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Monday, 12 January 2009

A death blow to Zambian aviation?

The Post are reporting a breaking story on Zambian Airways :

Zambian Airways suspends operations (The Post- 10/01/09) : Zambian Airways has suspended operations with immediate effect. The company announced that the airline had suspended operations to facilitate restructuring of the company due to operational problems. According to the airline, the suspension threatens the jobs of 260 members of staff if the company does not successfully restructure and resume operations soon.

Aaron Leaf at the Lusaka Consensus blog has more on this unwelcome development, as one of the many affected (and angry) passengers.

Update : Reuters are quoting Zambian Airways that the problem may be due to the "high cost of fuel" :

The airline said in a notice to passengers at Lusaka airport that it had experienced difficulties after jet fuel rose 100 percent in the last 18 months, increasing its operational costs by 50 percent.

"This created a lot of problems for Zambian Airways as a growing business. In the interest of our stakeholders and our employees, we have decided with immediate effect to suspend all our operations until further notice," it said.

Update (11 Jan 2009) : The Watchdog reports that NACL plans to grab Zambian Airways planes :

NACL to grab Zambian airways planes (The Watchdog) : On Thursday January 8, the Zambia National Airports Corporation Limited (NACL) handed to Muntembo Nchinto, CEO of Zambian Airways court summons to settle a bill of US$200 million; on saturday, January 10, Zambian Airways suspended all operations leaving scores of passengers for local and international routes stranded.

In a memo at the Lusaka International airport, Mr. Nchito cited high fuel costs over the last year-and-a-half and the need to restructure its operations. He said the rise in the cost of jet fuel by 100 percent in the last 18 months, increased its operational costs by 50 percent.

“This created a lot of problems for Zambian Airways as a growing business. In the interest of our stakeholders and our employees, we have decided with immediate effect to suspend all our operations until further notice,” He said.

But the Watchdog has learned that the real reason for suspending operations is the court summons. The NACL, it has been learned that the Q3 has no capacity to settle the debt as it has been failing to do so for a long time now and the debt keeps on swelling.

It is rumoured that the airline started experiencing financial difficulties after President Mwanawasa died. It is said that, and was reported in the media last year that President Mwanawasa’s regime had ordered all people traveling on government business should use Zambian Airways. But the new government has since withdrawn this ’service’.

The NACL, it has been learned, wants a court order authorizing it to use bailiffs to seize and sell the planes to recover its money.

Update (12 January 2009) : We continue our rolling update on Zambian Airways, with the APA report on today's developments.

Minister: Zambian gov’t ready to save local airline - APA - Lusaka (Zambia) The Zambian government on Monday said that it was ready to come to the rescue of the beleaguered Zambian Airways which suspended its operations over the weekend.

However, the government has been criticised by various stakeholders, especially those in the tourism sector, for not bailing out the airline.

Transport and Communication minister Dora Siliya said that the government had not been able to assist the airline because its board of directors had not approached government with details of its financial difficulties.

She said the government was ready to meet with the company’s board of directors to chart a way forward for the airline.

Few will, however, accept the government’s position as sincere because the airline’s chairman and chief executive officer did meet with the minister and President Rupiah Banda with an urgent plea for help late last year.

The airline is a privately owned airline that was set up soon after the state-owned Zambia Airways collapsed in 1994. Since then the country has not had a national airline, but the void was taken up with the privately owned Zambian Airways.

However, the airline announced over the weekend that it was suspending its operations because of increasing fuel costs and other difficulties, and said it would try and re-organise its operations.

The airline also owes the state owned National Airports Corporation (NAC) that manages the country’s airports over two million US dollars in unpaid landing and parking fees.

The move by the airline left dozens of passengers holding tickets to various destinations stranded at various airports both in Zambia and in neighbouring countries.


  1. I don't know if Zambia has something like Chapter 11 bankruptcy in America, where a company can go bankrupt but keep operating while the court writes off debts and creditors may take control of the company. This may have been the intent if they owed the airports fees and fuel company charges.

