The Fall and Rise of Zambia Airways

Sun, 31 Dec 2017 08:36:11 +0000

TRANSPORT and Communications Minister Brian Mushimba revealed that Cabinet  had approved the project to relaunch the defunct Zambia Airways. He told journalists in Lusaka that the project would be run under a Joint Venture model with Ethiopian Airlines.

He falso said that Cabinet had since agreed to set aside US$30 million in 2018 for the project. Mr Mushimba said the ministry was optimistic that Zambia Airways would return to the skies next year with October 24th as the date for the launch flight.

He disclosed that President Edgar Lungu would be on the inaugural flight, accompanied by senior government officials and journalists to a destination yet to be identified. He also disclosed that a Technical Task Force appointed by his ministry decided to adopt the Joint Venture route to spare the already stretched national Treasury. He explained that the business case presented by the Technical Committee of partnering with Ethiopian Airlines was the best model. He further explained that the launch of the national carrier would allow Zambia to partake in the US$1.5 billion Zambian aviation market.

However, the economic benefits of launching the national carrier for Zambia has been oversold aviation industry watchers have argued.  One thing is for sure some sceptics argue, the partner to Zambia Airways, Ethiopian Airlines, would not be forking out. Ethiopian Airlines would pocket the vast majority of the money raised by the sale of freight rights and global ticketing as well as some of the income from local ticket sales.

There are few cast iron laws in economics but one seems to hold; the technical task forces always overestimate the economic benefits and underestimate the costs. Yet, even in an era of global economic uncertainty in the aviation industry, governments are falling over themselves to have a national flag carrier. They get armed with reports and projections from management consultants and believe that they can partner with well-established airlines at a reasonable cost, returned many times over by the economic benefits that come from a national airline.

History, however, suggests a different outcome. Who doubts that an airline industry is a multimillion dollar industry supporting many livelihoods and whose closure could devastate many lives? In case you do, the story of Zambia Airways code named and once fondly referred to as QZ had somehow proven that lives were distressed after its abrupt grounding and liquidation in 1994. Zambia Airways was created by an Act of Parliament to take over from Central African Airways (CAA) in 1967 by Government. It was split from CAA and became independent and was being run by indigenous Zambians.

But what could have led to the closure of the once vibrant national flag carrier? The point of view of those who were part and parcel as employees and top managers of the airline, they knew from the onset that the airline was prematurely closed down considering the assets that the company had accumulated over time in Zambia and across the world which outstood what it owed, so the closing of the company was most likely politically motivated. Even though, the Zambian government was also under pressure from the International Monetary Fund (IMF) to get rid of all underperforming parastatal companies for them to access funds from the IMF.

Government in its own hasty wisdom came up with the idea of closing down the airline which was prematurely done and without considering other survival options of how to go about it. What could have been done to save the airline? Looking at the assets the company had, the state could have sold those assets to keep the airline afloat. The other thing the authorities could have done was to trim down the number of employees because at the time of liquidation, there were about 1, 200 employees. Government could have also looked at streamlining the operations and removing unprofitable routes.  Better still the government could have canvassed for a strategic partner for Zambia Airways.  Looking at these options, the airline could not have closed down.

But in stark contrast to the way its regional worse-off cousin, Kenya Airways (KQ) things were done – the World Bank’s International Finance Corporation (IFC)-led privatisation of Kenya Airways (KQ) in which KLM became a strategic partner, and shareholder, in the airline,  purchasing 26 percent of the Kenya government’s shares in the airline for US$26 million, and after which the shares of the company were listed in an IPO, and was celebrated as one of the most significant privatisation deals for a decade.

A master cooperation agreement and shareholders agreement were signed between KLM and KQ in 1995, and a code share agreement and joint venture agreement followed in 1997. KLM had seats on the board of Kenya Airways and some of the tenets of master cooperation agreement gave any KLM director veto power over KQ decisions on:

The appointment or dismissal of the Managing Director or Finance Director of KQ; the acquisition or disposal of any aircraft and any other variation in the size and composition of  KQ’s fleet; the allotment and issue of any shares; entering into of any co-operation agreement with an airline that is a major competitor of KLM; material alteration to KQ’s existing route network or material increase or reduction in the capacity on its routes; material commitment or expenditure on sales and marketing or distribution of KQ’s products and services and any sale of shares by the Government of Kenya to a major international airline.

But that was all in question with the recent loss announced by Kenya Airways with quite a bit of blame being directed at KLM for the position in which the KQ found itself in. What does this entail in the case of Zambia Airways and Ethiopian Airlines? What then is left of the economic case for relaunching the national carrier? Well, airline jobs and economic diversification into tourism and hospitality sectors could play a crucial part. The challenge would be to capitalise on this and turn it into tangible development.