Why Zambia should not start national airline: SAA gets State bail out and Air Botswana on sale

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Zambia Airways Boeing 737-200
FILE: Zambia Airways Boeing 737-200

By Kalima Nkonde

The recent statement by Minister of Transport and Communications, Brian Mushimba at the Zambia International Trade Fair on July 2, 2017 that the Ministry was still looking at establishing a National airline came on the heels of the South African government scampering to look for funds to bail out the ailing national airline and were forced to use funds from the National Revenue Fund (NRF), a reserve fund for exceptional expenditure.

South Africa’s national Carrier, South African airways is drowning in a mountain of debt and government had to bail it out in order to avoid default and trigger the call out on all its loans. The airline has been bailed out several times and had prepared several restructuring strategies which all failed.

The South African government announced in a statement on Saturday July 1, 2017 that it had provided South African Airways (SAA) funds to help it repay loans of about 2.3 billion rand ($176 million) to Standard Chartered.

“A default by the airline would have triggered a call on the guarantee, leading to an outflow from the NRF and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt”, the statement said. “Drawing on the NRF was a tough decision versus the worse one of defaulting. It was taken to reassure lenders that state firms and more importantly government won’t default,” ministry spokesman Mayihlome Tshwete added.

The South African national airline SAA relies on government guarantees estimated to amount to about 20 billion rand in order to keep it solvent. The airlines is said by experts and rating agencies to be a threat to the South African economy.

In neighbouring Botswana, the Government decided to start privatizing the national airline, Air Botswana after giving up on supporting it from the treasury. Air Botswana(AB) had been bailed out several times and that country president’s General Khama at one time in 2013 said that they will continue bailing it out because they can afford it but finally due to perennial losses and unsustainable drain on the treasury they have decided to try once again to privatize it. Earlier attempts to privatize the airline failed.

All African countries apart from Ethiopia that have national airlines such as Air Namibia, Air Botswana, Air Zimbabwe, TAAG of Angola and many others are all loss making and a burden to their treasury. There 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. Running and owning a national airline by Governments 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! But Zambia wants to take that route.

Background to Zambia national airline project

It is important for the reader to understand that the whole issue of re-establishing the national airline in Zambia 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! Up to now, the Zambia air force is at the forefront of the national airline project. It was also a question of the blind leading the blind as no proper independent, experienced and exposed experts were involved. There still not involved and consulted. The stakeholders like those operating airlines or trying to establish airlines were and are still not formally consulted.

The influence of the Air force in a civilian Commercial project is mind boggling especially given the accident record of Zambia Air force. 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 the project early.

The approach that the late 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. There is so much day dreaming in the airline project as they boast that they do not want a “Kantemba” Airline forgetting that it took Zambia airways over 30 years to grow to where it was when it was disbanded in 1994. Successful businesses are not started big!

Why Zambia does not need national airline

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. Any body who understands the aviation industry or who can carry out an objective and in depth 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 national airline projects at all. Most Governments that continue running national airlines are doing so because there are stuck with them.

On his 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 by 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……” he was quoted as saying. 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, Nigerian, Ugandan, DRC, Ghana and others have also done the same.

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, stifling competition in the aviation industry and keeping fares high 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 and national pride of having a national airline as they admire Rwanda Air and others who they do not even understand how they sustain their airlines despite not being resource rich.

The 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 poor 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.

Although most Zambian experts local and abroad are critical of the establishment of the National airline, they 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 minimum 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’s economy

There is no argument about the fact that Zambia has a problem with air transportation especially for local air travel especially which is too expensive as Proflight is a monopoly. The solution, however, is not a national airline where government is the main driver.

Recommended solution to aviation sector problems

The first solution to Zambia’s aviation and tourism sector problems is to address the cost of doing business in these sectors in comparison with neighbouring countries. Government levies and taxes are a great impediment to the development of these sectors. The local and foreign airlines that have closed shop in Zambia have mainly done so on account of the cost of operating an airline in Zambia.

The cost of aviation fuel in Zambia is the highest in the region and fuel in one of the major components of operating an airline and it can make or break a carrier, this needs to be addressed by government and positive results will show within a short period of time.

The other major cost of a carrier in Zambia is government levies and taxes which are way too high. The cost of a domestic airline ticket is made of 25% taxes and levies. There are four types of taxes that passengers pay to fly domestically – departure tax, civil aviation tax, security tax and development tax and yet well run Airlines’ net profit margin world wide is about 5%. If one was to add 35% income tax, it means government takes 60% of an airline’s cashflow. This is no way to develop the industry.
Second 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’s 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 markets and the travelling public but effective control should entirely be with the private sector like it has done with Kagem, Zanaco and Quantum mines.

