By Kalima Nkonde
The motivation behind this analysis on the planned National Airline arises from the recent Auditor General’s report stating that Zamtel made massive losses of K50.6million ($7.8m) in 2011 and K224million ($34.5m) in 2012 and concluded that the company is technically insolvent requiring further capitalization by the Government, the only shareholder. In addition, the Minister of transport and communication, Yamfwa Mukanga gave an interview to ZNBC TV on 16 March, 2015 where he indicated that the Cabinet is still considering the national airline project. He further talked about it on 28 March,2015 on the launch of Rwandaair Proflight code share flight to Johannesburg. This analysis, therefore, is meant to warn the President Lungu that the dreamers of the national airline in the ministry of transport and communications, Zambia Air force and their supporters should not mislead him into believing that the national airline is in national economic interest. He should think carefully before embarking on a disastrous route as the losses that the airline will sustain will make Zamtel losses look like loose change.
It is important for the reader to understand that the whole issue of establishing the national airline was politically motivated by the late President, Michael Sata whose modus operandi to economic management was based on wishes, sentiment, populism and not rational and informed economic decision making. Despite being part of the Government that abolished Zambia airways in the first place, he wanted to re-establish it and so one would beg to ask: what has changed? To kick start the project, instead of commissioning an independent feasibility study to carry out an objective analysis of the Costs and benefits of re-establishing a national airline, the President appointed a large technical committee made up of unemployed former Zambia airways staff, the Zambia air force, civil servants from ministries of transport, Commerce, finance, tourism. They operated without a budget or a formal structure in terms of a special purpose vehicle through which they could have been operating in. To circumvent funding issues, the Zambia Air force was to play a leading role and was required to provide funds for meetings, allowances etc! The influence of the Air force in a civilian Commercial project is mind boggling especially given the accident record of Zambia Air force.
There was so much day dreaming like recommending Boeing 777 without regard to the cost, the training of crew etc and the focus was on international routes like London when Zambia was on the EU black list.
There is also the difference in the operational paradigm of a Commercial airline and the Military! It is common knowledge that if they had started with the feasibility study, it would have answered a lot of questions including why Zambia airways and other national airlines fail, costs and benefits of the project-tangible and intangible, the recommended business model, benchmark airlines, the route network and so on and persuaded them to abandon project early. The approach that the President followed was flawed from the beginning and it amounted to doing the same thing all over again – restarting Zambia airways – and expecting a different result.
It was also a question of the blind leading the blind as no proper independent and experienced experts were involved in the technical committee.There was so much day dreaming like recommending Boeing 777 without regard to the cost, the training of crew etc and the focus was on international routes like London when Zambia was on the EU black list. It is alleged that the boss had instructed the team that he did not want a “Kantemba” Airline forgetting that it took Zambia airways years to grow to where it was when it was disbanded in 1994. Successful businesses are not started big!
it is a well known fact in aviation circles that the national airline business model is a discredited and failed business model
It should be noted that it is a well known fact in aviation circles that the national airline business model is a discredited and failed business model. Anybody who understands the aviation industry or who can carry out an objective and indepth analysis will come out with the same answer that the national airline in the traditional sense is not a viable proposition. The IMF and World Bank have not been in support of the project at all. Most Governments that continue running national airlines are doing so because there are stuck with them. In neighbouring countries, South African Airways, Air Namibia, Air Botswana, Air Zimbabwe, TAAG of Angola are all loss making and a burden to their treasury.
The South African Government has bailed out the national airline SAA in the last two years to keep it afloat and cumulatively the Government financial commitments amount to R14.3 billion and the Government has that stated it can no longer continue with the bail outs. Air Botswana(AB) has been bailed out several times and that Country president, General Khama said in 2013 that they will continue bailing it out because they can afford it and their privatization efforts have failed. As a small and rich country, AB is a source of national pride as a small and even if it is not financially justified.
There is no doubt that most African countries that have National airlines are just stuck with these airlines and cannot close them because of the dire consequences
According to the SAA Chief Executive, Nico Bezuidohout, as reported by Sunday Times of 22 February, 2015, the Airline made losses of R1.6billion in 2012/13 financial year on international routes. There is no doubt that most African countries that have National airlines are just stuck with these airlines and cannot close them because of the dire consequences like the resulting unemployment similar to what Zambia went through in 1994 when Zambia airways was liquidated.
