18 May 2017

Namibia: Schlettwein Doubts Airnam Report

FINANCE minister Calle Schlettwein yesterday cast doubt on claims that Air Namibia's loss-making routes, including the Windhoek-Frankfurt one, should be sustained.

He was commenting on a report titled 'The Economic Impact of Air Namibia', produced and presented by Oxford economist Ian Mulheirn at the airline's stakeholders' meeting in Windhoek yesterday.

While the report is silent on the large subsidies the airline receives from the government annually, it also claims that Air Namibia made losses of more than N$260 million during the 2015/16 financial year.

Although it is not clear how the airline incurred these losses, Schlettwein singled out the Windhoek-Frankfurt route as one of the major reasons for Air Namibia's losses.

He also said state subsidies over the years have run into billions, and at the expense of taxpayers. "This money could have been used for something else," he stressed.

Schlettwein said there had to be another way for the airline to operate without incurring so many losses and being dependent on state bailouts, and that the effectiveness of state subsidies to the airline had to be investigated.

According to the national budget which Schlettwein tabled in March, Air Namibia will continue to be a strain on state finances over the next three years as the loss-making national airline has been allocated N$486 million during the 2017/18 financial year, N$493,9 million in 2018/19, and N$497,7 million in 2019/20.

These amounts are lower than those projected in the last Medium Term Expenditure Framework (MTEF) as contained in the 2016/17 budget documents. In those projections, N$733,4 million and N$757 million were to flow from state coffers to Air Namibia during the 2017/18 and 2018/19 financial years, respectively.

Over the last seven years, Air Namibia has received bailouts totalling N$4,2 billion from government, since 2010/11 up to 2016/17.

This is not, however, captured in Mulheirn's report on the airline. Instead, the report claims that in 2015/16, Air Namibia's operations and aviation-related capital spending made a N$704 million contribution to the Namibian economy, and sustained 4 550 jobs.

In addition to the airline's own operations, the report further states that Air Namibia spent over N$1 billion on goods and services supplied by local companies.

These purchases apparently supported business activity throughout Namibia, as did the spending on wages of those employed by Air Namibia and by firms within its supply chains, it states.

"These benefits are not only retained within the aviation or tourism sectors, but rather 'ripple out' throughout the economy. Of nine broad sectors in the Namibian economy, five of them enjoy activity in excess of N$50 million as a result of Air Namibia's operations," the report reads.

"We estimate these revenues reached N$316 million in 2015/16; and this was equivalent to 55% of the subsidy the airline received that year," the report reads.

In the 2015/16 financial year, 560 000 people flew with the airline on its domestic and international routes. According to the report, this figure could decline by an estimated 79 000 passengers if the airline withdrew from some routes.

"Air Namibia's internal projections foresee network-wide passenger numbers increasing by nearly 50% by 2020/21, with passenger numbers on international routes increasing by 750 000," the report reads.

Mulheirn's report also states that the airline's core contribution to the country's economy was expected to expand over the years, with operations and aviation-related capital investment to reach up to N$1,7 billion and also supporting 6 300 jobs, while revenue to government will be N$463 million.

According to the report, Air Namibia "boosted productivity, and so GDP, by N$1,4 billion in 2015/16, equivalent to 0,9% of national GDP".

Air Namibia's acting managing director, Mandi Samson, said the airline intends to expand its services over the next five years through route consolidation, capacity expansion and the addition of new services through Gaborone, Durban, Nairobi, Lagos and Accra.

She said Windhoek-Frankfurt flights have increased by 10% since April this year, which helps improve aircraft utilisation and enhances opportunities for revenue growth.

Samson added that they were looking at introducing three new African destinations and the introduction of the Gaborone/Durban route as part of their five-year strategic plan.

Mulheirn said in his presentation that the absence of Air Namibia will affect tourism, and would leave consumers with two options: to fly directly on a different carrier, or to take an indirect route using different carriers, which would lead to increased costs and longer journeys for travellers.

Works minister Alpheus !Naruseb, who was also at the event, promised that the government would always be there for the airline, should it need assistance.

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