Gross mismanagement cripples African airlines

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  • Mismanagement affects African Airlines
  • SA government seeks to rescue SAA
  • Air Zim receives new aircraft today
  • Ethiopian Airlines to build US$5 billion airport

2019 goes down in history as a rough year for the global aviation industry. More than 20 airlines closed up shop across the world, with financing woes being a common factor in the cases. Between rising fuel and labour prices, fierce competition and an oversupply of seats, smaller airlines felt the pinch while bigger brands were forced to re-strategize.

In addition to these challenges, on the continent, airline mismanagement is at the core of most national carriers’ isues. The majority of long-haul capacity to/from the African continent is served by non-African carriers. This market is saturated, yet we see African national airlines attempt to serve such routes and ultimately fail to make a profit.

The South African government said in a statement on Sunday evening that it was working with National Treasury to raise US$140 million to contribute to SA Airways (SAA), as part of its commitment to the airline’s business rescue process. The Struggling state-owned airline made a $367 million loss in the year to the end of March 2018, while its liabilities exceeded assets by around US$900 million as of March 2018.

Ultimately, amidst the network difficulties and strategic missteps, the crux of the issue crippling South African Airways is relatively simple: rising costs, debt, and revenues failing to match. Expressively, since 2017, the airline has opted to stop releasing annual statements; a year in which net losses quadrupled.

In August, Kenya’s national carrier, Kenya Airways posted record losses. Critics accuse the company of financial mismanagement as it struggles to deal with pilot shortages and an industrial dispute. Its pre-tax loss for the six months ended 30 June rose to KSh8.56 billion ($82.8 million) from KSh3.9 billion in the same period of 2018. This is despite expanding capacity to New York and several locations in East Africa.

Kenya Airways has struggled to turn a profit while burdened by a $220 million debt pile. Earlier in 2019, the Kenyan government voted in favour of nationalizing the airline as part of a rescue operation and is now in the process of buying out minority shareholders. The airline is currently 48.9% owned by the government of Kenya, while 35.7% is in the hands of the KQ Lenders Company and 13.7% is held by KLM.

Nigeria’s national airline, Nigeria Airways ceased operations in 2003 plagued by mismanagement, a poor safety record, corruption, and overstaffing.  At the time of closure, the airline had debts totaling US$528,000,000 (equivalent to $733,832,127 in 2019). Notably, start-up Nigerian airlines barely last 10 years due to a multitude of factors that contribute to their collapse within a short period, but chief among these factors is lack of corporate governance, and failure to compete with international operators in the domestic market.

Air Zimbabwe is no exception having posted perennial losses estimated to be in aggregate of over US$300 million over the past decade. Air Zimbabwe, which owes foreign and domestic creditors more than US$380m, was in October 2018 placed under administration to try to revive its fortunes. (Air Zim has not been tabling its financial statements before Parliament, a violation of the Public Finance Management Act).

Amid claims by the government of intentions to privatize Air Zim, late last year, Air Zim management informed the media that 3 investor bids had come through for recapitalization of the embattled airline. With a new aircraft having come in today, celebrated by the presidium, and several cabinet ministers, these questions remain; does government have the will power to deal with the cancer of corruption and mismanagement that has cankered at AirZim’s progress, is government ready not to meddle with the affairs of the firm and give room to privatization and real development of the entity, and is government ready to be transparent with the operations of the airline?

Proving to be a beacon, is Africa’s biggest airline by fleet size and the most profitable; Ethiopian Airlines which posted a net profit of $260 million in the 2018/19 financial year, up from $207.2 million a year earlier, with plans to build a $5 billion airport south of Addis Ababa. In 2018 it launched four-times-weekly flights to Addis Ababa from Manchester, boasting of a fleet of 116 aircraft and is looking to compete with Middle Eastern carriers such as Qatar Airways and Emirates, which provide numerous direct links between Asia and Africa.

In North Africa, EgyptAir’s fortunes are tied inexorably to those of its home nation. That has translated to heavy losses and weak demand in recent years as the country was buffeted by successive waves of political and security unrest. However, EgyptAir’s net profit hit US$60 million in the first six months of the 2018/2019 fiscal year; the first in ten years. This came on the back of bold initiatives in the corporate governance and operations of the airline in recent years. On the table are plans to double the fleet and improve their customer service centre.

Meanwhile, though due to a different narrative, European airlines are struggling too! Since the beginning of September, four European airlines ceased trading, three in the first week of October alone. Two of these airlines were over 50 years old, demonstrating that it’s not just the newcomers who are struggling. One of the biggest names in travel, Thomas Cook’s demise marked the end of more than 150 years of package tour success. Of course, these are not the only casualties of the currently volatile European market. 2017 saw the collapse of Monarch, Air Berlin and Alitalia, who were joined by Cobalt and Primera in 2018.

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