Air Namibia (SW, Windhoek Int'l) is looking to return its A330-200s to lessor Castlelake given the unsustainable losses it has incurred as a result of their operation.
Minister of Public Enterprises Leon Jooste confirmed to The Namibian newspaper this week that he and officials from the transport ministry and the attorney general's office are currently in the United States attempting to negotiate an early exit from the two leasing contracts.
Air Namibia secured the new-build widebodies from what was then Intrepid Aviation on 12-year-long contracts back in late 2013 to replace its then fleet of A340-300s. It had intended to use the jets to improve the quality of its longhaul product. However, with the arrival of a growing number of foreign carriers in Namibian skies, the need for the A330s diminished to the extent that they are now bleeding Air Namibia to death.
According to an internal cabinet memo on the future of Air Namibia drafted by Finance Minister Calle Schlettwein back in June, early release from the lease agreements is expected to cost the state-owned carrier as much as NAD2.5 billion Namibian dollars (USD165.9 million), a burden that will have to be borne by the fiscus.
Given Air Namibia's growing unsustainability, coupled with a EUR25 million debt owed to the estate of Challengair (1I, Brussels National), Schlettwein's memo outlined four cost estimates that it would take to keep the airline alive.
One of the options shows that the airline would require NAD3.5 billion (USD232 million) to continue operating in its current form for three years. Another foresees a board-supported bailout plan which would cost between NAD2.5-3.3 billion (USD165.9-219 million).
A third option proposes the drafting of a new business plan that would need NAD4.1 billion (USD272 million), while the fourth, that recommended by the minister himself, is the total closure of the airline which would provide for the termination of all existing contracts including the NAD2.5 billion needed to return the A330s to Castlelake.
“The scenario is financially the most predictable [NAD2.5 billion worst case] and therefore the preferred option,” the document said.
In addition, Schlettwein's memo said that Air Namibia has been unable to deal with its NAD1.3 billion (USD86.3 million) worth of legacy debts given a lack of financial transparency at the company.
“The company has considered approaching the market for external financing and borrowing against assets. However, this option is not feasible, given the consistent message in the past that banks refuse to advance financing in the absence of audited financial statements, aircraft is an asset class which cannot be converted into cash, and due to low confidence in management capability, given the historic challenges,” he said.
In terms of Air Namibia's current business, the minister said that its Victoria Falls and Durban King Shaka routes were the only two of its nine regional services to turn a profit.
To that end, Air Namibia would also have to consider the future of its fleet of four A319-100s. Of the quartet, the two that are leased from Deucalion Aviation Funds - V5-ANL (msn 3346) and V5-ANK (msn 3586) - will see their respective contracts end in December 2019 and July 2020, with an outstanding balance of NAD66 million (USD4.38 million).
“It is clear that Air Namibia under the current model is unsustainable, and that key decisions have to be taken urgently at shareholder level regarding the future of Air Namibia,” Schlettwein said.
Commenting on the report, Air Namibia told ch-aviation in a statement that although the Cabinet Committee on Treasury for Public Enterprises has not taken a decision yet regarding its future, the airline's board of directors and management, together with recently appointed consultants, and the government are engaged in a process of re-evaluating Air Namibia's strategy and business model aimed at ensuring the airline's sustainability as a going concern.
"The objective of this exercise is to identify opportunities to improve financial performance, enhance efficiency and reduce costs across the airline’s entire route network," it said.