Africa: Zambia, Ethiopia in US$30m deal to revive Zambia Airways

Zambia and Ethiopia have appended their signatures to revive the Zambia Airways, established in 1964 but went under in 1995 following liquidity challenges.

This deprived the Southern African country of a flag bearer of having airliner with various destinations globally.

Following various contract formalities, Zambia Airways, through the holding company, Industrial Development Corporation, and Ethiopian Airlines have stepped up efforts to see the airline back in the skies before the close of the year and agreed to contribute US$30m capital injection towards the re-establishment of Zambia Airways.

Bonaventure Mutale, the Zambia Airways Board chairperson, stated that IDC offered to invest $16.5 million representing 55% equity with its partner, Ethiopian Airlines, group extending US$13.5m, representing 45% shareholding.

IDC’s capital contribution to the venture represents US$11.5 million in cash plus US$5m cash equivalent in properties, including aircraft maintenance, hangar, and offices. Ethiopian Airlines group will contribute cash through payments for aircraft leased to the airline to the value of US$13.5m.

This follows the IDC and Ethiopian Airline’s group entering into a joint venture to re-establish Zambia Airways in 2014. Tentatively, it is envisaged that during the first-year schedule, Zambia Airways will start with three aircrafts, two bombardier Q400 and a Boeing 737-800.

Three aircraft have since been identified and inspected by the Zambia Civil Aviation Authority, Mutale disclosed to journalists in Lusaka last week. Zambia Airways board member, Rabson Misitala, disclosed that renovations of the Zambia Airways technical base and hangar at Kenneth Kaunda International Airport (KKIA) has reached an advanced stage.

However, the re-launch of the national carrier has been received with pessimism, with some players, including a think-tank, Centre for Trade and Development (CTPD), arguing the venture was a drain on the meagre resources at the expense of other pressing economic needs.

CTPD lead researcher, Bright Chizonde, argued in his paper that the revival was not feasible without outlining the financing model of the proposed relaunch of the airline and that the
the current fiscal position of the country and the liquidity crisis within the private sector left much to be desired.

The limited finances coupled with a poor business model would drain the treasury and erode the limited funds meant for social service delivery. The centre’s engagement with the public officials, private players and experts in the aviation industry continued to deepen CTPD’s conclusion that this decision was a gamble that the nation could ill-afford.

“Even though Zambia is partnering with Ethiopian Airways, Ethiopian Airways’ success is driven by a number of factors such as strategic location within the Horn of Africa and a comprehensive business model, which is impossible to replicate in the Zambian context.

“Furthermore, our assessment of Ethiopia’s partnership with Malawian Airlines reveals somewhat disappointing results. Despite the good partnership model on paper and technical assistance, Malawi Airlines has dragged to break-even and remains in a loss-making state for over four years now,” Chizonde argued in his research findings.

Government is currently financially constrained due to debt levels, making it unable to absorb either the initial investment or re-capitalisation costs in case of failure.

Chizonde proposed that Zambia invests into other pressing national issues, including health care, education and social protection as a safety catch to unforeseen developments. Investing US$55 million into this project has the opportunity cost of using these funds towards government spending on healthcare, education and social protection.

A loan to cover this investment would increase debt and interest payments and could further crowd out social spending in the event that the airline requires a future bailout – as was seen in South Africa.

Other industrial players echoed Chizonde’s sentiments, claiming revisiting the project would advantage the Ethiopian government because of some of the lacunas in the agreement. It is feared re-launching the airline may cost Zambia a staggering US$700,000 monthly in-plane charges.

Ethiopian Airlines, with various links and international routes, has expanded its frontiers across the continent, having helped establish Asky Airlines in Lomé, Togo. It also invested in Mozambique Airlines and Tchadia Airlines in Chad.

Ethiopian Airlines has drawn a 15-year strategic plan dubbed “Vision 2025” to make the airline the leading aviation group in Africa in eight areas: regional, international, freight, maintenance and repair operations, an aviation academy, board catering, ground operations and airport enterprise.

Under the vision, Ethiopian Airlines sees 2025 as a year when it focuses on realising an annual turnover of US$10 billion, a fleet of 120 aircraft and 90 international destinations, data availed to The Southern Times shows.

By Jeff Kapembwa
Source: southerntimesafrica.com