  2. Am I incorrect in thinking that the Post is owned by pretty much the same people as Zambian Airways? I mean sure it explains the scoop on the story, but not the scanty details. As they are a private company, they are of course entitled to keep the details of their misery to themselves. However, if they hope for a bailout, best to come clean with the details now, if we have to dig for them, we may be less generous in our assessment of their chances for rescue.

  3. I think they are trying to avoid a scenario where they are placed under receivership or even liqidation.

    A company can be placed under receivership by its directors or holders of a floating charge without petitioning the courts. Other creditors must petition the courts to place a company under receivership. An entity placed under receivership is managed by a receiver who continues operations with a view of paying off accumulated debts within a given timeframe. A company placed under receivership can continue to operate while being restructured by the receiver. This may involve restructuring of debt payments and could even include issue of extra credit if it is believed that this will help return the company to a healthy position. It is quite similar to the practice of placing a company under administration in the UK or indeed Chapter 11 in the USA. The main difference between receivership and Chapter 11 bankruptcy protection is in the conduct of business after insolvency. The primary focus of receivership and administration is the repayment of debts and it therefore provides more protection to creditors. This may be at the expense of continuing operations (resulting in liquidation). On the other hand, Chapter 11 bankruptcy seeks to protect the insolvent company as much as possible with some critics arguing that it is too lenient. The main advantage of Chapter 11 is that it has been well tested over the years and is acceptable to debtors and creditors. Another difference worth noting is that in administration and receivership suppliers have the right to terminate contracts in the event of bankruptcy, whereas under Chapter 11 creditors have to stay on board as long as they have reasonable assurance of being paid.

    My personal feeling about Zambian Airways is that the company is a victim of the unfriendly environment in which airlines operate. Their goals of quick expansion didn't helped matters either.

  4. If people want to know why Zambian Airways is in trouble they should look at what happened to DAS Cargo Air flights to Zambia and the BA cargo service. There was no way Zambian Airways was going to balance its books by constantly airlifting jet fuel from South Africa in order to operate. Honestly I have failed to understand the Zambian govt's tax regime in relation to petroleum products. And as long as it doesnt change I doubt any long distance flights by home based Airlines will ever materialise. To think that the govt constantly talks of the promotion of tourism....and now this! I would like to appeal to the govt to repeal all punitive taxes on petroleum products. I am quite sur such action will push GDP growth upwards by 2%.

  5. Yakima

    You are probably right. I've noticed some similarities in their management style. Even their financing arangements for purchase of assets seem to be similar. Eg, circa 2007 they both purchased/leased a large number of Hyundai motor vehicles and the funny thing was that they were exactly the same type. Most of their advertisements are in the Post newspaper. Not to mention the National Airports debacle...

  6. Frank

    I Couldn't agree more with the issue you raised on the punitive taxes levied on Zambian fuel. As it is, the airline business is tough anywhere you go. The high cost of fuel as a result of absurd taxation policies is the last thing we need as a growing economy. Reducing the cost of fuel would have a positive impact on every sector of the economy and the benefits derived from such an impact would most likely outweigh the fuel tax revenues foregone by government.

  7. All,

    It appears the politics have got complicated.

    A new update from the Watchdog above.

    On Jet Fuel - its not necessarily the the moment jet fuel is taxed at 5% excise duty and additional VAT is levied at 16%. As we have discussed in previous blogs, the problem is one of inefficient costs as well in well as other transport and import related costs.

    This explains the 50% wedge between the Zambia and RSA prices for jet fuel..

    Eliminating all taxes on it is a start....but only the start...

    Really the central question is what is government policy on aviation?

  8. If Indeni is unable to produce fuel at competitive prices , the long term strategy should be to sell the refinery and import refined products. Rail transport is a very cheap way to import fuel assuming the railways are working.

