Air Namibia deal: Govt not consulted
The national carrier received bailouts to the tune of N$8.4 billion over the last 10 years.
01 February 2021 | Transport
Air Namibia has exactly 18 days to raise N$104 million to prevent breaching its last-minute settlement agreement clinched with Challenge Air last Friday.
The cash-strapped national airline will not have the luxury of running to government for a bailout after public enterprises minister Leon Jooste said government will not help it pay the Challenge Air bill.
Speaking to Namibian Sun over the weekend, Jooste said government had no prior knowledge of the settlement agreement.
“We were not consulted on the details but I made it clear that whatever they discuss or agree to should in no way bind or implicate the shareholder [government],” he said.
He added: “The current status is that government will not foot the bill. Air Namibia has multiple creditors and the shareholder cannot give preference to any one creditor over another.”
During Friday’s court proceedings, judge Kobus Miller recognised the settlement agreement presented by the two parties and granted an order directing Air Namibia to pay Challenge Air.
According to the settlement agreement, Air Namibia owes Challenge Air N$178 million.
The airline agreed to pay N$104 million by 18 February.
The national carrier will then pay monthly instalments of N$12.1 million until January 2021.
At the end of the payment period, the airline will have paid about N$226 million, approximately N$48 million more than the agreed debt.
And according to the agreement, the bill must be settled in euros.
“All payments are to be made to Challenge Air in euros and or the equivalent thereof on the applicable exchange rate at the date of payment, free of any deductions, taxes, bank charges, exchange rates differences or costs nor any other transfer costs, and where these are deemed to applicable shall be borne by Air Namibia,” the agreement read.
Critics have since accused Air Namibia of failing to incorporate measures such as currency hedging to protect the airline from currency fluctuations.
Currency hedging is the act of entering into a financial contract in order to protect against unexpected, expected or anticipated changes in currency exchange rates.
Sources at the airline blamed government for the financial turbulence that has engulfed the airline, with some claiming that there are deliberate attempts to shut down Air Namibia.
In 2019, the airline begged government for a N$1.5 billion cash injection to cater to historical debts and to restore the solvency of the company by 2022. The bailout was refused.
At the time, it owed Challenge Air N$470 million and the Namibia Airports Company N$400 million.
The airline is also stuck in lease agreements for its A330 aircrafts. Plans to prematurely terminate the agreements hit a brick wall after being told that Air Namibia will have to fork out at least N$2.5 billion upfront.
Documents pertaining its financial position - seen by Namibian Sun - indicate that the airline’s deficit before government subsidy is around N$733 million per annum.
Air Namibia’s acting managing director Theo Mberirua said last week’s settlement gives the airline time to devise ways to deal with the matter.
“The good thing is that the national asset continues to operate and the employees keep their jobs. This is a good lesson for us going forward and we must ensure that we run our business professionally.”
He also said the impasse with Challenge Air could have been avoided.
The airline is amongst the top recipients of government funds in the form of bailouts, having received about N$8.4 billion over the last 10 years.
Finance minister Ipumbu Shiimi said Air Namibia has been a loss-making entity since its inception and currently requires substantial amounts of money to bail it out from its current intractable debt situation.
Government will not oppose the settlement agreement made on Friday during a court case between Challenge Air and Air Namibia for the best interest of Namibians, he said.
“As a shareholder, the government will study the settlement agreement between Challenge Air and Air Namibia,” he said.
According to Shiimi, an analysis conducted by the government to understand the core reasons for the national airline’s commercial failures has revealed that it was operating with a flawed business model where 15 of its routes were loss-making, due to high structural and operating costs.
The Frankfurt route was reportedly the highest loss-making due to major losses incurred from high fixed costs and under-utilisation.
“It also became clear that the combination of aircraft types, routes, high employee numbers and other structural inefficiencies contributed to the financial distress of the company,” he noted.
Shiimi, however, said due to the Covid-19 pandemic, government is unable to make adequate funding available for Air Namibia’s new business model, which would amount to more than N$7 billion.
In 2019, the government approached all airlines currently operating in Namibia as well as those that intend to operate here to assess the possibility of strategic partnerships or investment in Air Namibia, which all parties declined.
- Additional reporting by Nampa
The agreement in numbers:
N$178m outstanding bill
N$104m to be paid by 18 February
N$12m monthly instalments for 10 months
N$226m total repayment