The Government should ask indigenous Zambian entrepreneurs who have run airlines or attempted to run airlines like Zambian airways, Zambezi airlines, Mahogany, Mukuba Airlines and others to make proposals for a PPP and they can then choose one to work with. Zambian government should merely facilitate Zambian entrepreneurs in aviation so as to have more competition as the following examples in other countries demonstrate in : David Neeleman of Azul in Brazil, Tony Fernandes of 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.

Zambians participation in high value industries

It is time that the Zambian government encouraged Zambians to participate in high value industries like mines, telecoms, power, aviation etc if we are not to continue being blackmailed by foreign investors like the mines have done five times now! They won on Windfall tax; on Statutory instrument monitoring inflows and outflows of foreign exchange, VAT S18, Royalty tax and recently on the reversal of the 15% tax on export of concentrates. The Government curved in after various threats by the mines of retrenchment, relocation and restricting supply of dollars to the market resulting in the kwacha depreciating in 2014/15! It is high time our politicians understood that foreign investment alone never developed a country!

It is hoped that the analysis will help Government make an informed and objective decision. It is alleged that Zambia has already paid $10million to Airbus as deposit for aircraft over a year ago. They should just convert this into equity and invest in a qualifying Zambian owned Carrier. The establishment of a majority Government owned national airline is an expensive exercise and pursuing it with vigour is tantamount to misplaced priorities when we are struggling to pay pensioners and clearing arrears to contractors and government suppliers. South Africa and Botswana are richer countries than us and are more endowed with better experienced and qualified technocrats and politicians than Zambia and for them to give up on the national airline business model, tells a hell lot of things and our technocrats and politicians better take note.

The writer is a Chartered Accountant by profession and a financial management expert. He is an independent and non partisan commentator/analyst. He has lived in the diaspora in England, South Africa and Botswana for over 25 years.

42 COMMENTS

  1. +7
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    As if they will listen. All they want is spend millions of dollars to buy the aircraft get their cut in $$$millions and the poor people will pay through their hard and wide noses.

    • +2
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      I HAVEN’T YET READ THE ARTICLE. BUT, WELL MANAGED, THE NATIONAL AIRLINE WOULD BE MORE PROFITABLE THAN THE AIRLINES YOU HAVE MENTIONED DUE TO ZAMBIA’S GEOGRAPHICAL POSITIONING WHICH WILL MAKE IT THE SOUTHERN AIR TRANSPORT HUB, GOOD AND MODERN AIRPORT FACILITIES ONCE THE TWO INTERNATIONAL AIRPORTS ARE COMPLETED, SOUTH AFRICAN AIRLINES ARE SOME OF THE MOST EXPENSIVE AIRLINES ON EARTH, THERE’S DEEP XENOPHOBIA AND MURDER CRIMES IN SOUTH AFRICA WHICH MOST TRAVELLERS ARE NOW SCARED OF. IN TERMS OF BOTSWANA, THE POPULATION IS TOO SMALL AND TRAVELERS GO THERE MAINLY FOR TOURISM. IN ZAMBIA THAT INCLUDES BUSINESS ON TOP OF TOURISM.

    • +8
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      start by first building public toilets before starting to dream

    • +6
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      Zambia doesn’t need a national airline. Regional leaders (Zambia, Zimbabwe, Bostwana, Tanzania, Mozambique, Namibia) should seriously consider putting up a high speed electric train to cover the region to reduce travel costs and improve regional trade.

    • +1
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      Kalima shut up. Airlines all over the world get govt bailouts. We need Zambia to establish an airline that will fly directly into Europe. It’s good for the economy. who are you anyway ulekanya indeke!

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      People with No Vision, Failures?? Instead of taking the fall of SAA as an Opportunity, to start a stronger and strategic Airline, We are Busy writing negative articles. A national carrier will help boost tourism, we cannot be dependent on Foreign Airlines like, Ethiopian, Emirates, Kenya etc. Good Professional Management that can run an airline with a vision can show South Africans that it is still possible to run a profitable airline.
      What has killed SAA is the Unions, Politics and Corruption. If we stay away from such, we can be as profitable as Middle East carriers. On record. Zambia Airways was a voluntary liquidation, with assets and profits, but Chiluba wanted to form his own Airline which he failed. We need the Airline and we can Do it.

