eBusiness Weekly
Africa Moyo
Air Zimbabwe is failing to bring back to service three of its aircraft that had gone for maintenance due to foreign currency shortages, worsening the viability of the national flag carrier already buckling under perennial loses, heavy debts and poor management, an administrator’s report reveals.
The Government placed Air Zimbabwe under reconstruction on October 4 this year, with Reggie Saruchera of Grant Thornton being appointed the administrator. In his first report, Saruchera said three of Zimbabwe’s seven aircraft undergoing scheduled maintenance have remained grounded due to foreign currency shortages.
The report was presented to creditors recently.
The bulk of Air Zim’s costs are denominated in foreign currency, yet most of its revenue comes in Real Time Gross Settlement (RTGS) or bond notes, Zimbabwe’s local surrogate currency, it emerged.
Given the exchange rate disparities between the various modes of payment, Air Zimbabwe is now battling to settle foreign payment obligations and procure critical spares.
Apart from foreign currency challenges, which are crippling most sectors of the economy including mining and manufacturing, weak management systems and shrinking route network have also been cited as key contributors to Air Zim’s current woes.
The Air Zimbabwe fleet consists of Airbus A320; MA60s and Boeing 767 and 737 and that varied aircraft alone poses technical challenges.
“Foreign currency shortages resulted in grounding of the Airbus A320 aircraft Z-WPM (February 2014), Airbus A320 aircraft Z-WPN (August, 2017) and the MA60 aircraft Z-WPK (March, 2018),” said Saruchera.
“The B767 Z-WPF, which was grounded on February 22, 2017 for a “C’ check only became available for service on 17 November this year.”
C check is the most extensive maintenance on an aircraft.
Air Zimbabwe’s ability to generate foreign currency has also diminished due to disconnection from global distribution systems such as Amadeus and Travelport, Saruchera said.
Amadeus, the main global distribution systems for the South African market, blocked Air Zimbabwe in March this year over a debt of almost €400 000. This resulted in an average monthly revenue loss of about R2,6 million from the South African market since South Africa-based travel agents are unable to book Air Zim tickets.
Air Zim owes foreign creditors over $30 million and Saruchera has called on Government to urgently “provide resources to meet the foreign currency gap”.
Ageing and varied fleet
Air Zim’s fleet consists of Airbus A320; MA60s and Boeing 767 and 737. The varied fleet imposes “maintenance and operational challenges since engineers and pilots are trained and licensed to a specific brand of aircraft,” according to Saruchera.
“The maintenance and engineering department is not adequately equipped and trained to service the Airbus A320 resulting in it contracting to South African service providers.”
Having been acquired between 1986 and 2005, some of Air Zimbabwe’s aircraft are now too old, making them very expensive to maintain and operate due to inefficiencies.
Perennial losses
In the past five years, Air Zimbabwe recorded a cumulative loss of $138,6 million. According to the report, the state airline has been on a free fall, posting a $40,1 million loss in 2014 while in 2015 the company narrowed the losses to $28,9 million.
The losses further declined in 2016 to $22,2 million, but short up to $33,1 million last year.
The company has already posted a $14,3 million loss for the period January to August this year.
Unaudited financial statements, for the four year period to December 31 last year, indicate that Air Zimbabwe has religiously posted losses due to a fall in revenues. As a result of perennial operating losses, Air Zimbabwe has been unable to retain critical skills since the remuneration has generally remained low.
The company’s debt has also increased to $370 million and litigation cases are growing.
Turnaround plan
Air Zimbabwe’s strategic turnaround plan for last year assumed the company would operate an Embraer ERJ145 on most domestic and regional routes, assisted by the B737-200 Z-WPA.
The plan went up in smoke after the company failed to acquire the Embraer aircraft.
“This has resulted in the airline deploying inappropriate equipment in the form of B767-200ER for short haul domestic and regional routes,” said Saruchera.
On a cost-benefit scale, operating an Embraer ERJ145 on the Harare-Dar es Salaam route would have seen the company making a profit of $174 000 compared to a loss of $2,6 million when using a Boeing 767. Aviation experts say it is more costly to run a long haul Boeing 767-200 on domestic and regional routes compared to an Embraer ERJ145.
Government intends to acquire three Embraers from the United States and technical officials from both Air Zimbabwe and the Civil Aviation Authority of Zimbabwe (CAAZ) are currently in Texas, the US, tying a few loose ends on the deal.
The Embraers are expected in the country in the first quarter of next year.
Other challenges
Air Zimbabwe’s other challenges include stiff competition from other airlines, and high cost of aircraft hire charges.
The airline faces stiff competition from South African Airways and Fastjet on the Harare-Johannesburg route. Fastjet and SAA have, however, deployed cost effective equipment on the route to remain afloat.
Air Zimbabwe is also coughing out a lot of money towards aircraft hire charges to shore up its depleted fleet.
But for all its challenges, Saruchera believes Air Zimbabwe has a “solid infrastructure and basic operational structures and systems to support a viable airline business”.