    In the U.S., one gallon of fuel is used to transport one ton of freight for 436 miles by rail on average:

  9. I doubt the Watchdog's report of $200 million debt for Zambian Airways. More like $2 million:

  10. I was a frequent user of ZA.
    I 2008 me and my wife travelled to SA 8 times and I travelled to the DRC 19 to 25 times.
    I also did more than ten trips from Ndola to Lusaka or Livingstone
    In Ndola I spent countless hours past the take off time wating for the plane to arrive.
    On the flight to Lubumbashi I landed 5 or 9 times after my connecting flight have already left and we were supposed to have a 2 hour gap.
    Their restructuring better have some growing up plans as well.
    We often left Ndola with the plane half empty with a lot of passengers clamouring to buy tickets, left stranded at the desk.
    my wife loved them because they accommodated her excess with no charge.

  11. The extent to which politics affects business in Zambia is quite alarming. A few questions beg to be answered;

    (a) Were procedures followed when it was decided that government flights were to be booked with Zambian Airways?

    (b) Were there any economic reasons why government rescinded this after Rupiah Banda ascended to the presidency?

    So many things happen behind the scenes. One story whose details may never see the light of day is that of Proflight (Zambian Airways main local rival). Its managing director Tony Irwin (older brother of ZAMBEEF's Carl) has been hounded by the DEC and other law enforcement agencies for the past few years. This concerns allegations of him being in possession of a stolen airplane. He was arrested and taken to court but found not guilty. My sources suggest that these actions were undertaken to frustrate Proflight who are perceived to be a threat to Zambian Airways. This sounds plausible given You-Know-Who's access to the Task Force, DEC and Police.

  12. I thought prices of crude oil had plummeted to an all-time low recently? Did the airline buy loads of fuel in advance?

  13. Zedian,

    I think Zambian Airways are still suffering from the effects of the earlier high oil prices. If they had managed to stay in business for a few more months, they would benefit from the lower oil prices. Part of the problem earlier I think is that they may have sold tickets for advance travel at price that did not reflect the future higher oil prices. Compounding the problem also is that tourist travel has declined due to the global economic crisis.

  14. am just pleased that since m'membe and the Post lost the Journalism Plot to go into politics and businessthe, its my prayer that the $3 million m'membe pumped into Zambian airways from investrust bank for his 30 plus equity was not garanteed by the Post or M'membe himself otherwise we are in for an intersting accelaration of triguring of adverse multiple clauses in the security documents for that loan. The ending of the Post could be disastrous and summed up in Obama's Phrase " Bubble Burst growth"

  15. Zambezi Air is not hesitating in stepping in to the vacuum, if the Daily Mail is correct, Unfortunately the Daily Mail doesn't put dates on their online stories.

    Hundreds jostle for cabin crew jobs


    ZAMBEZI Airlines last weekend interviewed about 976 job seekers for positions of cabin crew in preparation for the airline’s aggressive expansion programme in which it is buying three new aircraft.

    The airline’s head of human resources and corporate services, Masauso Sichone in a statement said the company started the recruitment process for cabin crew at Mulungushi International Conference centre in Lusaka on Friday.

    Mr Sichone said the airline was set to expand its domestic and regional operations as it takes delivery of three additional modern aircraft over the next few weeks.

    Coming barely days after Zambian Airways suspended operations leaving scores of local and international passengers stranded, many travellers would be looking to Zambezi Airlines to fill the void left by the former.

    The airline that was launched in July 2008 flies daily to Kitwe and Ndola, and three times in a week to Livingstone and Solwezi.

    He said in the first phase of the recruitment programme, the airline was planning to employ between 25 and 50 cabin attendants who would immediately be put through a rigorous training programme locally and abroad.

    “We are extremely impressed with the encouraging interest in the airline, as demonstrated by the overwhelming turn out on the first day. This obviously means there will be a lot of competition for the available positions,” he said.

    Mr Sichone said Zambezi Airlines would also be recruiting other staff such as pilots, engineers, sales and marketing staff, finance and information, communication and technology personnel.

  16. Meanwhile in India......:


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