  2. +2
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    Only under hh can we have a successful national airline. Here I arrived in London this week using a powerful British airways plane. Very efficient

    • +2
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      Not even HH can save the aviation industry my friend . The business is suffering everywhere hence overbooking of flights et al. Zambia doing that business now is the same as flushing cash down the toilet

  3. +2
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    Just because south African airways is inefficient doesn’t mean we cant have a national airline. Lets have a different structure from the south African one!

    • +8
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      @Nigga! You are failing to manage simple projects with your chipante pante policies and you dream you can manage an airline. Don’t just be pompous with f00lish pride, be reasonable for once. You can’t compare your illiterates running our economy to technocrats of South Africa.

  4. +2
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    NEZ inferiority complex will never allow your little political group rule the country. What are you doing in London if not begging and doing odd jobs.

  5. +3
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    Good one Kalima Nkonde,

    Government should be paying you for this advice. It’s true that the best things in life are free. But no they will not. There is a big (cash) cow to be milked here. Shocking to learn that a US$10M down payment has already been made to Airbus for this, I thought that Mushimba was the more educated and objective of our Ministers. I suppose his rationality is trapped in the mob psychology that is governing us today.

  6. +3
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    I should not buy bread just because my neighbor is in debt. Why is SAA struggling should be the issue.

    • +1
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      You cant make a profit in telecomms surely how can you even contemplate running an airline..really laughable.

  7. +5
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    A national airline in Zambia is not sustainable period.. lets rather supports small operators like Pro Flight. We dont have the numbers to fly because we use buses. There is a gap for private operators. Airlines have cancelled Zambian route because its not profitable for huge planes.

  8. +3
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    There is no need for the Government to run a national airline as is will be doomed to failure like the Zambia airways because government officials and there families will definitely never pay for air tickets again. Six year ago I started working for an airline in UK which on one side does heavy aircraft maintenance for some of the European airlines, I was so sad to see one of the engineers has converted the cabin food cart for defunct Zambia airways as a toolbox which was clearly seen engraved as a Zambian airways property.Through inquiries i discovered that one of the Zambian planes was scrapped there due to none payment maintenance bill for a C- check. So you see we cannot start funding trips for the government officials and their families as we will still end up with a huge bill for…

  9. +4
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    Hopefully our politicians read this site.The argument given for the establishment of the Zambia airways are very flawed and risk.It’s a path many Zambian’s must vehemently speak against but alas many a drunk in wanting prestige of having a ZA airways than asking for a viable business model to efficiently run the airline for profit not on a loss making model ever kept afloat at the expense of tax payers money.Rwanda air has never made a profit for 13years of its operation and with how competitve the market s I don’t see them making a profit soon unless they pump in more money to compete with the big dogs.Todays airlne industry is about money the Etihad,Emirates,Qatar came in with huge amount of money plus sound management as a result they have won the market.Zambia does not have money…

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      @Telvin yes they read. And you forgot to mention high aviation taxes which has hurt the airline industry . That’s why Ethiopian airlines is currently the cheapest coz they are exempted from paying tax.

  10. +4
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    Zambia does not have money to operate one and too does not have the management carpacity.Note major middle east carriers are managed by foreign nationals.

    For Zambia to reduce losing out on scarce taxes bailing out the airline as it is imminent,better we focus on making the environment condusive for investment.We have two good quality airports coming up that’s a plus.And also focus on growing the middle class so that we have many potential aviation seeker[growing the customer base].

  11. +2
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    A national carrier is a viable business project. Stop running away from your responsibilities. When Zambia Airways was doing well, then everyone kept quiet. When Zambia Airways performed badly, then everybody complained. The problem was not with Zambia Airways but rather with governance. What is meant by ‘national airline’? A national ariline is simply a para-statal company. Other para-statal companies in the country include ZESCO. One unnamed but talented thinker insisted on running para-statal companies professionally, i.e. without political interference. One Company Law, One Taxation Law. The assault on Michale Sata is ill conceived. There is need to bear in mind that he was democratically elected. His PF is still in power through popular votes.

    • +6
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      Dr Makasa key word In your post is “without political interference ” good point but abeg !!! Tell me which company in zed will run like that when everything is compromised from the media,same zesco , water in order. If u don’t agree with anything u re simply shut down like post Kaya ngati ni mast. Ways will be found to squeeze u if u dont allow interference. Anyway u get the point .

    • +2
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      With or without political interference…govt has no right waste taxpayers funds in this sector.

