Air Malawi eyes Euro Destinations
by Ephraim Munthali, 28 September 2006 - 05:12:28 Staggering, yes but surely not down and certainly not out—not now, not ever. This seems to be the spirit propelling struggling but apparently ambitious Air Malawi as it battles to improve its fiscal position, patch-up its battered image, smooth its cash-flow and sort out its technical hiccups. Reports say the wholly state-owned Air Malawi is negotiating deals with regional and European airlines to start flying directly to London in the United Kingdom (UK) and other European destinations. “The company is aware that there is a lot of potential within the Southern Africa Development Community (Sadc) region,” confided a high level source, adding: “Malawi has good connectivity to destinations outside the continent, both to the North and to the South, and Air Malawi wants to take advantage of that.” Air Malawi board chairman Jimmy Koreia-Mpatsa confirmed in an interview last week that the flag carrier is exploring all avenues to remain afloat and avoid burdening government with its perpetual financial woes. “Yes, we are exploring joint venture partnerships with other airlines,” he said. Asked which airlines the company is holding talks with and when Air Malawi plans to start flying to Europe, the flag carrier’s chairman said it was too early to give details of the initiative because negotiations have not yet been concluded and market research is still under-way. But Koreia-Mpatsa explained that the company wants to take advantage of opportunities in the Sadc region. Currently, he said, the region has a lot of investment potential because of its position as a rapidly emerging market which is attracting investors from across the globe to operate their businesses in the region. He added that the 2010 Fifa World Cup—to be hosted by the region’s and Africa’s economic anchor state, South Africa—opens up opportunities to the travel industry that Air Malawi should pounce on. The airline admits that it is facing many financial and operational problems mostly emanating from huge and unsustainable debts, negative working capital and low staff morale, among others. With current liabilities amounting to K1 billion—which the company’s board of directors says is higher than the value of all undisclosed current assets—the company is technically insolvent. Although the company has undertaken initiatives to save itself from collapsing like withdrawing from loss making routes, sealing code share deals, minimising operational costs and restructuring the management team, these last ditch efforts just seem to soothe the symptoms of a more complicated disease. According to a board paper sourced last week, Air Malawi had four options available to deal with its crippling debt and insolvency position. These were: ask the shareholder—government—to inject additional capital in the form of equity or soft loans into the company, borrow from financial institutions, liquidate long term assets and utilise proceeds to boost working capital or, as a last option, close the airline. The board, however, eliminated the option of asking for the shareholder’s help, noting that government already had other more important priorities to finance. It tried to borrow money from financial institutions but was not successful since its credit rating has already plunged to the bottom of the pit it already dug for itself by borrowing without a sound strategic direction. Eliminating the option of closing the flag carrier, the company has resorted to leasing its two biggest aircraft—131-seater Boeing 737-300 also known as the Kwacha which the company will later lease back, and the 110-seater Boeing 737-500 called the Sapitwa bound to go to Jordan Air on a four-year lease—and replace them with a leased smaller but modern aircraft. Money realised from leasing the two aircraft would be utilised to repay long overdue creditors who, the board says, are already threatening legal action, impounding an aircraft and withdrawing fuel supplies. The company has already been suspended as a member of the International Air Traffic Association (IATA) clearing house due to nonpayment of fees. With the two planes gone, Air Malawi would remain with two turbo prop aircraft—ATR 42 and the sickly LET 410, currently suffering from engine problems that the company is failing to cure due to cash-flow problems. When leased back, the airline will also have the Kwacha and the modern plane it plans to lease for two or three years.