Namibia: Govt Could Pay N$2,5 Billion to Shut Down Air Namibia

Air Namibia plane (file photo).

PUBLIC enterprises minister Leon Jooste and other government officials are currently in the United States to negotiate Air Namibia's exit from aircraft lease agreements, the clearest signal of an imminent closure of the national airline, which could cost the government around N$2,5 billion.

Jooste confirmed the trip to The Namibian this week, saying it had been approved by Cabinet. He and a delegation comprising officials from the transport ministry and the attorney general's office will meet the US company tomorrow.

The trip comes two months after finance minister Calle Schlettwein submitted a memorandum to the Cabinet committee on treasury to voluntarily close down the airline, negotiate exit lease agreements and transfer the airline, including its corporate identity, to the public enterprises ministry.

The confidential document titled 'Non-sustainability of Air Namibia' seen by The Namibian, outlines why the airline should be shut down.

Schlettwein's submission includes four cost estimate options on how much the government would need to keep the national airline operating.

The document shows in one of the estimates options that Air Namibia would need N$3,5 billion to continue operating in its current form for three years.

Another plan includes a board-supported bailout plan, and would cost between N$2,5 billion and N$3,3 billion.

The third option is a new business plan that would need N$4,1 billion, while the fourth is the total closure of the airline, an option recommended by Schlettwein.

"This scenario assumes liquidation of Air Namibia. The government liability of approximately N$2,5 billion under the remaining government guarantee for the lease agreement of the A330s will stand," the Cabinet document said.

"The scenario is financially the most predictable [N$2,5 billion worse case] and therefore the preferred option," the document said.

The Cabinet document stated that the previous argument that Air Namibia was linking European tourists to Namibia is 'long dead' due to other airlines servicing the same routes.

The loss-making airline has over the years divided Cabinet members on whether it should continue operating as a public entity, get privatised, or close down.

The document includes figures showing that the government pumped N$8,3 billion into Air Namibia from 1999 to 2019.

Schlettwein's document said the airline's historic debt is N$1,3 billion, and that Air Namibia might not operate beyond 12 months.

"The company has considered approaching the market for external financing and borrowing against assets. However, this option is not feasible, given the consistent message in the past that banks refuse to advance financing in the absence of audited financial statements, aircraft is an asset class which cannot be converted into cash, and due to low confidence in management capability, given the historic challenges," he said.

Schlettwein said the airline's financial governance has been poor over the past years.

Only two of the airline's seven executive positions are permanent. The last time the company had a substantive managing director was in 2015.

Although Schlettwein said he is mindful of the costs involved during the liquidation process, he added that grounding the airline will lead to significant savings in the long term.

Information from the same Cabinet committee on overall policy and priorities shows that the only profitable domestic route for the national airline was the Windhoek to Ondangwa route.

Air Namibia had seven domestic routes.

According to Schlettwein's Cabinet submission, the Durban and Victoria Falls' routes are the only profitable ones of the nine regional routes.

Its only international route, the direct Windhoek to Frankfurt flight, is also loss-making.

"It is clear that Air Namibia under the current model is unsustainable, and that key decisions have to be taken urgently at shareholder level regarding the future of Air Namibia," Schlettwein said.

The finance minister warned that a "piecemeal" funding approach to Air Namibia should be discouraged, as it does not address historic debt.

Jooste defended his US trip without Air Namibia representatives, where he will negotiate with Castlelake, a US-based private equity firm that owns the Airbus planes. Air Namibia leases the Airbus planes from this company.

"This mission is in line with directives from the Cabinet committee on overall policy and priorities and the Cabinet committee on treasury, where the decision was taken for me to lead this delegation for this purpose," he said.

"If we can't terminate the lease agreements on acceptable terms, Air Namibia will take up the process to enter into the actual negotiations with the owners as that then becomes an operational matter, where the shareholder will not be directly involved in," he added.

According to him, the outcome of the US talks will give a more accurate indication of what options are available, and at what cost as far as the troubled airline's future is concerned.

"Cabinet cannot take decisions without facts, and we are in the process of gathering the facts to allow for informed, calculated decision-making.

He added: "I think it should be welcomed that the issue is obviously of such importance that a decision was taken to delegate one of our ministers to lead the delegation on this mission".

The government is heavily exposed financially in the lease of Airbus deals through guarantees, and is thus forced to negotiate on Castlelake's terms.

Documents show that the lease agreement of the A330s, which cost around N$15 million per month, runs out only in 2025.

The lease of the two A319s [112-seater] expires in December 2019 and July 2020, with an outstanding lease of N$66 million.

They have an outstanding lease value of N$2,4 billion, backed by a government guarantee.

Sources questioned why Namibia's delegation travelled to the US to negotiate with the US company, while Cabinet has not taken a decision on whether to close down the airline.

There are also talks that none of the airline's leadership forms part of the delegation. Jooste sees nothing wrong with the trip, although no final decision has been taken on Air Namibia by Cabinet.

To him, this is more of a fact-finding mission.

"These discussions will be of an exploratory nature to assess what options may be available to terminate the lease agreements, and are therefore not actual negotiations. The lease agreements for the two Airbus A330 aircraft are one of the primary reasons for Air Namibia's current financial difficulties and a critical component in our efforts to save the airline," he said.Air Namibia leases A330 [224 seater] planes from Castlelake.

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