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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