HILKA BIRNS / CAPE TOWN
South Africa's neighbours face a dilemma: continue protecting struggling state airlines or risk opening them to competition and potential oblivion
Southern African airlines are staring at seemingly insurmountable obstacles to profitability, with foot-dragging by owner-governments on privatisation and liberalisation not helping their cause.
Like their South African counterparts, airlines in Angola, Botswana, Malawi, Mozambique, Namibia, Zambia and Zimbabwe face high costs and low fares in an overtraded market. "Africa has 700 million people and 65 airlines. Most are weak and fragmented, and survive on government subsidies. We don't need more than six on this continent," says John Morrison, chief executive of the Airline Association of Southern Africa, the industry's lobby group.
Most southern African airlines are state-owned and many - including Air Malawi, Air Namibia, Air Zimbabwe, Linhas Aéreas de Moçambique (LAM) and Zambian Airways - have flirted with privatisation and commercialisation. But despite some tinkering, most remain unprofitable.
Protective environment
Air Botswana is making money, but largely because it exists in a protective regulatory environment where competition from foreign carriers is restricted. As a result, the national carrier is able to demand high fares. But chief executive Willie Mokgatlhe maintains that since its most recent restructuring, in 1995, which entailed the conversion of debt to equity, staff and route rationalisation, the airline remained profitable by not undertaking "grandiose projects", keeping down its debt and controlling costs.
Encouraged by its robust economy, the Botswana government is pushing ahead with plans to privatise Air Botswana, in what will be a test case of privatisation in that country. "The policy is driven by the need to ensure that public funds are directed to social programmes that will benefit the majority of citizens," Mokgatlhe says. Negotiations are under way for the sale of a 45% stake in Air Botswana to South Africa's Comair, and is undergoing a due diligence inspection. Mokgatlhe says the process is expected to be concluded at the end of the fiscal year.
In Namibia, the government last month approved Air Namibia's new business plan, which prescribes organisational and fleet restructuring, but stops short of privatisation. Air Namibia chief executive Gernot Riedel says privatisation plans were shelved while the government ring-fenced Air Namibia's debt in a bid to enhance the airline's attractiveness to potential investors. Earlier this year, the airline received a N$400 million ($66 million) government cash infusion to keep it afloat.
A breakthrough, says Riedel, was the cabinet's approval for the airline to dispose of its biggest cash burner, a Boeing 747-400 Combi, which it flies between Windhoek and Frankfurt. The carrier has held talks with Airbus and BMI about leasing two Trent-powered Airbus A330-200s or A340s.
LAM has suspended its initiative to secure a 51% partner. It had intended to launch a tender process before year-end, but this has been put off indefinitely. A previous privatisation attempt failed in 1996. LAM is a limited liability company, with employees holding 20% of shares.
Air Malawi's planned privatisation was postponed this year after a deal to sell the carrier to a consortium comprising of a Malawian company Crown Aviation and South African Airways fell through.
Severe droughts and the impact of HIV/AIDS on Malawi and Zambia have stymied economic growth, with consequences for Zambian Airways, although Air Malawi in March reported its first profit before tax in years, of 18.5 million kwancha ($175,000), following internal restructuring.
Credit ratings
Most regional carriers recognise the need to upgrade their fleets to maximise operating cost benefits and enhance passenger appeal. But they struggle to attain sufficient credit ratings to access financing for their fleet programmes. According to Airbus, 69% of Africa's jet fleet is more than 10 years old. Of these, more than two-thirds are over 20 years old. International Monetary Fund (IMF) support is scarce in the face of continuing social-spending demands.
High charges for air traffic services, at airports and for fuel, also characterise the landscape, with most southern African administrations regarding these as legitimate additional revenue sources.
Similarly, labour costs are high, relative to productivity. This is because many carriers are seen as extensions of the civil service and are kept from paring their bloated organisations by protective labour laws.
State involvement in airlines means political considerations have more relevance than commercial qualities when senior managers are appointed, says Morrison. "The effect of this is that senior management appointments are often short-lived, with the nominated incumbents having only a superficial understanding of the business. The average reign of an airline chief executive in Africa is nine months."
Traffic to South Africa increased substantially after 11 September on the strength of increased tourism, but not to its neighbouring countries. Many southern African airlines operate unsustainable routes for purely political reasons, such as Air Zimbabwe's Harare-London service.
Zimbabwe's political and economic crisis has left Air Zimbabwe facing fuel and foreign currency shortages, labour strikes and a skills drain. It has begun to charge locals in foreign currency for air tickets. Latest reports indicate that only three of its five aircraft are serviceable. Standards have reportedly plummeted, with a Boeing 767-200 grounded after an incident apparently due to insufficient maintenance checks.
One solution to profitability lies in the deregulation of intra-African traffic rights, says Morrison. The Yamoussoukro Decision to open intra-continental skies has been signed into law by the heads of state of the African Union, but governments have so far failed to implement it. "The airlines want it, but the bureaucrats are holding up the process," Morrison says. "Heads of state need to instruct transport ministers to implement Yamoussoukro."
Deregulation benefits
The Development Bank of Southern Africa will present the issue at a heads of state meeting in January to discuss the New Economic Partnership for Africa's Development strategy. One reason for the delay may have been that nobody had studied the benefits of deregulation when the Yamoussoukro Decision was signed, says Morrison. "The benefits will be enormous. It will allow African carriers to fly between any city pairs in Africa. If bilaterals are lifted, airlines will have greater freedom of choice and operation on a third- and fourth-freedom basis."
Source: Flight International
