The Centre for Trade Policy and Development (CTPD) has urged government to halt plans for the re-launch of a national airline until the country’s economy improves.
In a statement, CTPD researcher Bright Chizonde explained that in light of the current financial constraints and the country’s struggling economy, it was not time to press ahead with an ill-conceived business model that crowded out the much needed private sector investment.
“…We strongly advise government to put the national airline on hold till the nation is in a better macroeconomic position to launch it as a regional carrier. There is need for IDC to adjust its business model and develop a financing model for Zambia Airways – these should thereafter be made public to address stakeholder concerns regarding operations, private investment synergies and government financing of the national airline… CPTD would like to urge you to reconsider and halt the plans to re-launch the national airline. We strongly urge you to reconsider plans to re-launch the national airline,” Chizonde stated.
He explained CTPD’s reasons for advising against the re-launch of the national airline.
“Firstly, Zambia Airways would face a high risk of failure if it is launched using the proposed business model. Zambia has a relatively small population and economy and lacks strategic location for intercontinental flights. South African Airways (SAA) has been constrained to a loss making position due to this lack of geographical advantage. Even though Zambia is partnering with Ethiopian Airways, Ethiopian Airways’ success is driven by a number of factors such as strategic location within the horn of Africa and a comprehensive business model, some of which is impossible to replicate in the Zambian context. Furthermore, our assessment of Ethiopia’s Partnership with Malawian Airlines reveals somewhat disappointing results. Despite the Good Partnership model on paper and technical assistance, Malawi Airlines has dragged to break-even and remains in a loss making state for over four years now,” Chizonde stated.
“Secondly, government is currently financially constrained due to debt levels, which means it is unable to absorb either the initial investment or re-capitalization costs in case of failure. While we agree that a national airline has the potential to facilitate economic development by improving tourism and stimulating non-traditional exports, these potential benefits must be weighed against the risks of failure and increased indebtedness. Investing US$55 million into this project has the opportunity cost of using these funds towards government spending on health care, education and social protection. A loan to cover this investment would increase debt and interest payments and could further crowd out social spending in the event that the airline requires a future bailout – as we have seen in South Africa.”
He stated that the government should leave investments in the airline business to the private sector.
“In a period of mounting debt, the capital requirements to establish and the prospect of low-returns in a challenging industry make the re-launch of Zambia Airways a gamble that the government can ill afford. Instead of currently pursuing a national airline, GRZ could make policy changes to the domestic market that promotes investment into the Zambian aviation sector, which would in turn support economic growth,” Chizonde advised.
He stated that further consideration is needed to ensure Zambia benefits from a national airline and citizens are protected from the burden of additional unproductive public debt.
“In light of financial constraints and a struggling economy, now is not the time to press ahead with an ill-conceived business model that crowds out much needed private sector investment,” stated Chizonde.