13 February 2013

Namibia: Air Namibia Approaches Cabinet With New Rescue Plan

TOMORROW is D-Day for Air Namibia when the airline's board and management will present a rescue plan to the Cabinet treasury committee on the short- and long-term viability of the national carrier.

This came shortly after the new board, appointed on July 1 last year, became aware that financial transgressions by the management impacted so gravely on the cash-flow situation that an immediate financial injection from Government as shareholder was required. It was also realised that a one-off injection would not be sufficient.

"The fixed monthly operational expenses had surpassed the business plan projections to such a serious extent that the shareholder instructed the board in November to implement an immediate turnaround rescue plan," board chairman Harald Schmidt told The Namibian.

Government allocated an amount of N$822 million to Air Namibia to execute its business plan during the current financial year, but the Ministry of Works and Transport had to make an additional N$257 million available to cover operational costs.

According to Finance Permanent Secretary Ericah Shafudah the airline will receive an amount of N$164 million during the 2013/2014 book year, which starts on 1 April 2013.

"However, they indicated that Air Namibia would need an additional N$258 million to comply with its other financial obligations.

"It was at that stage that it was decided that Air Namibia, in the presence of Works and Transport Minister Erkki Nghimtina, has to present a rescue plan to the Cabinet Committee on Treasury so that the members can be informed about possible solutions for the airline," Shafudah told The Namibian.

She said it was not a matter that the current business plan would be ditched, adding that it should be ensured that its implementation is done in an effective way. "Emphasis should be placed on cost-saving measures to curb the increase in expenditure," said Shafudah.

In support of this measure, Schmidt said the board was assessing the extent of the airline's current financial situation and comparing these figures with the parameters set by the business plan. He said it transpired that the management had channelled a substantial portion of funding received from the government for the payment of the two new planes to operational expenses.

"This reallocation of funds ensured that the excessive operational expenses could be maintained for a period - but when they were exhausted the realities expressed themselves by way of a serious cash-flow crisis. To add insult to injury, the planes could not be delivered either, because the full settlement amount had not been transferred to the supplier," Schmidt said.

He said with management being driven by a strong conviction that they had acted, at all times, in good faith, they also saw no need to inform the new board about any of their decisions. He added that the situation was further compounded by the fact that the financial reporting lagged behind by at least five months.

The situation was further fuelled when all three unions representing airline staff went on strike in November last year, demanding higher salaries.

"Falling revenue and excessive high fixed operational costs were now forcing the airline towards a point of insolvency - a situation that was definitely not foreseen in the business plan. So, it would not make sense to call on management to uphold the business plan. A crisis had erupted and had spilled into every segment of the airline. The crisis had to be contained and prevented from spinning out of control and preventing the airline from experiencing a complete operational crash," said Schmidt.

He concluded that every effort was being made to ascertain whether the emergency turnaround rescue plan would be able to realign the future operations and how long this process would take. He said all stakeholders were determined to take the required decisions to affect the necessary changes that would ultimately lead to a renewed alignment to the existing business plan.

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