15 February 2019

Zimbabwe: Can Air Zim Be Run Profitably?

Photo: The Herald
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analysis

Air Zimbabwe was placed under reconstruction on October 4 2018 after operating for over 51 years in the skies.

The airline has debts exceeding US$350 million that are weighing down the restructuring exercise or potential bids. Before the airline was placed under reconstruction, losses averaged US$2 million per month and fleet age averaged 30 years. In 1980, Air Zimbabwe had a fleet of 18 planes that serviced over 30 destinations locally, regionally and internationally. Passenger numbers averaged between 900 000 and 1 million per year from 1980 to 1998.

Fast forward to 2019, only one plane is functional from the six planes remaining and passenger numbers fall below 200 000 per annum. As if that was not enough for the troubled airline, flights had to be suspended temporarily from January 11 to 15, 2019 to afford the only functioning plane (Boeing 767-200ER) to go for maintenance. The nation can only imagine revenues that the airline could make from the 2,7 million tourists that arrived at Zimbabwean airports in 2018.

The government has of late resorted to chartering private jets and flying senior officials on competitor airlines for business trips abroad. A few competitor airlines that ply the local routes have taken over the Zimbabwean skies and now command massive market share in the region.

The government recently announced that it will acquire four Boeing 777 long-haul planes from Malaysia and one Embraer aircraft from the US at unspecified prices after the reconstruction exercise. This comes after a US$70 million deal to buy the same four planes under Zimbabwe Airways was abandoned last year. However, questions remain as to whether Air Zimbabwe can be run profitably with the government in total control and how Air Zimbabwe can be turned around.

Historically, the aviation industry has never seen any company declare profits consistently over a sustained period as observed in other sectors such as energy, technology, banking, automobiles and mining. The aviation industry has proved that no company can create long-term sustainable competitive advantage over others. From the year 2000 to 2010, at least three legacy airlines (Delta, American and United) filed for bankruptcy in the United States alone, joining Northwest, Continental and Eastern airlines that had gone down the same route. Very few national airlines make revenues that cover their massive operating costs and the African continent is no exception. The International Air Transport Association (Iata) has projected that Africa's airlines are expected to continue incurring a combined loss of US$100 million in 2018, the same as 2017. Africa as a whole only has about 2% of global passenger traffic.

Today, there are only three major sub-Saharan intercontinental airlines i.e. Kenya Airways, Ethiopian Airlines and South African Airways. The only profitable one is Ethiopian Airlines (not managed by the government) which made a profit of US$233 million in 2018 and has a fleet of 108 planes. The rest incur massive losses yearly and rely on government bailouts for survival. In South Africa, the government has pumped millions of dollars to save South African Airways (SAA) in the last 10 years to no avail. Even though SAA has a fleet of 68 planes, cumulative losses from 2011 to 2018 exceed US$1,7 billion. Air Tanzania and Kenyan Airways face the same hurdles in terms of debt and losses despite boasting of large fleet sizes for economies of scale. Other African national airlines such as Air Gabon, Air Burundi, Air Congo, Air Togo, Cameroon Airlines, Zambian, Ghana, Nigerian, Lesotho and Ugandan Airways liquidated several years back and opened their skies to private competition.

Air Zimbabwe plays a critical role in facilitating business, international trade and tourism in Zimbabwe while carrying the national flag. However, the time has come for the government to let go of its majority shareholding in the airline. The current reconstruction exercise under the Reconstruction of State-Indebted Insolvent Companies Act Chapter 24:27 should be used to push for a public-private partnership (PPP) with a few renowned airline operators or investors. It is now imperative to allow private players to independently manage the airline operations for the good of Zimbabwean tourism. Leasing or buying new planes and restructuring the airline while maintaining 100% government ownership may delay the inevitable but cannot prevent it. A partnership allows the government to maintain some level of influence for purposes of national security, infrastructure maintenance, local employment and skills development while benefiting from aviation industry expertise from private investors who are motivated by profit. Only through that can Air Zimbabwe be run profitably and sustainably.

Bhoroma is a business and economic analyst. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ).

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