In some cases, like in Botswana, Namibia and Angola, they have deep pockets from diamonds and oil and they maintain them for national pride despite the drain on their Treasury. Running and owning a national airline by Government in modern times is like being in an unhappy marriage and the parties are just forced to be together because of the children or other compelling reasons!
On his recent visit to Zambia in December, 2015, Sir Richard Branson – the founder of Virgin Atlantic Airways – clearly pointed out that Governments have no business in running airlines! According to Sir Branson, “Governments are not good at running companies. There are a lot of opportunities in Zambia for businesses to expand and I think those businesses should be done by Zambians rather than people like myself. It would be great to get Zambian entrepreneurs on setting up a low cost airline and may be we can help a bit…..” Who better to listen to than the Entrepreneur extraordinaire himself! There are numerous countries that have abandoned the running of national airlines among them the UK government which divested its majority shareholding in British Airways in the 1980s, Kenya, Tanzania, Nigerian, Ugandan, DRC, Malawi and others have also done the same.
The Tanzanian Government learnt the hard way when it attempted to re- launch Air Tanzania after the break up of the Partnership with South African Airways. The Tanzanian Government like the proponents of National airline in Zambia are trying to do partnered with a foreign strategic equity partner. They partnered with China Sonagol international holdings which held 49% shares and the Government held 51%. China Sonagol procured obsolete aircraft – Dash 8 300 and A 320-214- in collusion with corrupt Government officials from a Lebanese leasing company. The Dash 8 crashed and the airline collapsed but the Government was left with a $200 million bill in lease charges!
The real motivation behind the national airline by those driving the project is employment, the nostalgia of flying free
The proponents of the National Airline argue that it will promote tourism, trade and investment but this is a fallacy and it is not really proven especially that they do not match these perceived benefits against the cost to the economy of the national airline in terms of Government subsidies, re-capitalisation and so on and so forth. The real motivation behind the national airline by those driving the project is employment, the nostalgia of flying free or subsidized to London and other European countries, the convenience to the Party in power to fly around the country including for political campaigns, national pride of having a national airline despite the cost.
My main argument against the re-establishment of the national airline is that it is not the best way of using the scarce tax kwachas as the project will not benefit the majority of Zambians whether directly or indirectly. The beneficiaries to such an airline will be: the aircraft manufacturers, Aircraft leasing companies, the Zambia air force staff who want commercial pilot licenses on retirement, the politically connected, unemployed former Zambia airways employees, Government officials who will fly on credit and build up debt for the airline.
There is no doubt that such an airline will have all the ingredients of failed national airlines which include a blotted workforce, over paid staff, low productivity by staff including crew like pilots, appointment of incompetent managers who are mainly party cadres, imprudent acquisition of aircraft, acquisition wrong aircraft, political interference and abuse of the national carrier by politicians, overcapacity (too many airplanes for too few routes). Neighbouring national airlines such as South African airways, Air Namibia, Air Botswana, and Air Zimbabwe all suffer from some of the above weaknesses in varying degrees and that is why there are loss making and a drain on their treasury! I cannot be convinced that this will not happen to the envisaged national airline.
There is no argument about the fact that Zambia has a problem with air transportation especially for local air travel which is too expensive as Proflight is a monopoly. The solution is not to bring in foreign controlled airlines such as Fastjet as there will be a drain on foreign exchange in terms of externalizing of royalties, management fees and dividends. The negative impact on foreign exchange will result it being a net cost and not a net benefit to the economy.
Fastjet has claimed that it is 51% owned by Zambians which is a mirage as effective control lies with London. This is clearly a case of fronting! It will be interesting to lift the corporate veil with regard to share holding and voting rights of Fastjet Zambia. Fastjet’s entry into Zambia as local airline raised a lot of eyebrows in the aviation cycles in Zambia and South Africa. It is alleged that the former Vice President, Dr. Guy Scott facilitated their getting of the Air Service Permit (ASP) license immediately after President Sata died, the architect of the national airline project. The granting of the license to Fastjet immediately after the death of President Sata was really a strange coincidence! It is alleged according to an article on social media last year that the license was obtained through instructions from the top and normal procedures were not followed.
