Air Namibia on the brink of collapse?

Amidst wide media speculation that Air Namibia is on the edge of collapse, the airline admits that it is running at a deficit, but asserts that it continues to operate its published flight schedule.

Air Namibia’s Manager of Corporate Communications, Paul Homateni Nakawa, says: “Air Namibia is the national airline of the Republic of Namibia, with the Government of Namibia (GRN) as its sole shareholder. GRN is the only entity that can decide on the continued existence of the national airline. Until then, Air Namibia continues to operate as per its mandate.”

The airline has been under financial strain over the past number of years, despite receiving government subsidies of over N$6bn (€408m) since 2000, according to multiple reports. Acting MD, Mandi Samson, said, during a visit from Namibian Government Minister John Mutorwa last month, that the company’s problems were due to insufficient cash flow, a lack of annual reporting, and a lack of confidence by domestic banks and financial lenders. Not surprising when the carrier has failed to submit annual financial reports for nearly 13 years.

Nakawa says the airline isn’t shying away from addressing this issue. He says Air Namibia’s budget for the 2017/18 financial year is N$2.4bn (€163m) of which the government subsidised (targeted) N$486m (€32.9m). The carrier is also set to receive N$494m (€33.5m) in government subsidies for the 2018/19 period, and N$498m (€33.8m) for the 2019/20 period.

Reasonable concern

With Namibian government debt increasing, and a reported cut in spending of over N$1bn (€67.8m) in the 2018/19 financial year, there is reasonable concern over the sustainability of the ailing state carrier, especially when considering Namibian Finance Minister Calle Schlettwein’s recent statement that “bailouts given to state-owned enterprises cannot continue without end, and inefficient and unsustainable enterprises should be shed in part or entirely”.

This comes not long after Namibia’s credit rating downgrade by Moody’s on August 11, 2017 from Baa3 to Ba1.

The simple maths

In defence of the airline, Nakawa highlights its contribution to GDP. “To put matters into perspective, in the fiscal year 2015/16, Air Namibia’s operations and aviation-related capital spending made a N$704 million (€47.7m) contribution to the Namibian economy, while sustaining 4 550 jobs. During the same reporting period, N$316 million (€21.4m) in tax revenue was raised. The national airline continues to facilitate international business competition and co-operation, enabling foreign investment and tourism,” he says.

The complexities of an average N$1bn (€67.8m) contribution-outflow to government/GDP, versus N$2.4bn (€162.7m) gross influx in subsidies/private funding, must be noted at this point. The difference of N$1.4bn (€94.9m) would then, in simple terms, go to general cost covering per financial annum. Which brings into question the logic of leasing two additional Airbus A330-200 aircraft from US supplier, Intrepid Aviation, as confirmed by Chief Investment Officer, Brian Rynott. Media reports claim the lease to be a 12-month lease, at US$1.2m per aircraft per month. That equates to US$28.8m over the lease period – N$342.83m (exchange rate at time of publishing). Just for two aircraft. And who stands as guarantor should the airline fail to uphold the lease payments? A government which itself is in heavy financial debt.

Then there is maintenance on aircraft (Air Namibia currently has a total of 10 aircraft) and the airport, fuel, staff and operational fees – not to mention a number of legacy debts, such as N$250m (€16.95m) owing to the Namibia Airports Company.

Survivor Namibia

It is evident that Air Namibia is currently in ‘survivor’ mode, and Samson says: “If the entire country cannot assist us then we have to look elsewhere. We are looking for financing from other countries such as South Africa.” A bit of wishful thinking there, perhaps.

This is a dire position for the national carrier to be in, and should the carrier fold, the repercussions will have a massive roll-on effect for the country, with 700 direct airline-related jobs at risk, as well as 70 000 jobs indirectly dependent on the airline’s operations, according to Air Namibia Board Chairman, Gerson Tjihenuna.

It is a sad day when members of the Namibian government start to question not only the millions paid out in subsidies to their national carrier but ask if the airline is really necessary.

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