Insolvent Air Zim needs $260mln, Parly told

DISTRESSED national carrier Air Zimbabwe is seeking $260 million to recapitalize as debt continues to blight the airline’s turnaround strategy, acting chief executive officer Edmund Makona said on Monday.

Makona told a parliamentary committee on transport and infrastructure development that management and the board had crafted a four year recovery plan for the airline, which forecast a $7 million loss for the full-year to December despite a modest growth in the global aviation industry.

The company has projected $148 million in revenue against total expenditure of $155 million in 2015.

Under the proposed three-phased plan, which is yet to receive government approval, management will initiate measures that will arrest the current loss-making position before break-even and profitability.

Air Zimbabwe, Makona said is currently saddled with a $298 million debt and wants government to expunge the liability. Of the debt, $272 million is local.

“Honourable members, this team would be lying under oath to say that Air Zimbabwe can be turned around overnight. With the current set up of $298 million debt, it is not possible to come up overnight in a turnaround process and find ourselves in a profitable situation,” said Makona.

“The economic life of our aircraft is 20 years, beyond 20 years, they are saying no matter how much you strive, you will be operating but you may not be making a profit. At 20 years our Boeing aircraft, the two types, are beyond 20 years. In terms of safety, the lifespan is 75,000 cycles, which is given in terms of landings and take-offs. At the moment, our most utilised aircraft, which is the Boeing 737 is nearing 40,000 cycles. So our aircraft in terms of utilisation, have always been underutilised. In terms of safety, they are still safe.”

Global airlines are this year expected to post an aggregate net profit $25 billion from $19,9 billion reported in 2014.

The airline’s general manager in charge of finance and support services, Pagiel Chimudzi said the airline is technically insolvent and requires fresh capital to turn around its fortunes.

“The airline is actually insolvent, if it was a private company with no government involvement the directors would need to be prosecuted for reckless trade. This is the reality,” he said.

“Maybe people have not been saying it clearly so I am going to say it clearly that what is needed from the shareholder is to put in money to pay off creditors because we owe them. Further to that, there is need to put in money to recapitalize the business.  But right now we have a situation where (the shareholder has) not put in the resources.”

He compared Air Zimbabwe to “a patient who is in dire need of fluids otherwise they die of dehydration.”

At the moment, the airline was getting government support on an adhoc basis, he added.

Chimudzi said the Air Zimbabwe should also change its model to cater for the low end market in the face of new entrants on the domestic market.

Makona said the airline is currently flying three out of its fleet of 10 aircraft and hopes to have two that are currently being serviced in neighboring South Africa by month-end.

The airline also wants to reintroduce domestic flights to Buffalo Range to widen its revenue inflows. The funds, the company said would also help in acquiring two turbo prop aircraft.

Last December, Makona said he expected total passenger traffic to double to 365,000 this year on increased tourists.

Government has said it expects foreign arrivals to rise to 3,2 million this year from 2,5 million last year. (The Source)