  12. +3
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    These PF, all they think about is spending and spending whilst getting their cuts. State house and now National Airline.

  13. +2
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    OK, I get the point. just because others have failed so we should also give up on that project. So just because Manchester United did not win the league last time, then Arsenal, Liverpool, Man City etc should give up.

    • +1
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      Failure is more visible than success. Success can pass through a failure stage. It is inconceivable for professionals to fail systematically. Where is Royal Swazi? Where is Air Namibia? Where is Angola Airline? Where is Ethiopian Airline? It is possible and desirable for a professional approach to airline business. Even countries can come together to create and run a regional carrier along the lines of Air Afrique.

  14. +1
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    THERE ARE AIRLINES WHICH ARE THRIVING AND THERE ARE THOSE THAT ARE FAILING. WHY WOULD YOU CHOOSE TO JUST LOOK AT WITH FAILED ONES AND COMPLETELY AVOID EVEN THINKING ABOUT STARTING ONE AIRLINE? HOWEVER THE POINTS RAISED BY KALIMA NKONDE SHOULD BE BROUGHT ON BOARD. WE NEED TO HAVE A DETAILED ANALYSIS OF THE PROS AND CONS OF STARTING AN AIRLINE. OBVIOUSLY IT WILL BE FOOLISH TO START AN AIRLINE ONLY TO FAIL TO MAINTAIN IT LATER. MAYBE SUPPORTING THE LOCAL PRIVATE ONES LIKE PROFLIGHT OR RESURRECTING THE ZAMBIAN AIRLINES CAN BE THE WAY FORWARD.

  15. +1
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    Good one Kalima, hh made money off ftjs government by rendering such write ups on the obvious for which he was paid handsomely by a convicted and corrupt senior grz official who called himself a professor of maths but was later exposed by the task force as a corrupt person.

    • +6
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      If you refuse to learn the vital lessons from the pitfalls of your neighbour’s marriage then you are likely to launch an ill-fated venture also.

  16. +1
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    I support the establishment of a national airline but PF just makes noise with no action; spare us the noise

  17. +1
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    In Congo our northern neighbors, they are pushing for an agenda to avoid elections this year a situation that might lead to turmoil. I think lets also do away with elections since our neighbors are doing it….

  18. +2
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    I am against an airline with state money. That is why Mmembe is in trouble. Let private investors do it. Apart from Ethiopian Airways, all airlines in Africa make losses. Even in Europe. Qatar, Emirates dont make profit, its just because they have oil money.

  19. +4
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    I totally agree with the writer that the only way the Zambian government can successfully run a national airline is in partnership with another country or foreign company especially European or American companies. Zambia can just have 30% to 40% shares. If we can fail to run and sustain a bus company like UBZ how can we manage an airline?

    • +1
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      Nubian naimwe… Which plane do u want ukunina nensAla Iyi? Utumafupa Teti tukwane namuli seat belt pandeke. Are u following news? Air Botswana just cancelled zed route

  20. +4
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    One can tell from the article that the writer understands the financial drivers of the business.

    There is no magic wand that would make “Zambia Airways 2 turbocharged” successful. USA has no national carrier. The industry is run by the private sector. In the Zambian case, National carrier yes, but not run or owned by Government. Goverment has no business in business.

  21. +3
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    An airline is not run for the sole purpose of being a flag carrier. Its a business so it must make a profit. However, if you look at Africa all airlines are loss making save for only two. Do we have the money to subisidise such expensive ventures? We dont. Like someone elso here points out lets make the public toilets first

  22. 0
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    @No.2 NEZ which HH are you talking about? Are you Tonga? Do you mean the guy who enriched himself from privatization? Where did you get the delusion from that “ONLY HH can have a successful airliner?” Did he run one airliner in Namwala country so you know about his experience or you are a blind follower like all your friends who only want something Tonga even if you know of the record of privatization but you choose not to talk about it? Just imagine if HH were from another ethnic group! What would the volumes of insults here be from you and your think-alike and look-alike?

  23. +1
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    Zambia needs a national airline. Liquidating Zambia Airways was a mistake! We are praying that soon, we shall have one! God bless our leaders!

  24. +1
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    I Think the article is making a lot of sense. It has enlighten me. However, it was premature for the govt then to liquid it. It will be a mistake for the govt to resurrect it.They should have recapitalize it then privatized it or sell 90% shares. In privatize hands it should have prospered. To start a national airline again it would be a biggest mistake. Instead the govt should help a private sector in establishing one.

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