News / National
Air Zimbabwe debt balloon to over $100 million
04 Jun 2011 at 13:40hrs | Views
AIR Zimbabwe's debt has ballooned to over US$100 million as the airline continues to default on debt payments and picks up new bills from service providers, The Financial Gazette can report.
The rising debt level, which has reached US$108 million from US$64 million last year, could precipitate a financial hemorrhage on the group, whose planes are currently grounded after a Civil Aviation Authority of Zimbabwe moratorium issued after concerns the fleet was now too aged to fly.
Air Zimbabwe's three Boeing 737 planes have been grounded as a result.
Group acting chief executive officer, Innocent Mavhunga, said the airline had successfully negotiated with top creditors to curtail termination of services and litigation over ballooning debts.
The debt level, which was confirmed by Mavhunga, represents an acceleration of liabilities for the State-owned entity, whose predicament was worsened by government price controls during the economic crisis period that ended with the formation of an inclusive government as well as dollarisation in 2009.
Critics have said government should allow Air Zimbabwe, which over the years has largely depended on fiscal support to remain in business, to twist in the wind or sell the perennial loss-maker to a strategic partner able to turn around its fortunes.
The escalating debt level has been a result of non-payment to service providers and not a result of borrowings.
The Air Zimbabwe boss revealed during a parliamentary hearing last year that the airline was operating on an overdraft facility and that its debt, which was increasing on a daily basis, stood at US$64 million by October 25, 2010.
Air Zimbabwe's top creditors include ENNA, the Agency for Air Navigation Safety in Africa and Madagascar (ASECNA), China's Na-tional Aero-Technology Import and Export Corporation (CATIC), Aero Industrial Sales and American General Supplies.
CATIC supplied Air Zimbabwe with the unpopular MA60 aircraft in 2005. The airline bought three MA60 planes but one developed technical faults before it could operate and is currently grounded.
ASECNA had already secured a court ruling in France over which it could impound Air Zimbabwe's airplanes due to an overdue debt, while British Airport Transport and American General Supplies, a major supplier of aircraft spares to Air Zimbabwe, had warned that they could suspend services due to accumulating arrears.
But Mavhunga told The Financial Gazette on Friday that the beleaguered national flag carrier had successfully persuaded its key creditors to bear with Air Zimbabwe until a bailout out package is unveiled by government, the sole shareholder.
"We continue to talk to them (creditors). From the assurances we have received from government, through the Ministry of Transport, we have assured the creditors that at some stage, we'll be able to make good what we owe them," he said.
He indicated that they had paid "something" towards debts to top creditors, although the current level of indebtedness appears to suggest the payments could have been a drop in the ocean. Nonetheless, Air Zimbabwe, said Mavhunga, had come to an understanding with its creditors based on the "commitment from shareholders".
Mavhunga said there was a compelling case for government to bailout Air Zimbabwe because its collapse would affect national pride, which he said was at stake.
"Allowing Air Zimbabwe to collapse would worsen the negative perception on the country. A national airline in a developing country is strategic," said Mavhunga when asked to comment on remarks that government should let the airline collapse to avoid an unnecessary burden on the fiscus. Mavhunga said it was not the intention of Air Zimbabwe to become dependent on Treasury for sustenance but said policymakers should understand their plea for cash given that the airline had "reeled under price controls" for over a decade.
"We don't want to continue to be a burden to the fiscus (but) given that history, policy makers should be sympathetic to our bailout proposal. We had a big hole on dollarisation," said Mavhunga.
He declined to discuss developments over the once-proposed roping in of a strategic partner, saying this was a shareholder issue. But he insisted that despite its galloping liabilities, Air Zimbabwe still had "intrinsic value" to make it attractive to a potential suitor.
"We have managed to maintain safe operations in a difficult environment. Zimbabwe can be the region's second hub (after South Africa) given our geographical location. When you take these factors into account, apart from our financial status, you realise there is potential; an investor will be attracted," he said.
The rising debt level, which has reached US$108 million from US$64 million last year, could precipitate a financial hemorrhage on the group, whose planes are currently grounded after a Civil Aviation Authority of Zimbabwe moratorium issued after concerns the fleet was now too aged to fly.
Air Zimbabwe's three Boeing 737 planes have been grounded as a result.
Group acting chief executive officer, Innocent Mavhunga, said the airline had successfully negotiated with top creditors to curtail termination of services and litigation over ballooning debts.
The debt level, which was confirmed by Mavhunga, represents an acceleration of liabilities for the State-owned entity, whose predicament was worsened by government price controls during the economic crisis period that ended with the formation of an inclusive government as well as dollarisation in 2009.
Critics have said government should allow Air Zimbabwe, which over the years has largely depended on fiscal support to remain in business, to twist in the wind or sell the perennial loss-maker to a strategic partner able to turn around its fortunes.
The escalating debt level has been a result of non-payment to service providers and not a result of borrowings.
The Air Zimbabwe boss revealed during a parliamentary hearing last year that the airline was operating on an overdraft facility and that its debt, which was increasing on a daily basis, stood at US$64 million by October 25, 2010.
Air Zimbabwe's top creditors include ENNA, the Agency for Air Navigation Safety in Africa and Madagascar (ASECNA), China's Na-tional Aero-Technology Import and Export Corporation (CATIC), Aero Industrial Sales and American General Supplies.
CATIC supplied Air Zimbabwe with the unpopular MA60 aircraft in 2005. The airline bought three MA60 planes but one developed technical faults before it could operate and is currently grounded.
ASECNA had already secured a court ruling in France over which it could impound Air Zimbabwe's airplanes due to an overdue debt, while British Airport Transport and American General Supplies, a major supplier of aircraft spares to Air Zimbabwe, had warned that they could suspend services due to accumulating arrears.
But Mavhunga told The Financial Gazette on Friday that the beleaguered national flag carrier had successfully persuaded its key creditors to bear with Air Zimbabwe until a bailout out package is unveiled by government, the sole shareholder.
"We continue to talk to them (creditors). From the assurances we have received from government, through the Ministry of Transport, we have assured the creditors that at some stage, we'll be able to make good what we owe them," he said.
He indicated that they had paid "something" towards debts to top creditors, although the current level of indebtedness appears to suggest the payments could have been a drop in the ocean. Nonetheless, Air Zimbabwe, said Mavhunga, had come to an understanding with its creditors based on the "commitment from shareholders".
Mavhunga said there was a compelling case for government to bailout Air Zimbabwe because its collapse would affect national pride, which he said was at stake.
"Allowing Air Zimbabwe to collapse would worsen the negative perception on the country. A national airline in a developing country is strategic," said Mavhunga when asked to comment on remarks that government should let the airline collapse to avoid an unnecessary burden on the fiscus. Mavhunga said it was not the intention of Air Zimbabwe to become dependent on Treasury for sustenance but said policymakers should understand their plea for cash given that the airline had "reeled under price controls" for over a decade.
"We don't want to continue to be a burden to the fiscus (but) given that history, policy makers should be sympathetic to our bailout proposal. We had a big hole on dollarisation," said Mavhunga.
He declined to discuss developments over the once-proposed roping in of a strategic partner, saying this was a shareholder issue. But he insisted that despite its galloping liabilities, Air Zimbabwe still had "intrinsic value" to make it attractive to a potential suitor.
"We have managed to maintain safe operations in a difficult environment. Zimbabwe can be the region's second hub (after South Africa) given our geographical location. When you take these factors into account, apart from our financial status, you realise there is potential; an investor will be attracted," he said.
Source - FinGaz