This assertion is supported by the way Fastjet wanted to enter South Africa. They got into a deal with the BlockBuster/Federal airline joint venture in which President Jacob Zuma’s son was part of the team. The deal fell through as regulators could not approve it. In Tanzania, it is alleged they used political connections to enter the market. One may conclude that Fastjet’s strategy in Africa is to woodwink and sweet talk politicians about the benefits of them entering the African aviation market because politicians do not understand much about aviation. In Zambia, it is believed that Fastjet duped regulators that it will be a domestic Carrier when its major target is the lucrative South Africa route. The reason for this is that the aircraft they have, the A319 can only fly to Ndola, Livingstone and Lusaka and Mfuwe. The rest of Zambia will not benefit from Fastjet’s their entry into the Zambian domestic market as they cannot land in Mansa, Solwezi, Chipata, Mongu, Kasama.
In Zambia, it is believed that Fastjet duped regulators that it will be a domestic Carrier when its major target is the lucrative South Africa route.
There is no doubt that Fastjet will be making artificial losses for a long time just like some mines have been doing through transfer pricing schemes and they will not pay any income tax for the foreseeable future. It must be known that the “Fastjet” brand is owned by the Greek British citizen Stelious Haji-Ioannou, the founder of Easyjet. His strategy was for the EasyJet group to get Royalties through the use of the “Fastjet brand in Africa. It follows that Easyjet will receive royalties regardless of whether Fastjet makes profit or not as Royalties are levied on revenue! The fact that Fastjet Aircraft will be leased and not owned also means lease charges will be externalized thereby making profitability almost impossible for the foreseeable future. In Tanzania, they have not made any profits since they started operations and I guess millions of dollars have already been remitted to UK from Tanzania but the treasury has received little. One of the reasons they closed the Angola office was the difficulty of remitting foreign exchange. The business model and structure of Fastjet is not beneficial to Africa in the medium term.
Although I have been critical of the establishment of the National airline and as well as multinationals like Fastjet masquerading as domestic Zambian airlines, I still believe that our aviation sector needs to grow and develop. It needs to be more vibrant and competitive but it should be driven by the Zambian private sector with minima Government support. If countries like South Africa, Ghana, Nigeria Kenya have home grown airlines and the fares are affordable because of competition, why can’t we not do it in Zambia?
The current position where to travel locally by air is so expensive because you have Proflight who are a virtual monopoly with the typical monopoly behavior of restricting output (small aircraft) and charging exorbitant fares is not good for the industry and the country. In addition, at regional level, there is no Zambian Carrier utilizing reciprocal arrangements with our neighbours and this is also not sustainable.
My proposed solution is for the Government to consider a Public Private Partnership (PPP) and team up with credible local aviation entrepreneurs to slowly and prudently establish the National Flag Carrier using Kenya Airways and Mauritian Airways as benchmarks. Kenyan Government shares are below 20% and Mauritian Government has about 15% in Mauritian Airways. The Government should have minimum shareholding for credibility of the airline in the financial market and the travelling public but effective control should entirely be the private sector as it is with Kagem.
In view of this, I would suggest that Government ask indigenous Zambian entrepreneurs who have run airlines or attempted to run airlines like Zambian airways, Zambezi airlines, Mahogany, Mukuba Airlines, Kafue Airline, Zam Air and others to make proposals for a PPP and they can then choose one to work with.
Zambian Government should identify and encourage Zambian entreprenuers in aviation.
Zambian Government should identify and encourage Zambian entreprenuers in aviation. David Neeleman has Azul in Brazil, Tony Fernandes has Air Asia in Malaysia, Eric Ventor founded Kulula.com and runs Comair in South Africa, Richard Branson has Virgin Antlantic and the list goes on. Its time Zambian government encouraged Zambian to participated in high values in industries like mines, telecoms, power, aviation etc if we are not continue being blackmailed like the mines have done four times now! They won on Windfall tax, on Statutory instrument monitoring inflows and outflows of foreign exchange, VAT S18 and now Royalty tax. The Government curved in after threats by the mines and they restricted supply of dollars so that the kwacha depreciates! It is time our politicians understood Foreign investment alone never developed a country!
It is hoped that the analysis will help the Government make an informed and objective decision. The establishment of the majority Government owned national airline is an expensive exercise and pursuing it with vigour is tantamount to misplaced priorities. In the event the Government wants to be involved in aviation given the failure rates of previously Zambian privately owned airline, the PPP route with Zambian aviation entrepreneurs especially those with international experience would be the smart way to go.