reconstruction order debt over a period of three to five years and consider debt to equity swap. Engage the government and explore the following, debt assumption and guarantee availability of foreign currency required to service foreign creditors over an agreed period of time”.

During the first phase of the reconstruction exercise, AirZim, among other things, was allowed to “lease out two Boeing 767 aircrafts to support the immediate turnaround and collect airfares in foreign currency for all passengers originating from Zimbabwe.”

It was also allowed to buy Embraer ERJ 145 and B737-700. In the second phase of the reconstruction programme, AirZim was given the mandate by the government, being the sole shareholder, to identify a strategic partner and rejoin Iata.

Government also committed to assume the airline’s debt while it also acquired four aircraft for use by the airline.

According to the report this week, the administrator also proposed, in the long term, to ply profitable routes such as Harare-London and Harare-Mumbai-Guangzhou. Zimbabwe Independent

 

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