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Zambia will be paying Ethiopia US$700,000/month in Zambia Airways deal

[By Mast Correspondents]

THE government’s decision to engage Ethiopian Airline to relaunch the national airline will cost Zambia a whopping US$700,000 (10.3 million kwacha) a month in plane charges, a well-placed government source has revealed.

The government is facing intense criticism over the decision. Opposition is focused on the business plan, while there are dark mutterings in political circles that corruption is driving the deal.

A senior member of the ruling Patriotic Front’s (PF) central committee questioned how the project was pushed through without consulting the party’s top structures.

There are also allegations that the Civil Aviation Authority is coming under pressure from the government to issue an operator’s certificate before legally required processes have been completed.

It is understood that an initial investment of US$30 million is required to launch the airline under a joint venture agreement that will see Zambia holding 55 per cent through the country’s Industrial Development Corporation (IDC) and Ethiopian Airways holding the balance of the shares.

Opposition Democratic Party (DP) leader, Harry Kalaba accused government of getting money from the state mining investment company, the Zambia Consolidated Copper Mines Investment Holdings (ZCCM – IH) to set up the airline.
He made the claims when he featured on Radio Phoenix in January this year.

Kalaba, who served as foreign affairs minister and resigned his position due to alleged corruption in government, claimed that the deal with Ethiopia cannot be reversed because kickbacks have already exchanged hands.

Ethiopian Airline has not responded to an emailed query asking them to answer to accusations of selling a deal to government that is not in Zambia’s interest.

Former employees of Zambia Airways who formed a company called Zambian AirWorks believe that the best approach is a Public Private Partnership anchored on funding from private sources, either local or foreign.

“During the past 30 years, most of the world, including Zambia, has learnt the folly of government-owned airlines,” said Captain Alick Sakala, one of the founders of Zambian AirWorks.

Addressing the parliamentary committee on transport in 2018, Sakala said: “We propose a private sector and market-driven airline. The IDC could play a part in sourcing investment either locally or [abroad].”

In 2016, at his first press conference as president, Edgar Lungu “deferred” the formation of the airline “until such a time as the economy is able to afford the high establishment costs”.

Economic indicators show that the country is in a worse state now.

According to the African Development Bank, public debt has rapidly increased to 80 per cent of GDP at the end of last year from 35 per cent at the end of 2014. Rising inflation is expected to reach 9 per cent in 2020-21, pushed by large exchange rate depreciations and food price increases.

Zambia’s rolling electricity blackouts, lasting up to 18 hours a day are a further challenge to this huge project. The country is unable to import power to cushion the economy.

Another sign of the faltering economy is the government’s failure to honour a contract with the Russian government for the supply of a Sukhoi Superjet 100 aircraft in the VIP version. The two countries also discussed the supply of four more SSJ 100s.

Russia’s industry and trade minister, Denis Manturov, said at the Russia-Africa Forum that the decision to cancel the deal “was because Zambia does not have enough funds to finance the contract”.

The Centre for Trade Policy and Development (CTPD), an economic think-tank, argues that using state funds to launch the airline will increase government’s financial burdens.

Research by the centre contends that the agreement should be harmonised with Ethiopian Airlines Vision 2025 agenda, which would mean operating the airline as a regional carrier, at least in its early stages.

A senior member of the PF’s central committee, who asked not to be named, complained that the relaunch of the national carrier on the current terms “stinks of corruption”.

“The matter has never been discussed in the committee’s meetings,” he added. “It was on the agenda of one of our meetings in 2018 but the president (Lungu) merely informed us about the decision to partner with Ethiopia.”

Asked another ruling party source: “Why is government insisting on spending taxpayers’ money on the airline when there are private people who are willing to invest in it?”

An insider familiar with the agreement revealed that Zambia will be paying Ethiopian Airline more than US$700,000 per month for the lease of planes. That figure does not include expenses such as insurance and maintenance fees.

A source at the Civil Aviation Authority (CAA) complained that officials looking into certification were coming under pressure from top government figures and the airline’s CEO, who seemed to have a direct line to State House.

“It is our legal mandate to ensure that we do our professional work,” said a source. “But there is pressure from some top government officials who want us to ignore certain procedures and hand out the certificate quickly.”

Speaking recently on a local radio station, Mutotwe Kafwaya, the Minister of Transport and Communication, insisted that “no money will come from the treasury”.

“The IDC looks after parastatals, it’s a quasi [quasi-government institution] so I don’t know why that’s not a good enough model,” said Kafwaya. “It’s not drawing money from the treasury, so keep the treasury away from the conversation ….”

Despite continuing uncertainties, the groundwork has mostly been done.
The board, led by senior lawyer Bonaventure Mutale, Zambia’s former Attorney General, is in place.

The chief executive officer, Bruk Endeshaw Abebe, was appointed early last year. Abebe was Ethiopian Airline’s sales and services director for the southern region.

Endershaw was recently quoted in one of the local dailies saying Zambia Airways would operate eight aircraft – three Bombardier Q-400, two Boeing 737-800, and three Boeing 787-800.

However, former transport minister Brian Mushimba said in Parliament in 2018 that the airline “will start with three planes that are going to service a few regional and domestic routes”.

Mushimba did not specify the type of planes but added that at full capacity, the airline will employ about 500 people.

Sakala favours planes that have been operated in Zambia before as “it will reduce the cost significantly”.

He said Zambia Airways once operated Boeing and ATR aircraft, and the country still has expertise in maintaining and flying these planes.

“This makes it possible for the airline to put together a maintenance organisation,” he said. “In addition, both pilots and maintenance engineers could be sourced from the diaspora where they relocated after the closure of the airline.”

The IDC did not respond to an emailed query asking about the airline’s startup capital and who is paying Endeshaw’s salary.

One source claimed Endeshaw is on a gigantic monthly salary, despite the airline not yet being operational. He was contacted for comment and but did not answer repeated calls and a text message.

The airline is not yet listed in the portfolio of state-owned companies on the IDC website. When the board appointed Endeshaw in February last year, it directed him to target the launch of the airline for the third quarter of 2019.

The national airline has been a flagship project for the ruling Patriotic Front since it first formed government in 2011.

The first technical committee appointed in 2013 to oversee the project worked with experts from ZA to draw up a business plan and make recommendations on which aircraft to purchase.

The first committee recommended buying an ATR 42- 600 for domestic routes which would then feed into the Boeing 737 – 700 or 800 for regional routes.
The idea then was to open the intercontinental route after two years of domestic and regional operation. The Boeing 777 Dreamliner was earmarked for intercontinental routes.

The government ignored the plan.

The project was plagued with challenges from the outset, ranging from where to source the planes to interference from government officials.

There have also been loud calls for the government to make public the findings of the liquidator’s report on the defunct Zambia Airways before another airline is launched. There are major questions over how Zambia Airways’ assets were managed after it closed in 1994.

“ZA had assets in New York, London and many other places around the world,” said one former employee. “We want to know what happened to them, because we are told that some senior government officials benefited.”

Zambia has joined Malawi by buying into Ethiopian Airlines’ strategy of expanding its Bole base to include important geographical hubs.

In 2013, the airline acquired a 49 per cent stake in newly founded Malawi Airlines, based in Lilongwe.

However, in 2017 Malawian MPs questioned the partnership between the airline and its Ethiopian counterpart, saying it was not beneficial to the country.

They demanded a report from President Peter Mutharika’s government on how much Malawi had benefited from the partnership.

In 2010, Ethiopian Airlines helped to establish Asky Airlines in Lomé, Togo. Further investments were made in Ethiopian Mozambique Airlines and Tchadia Airlines in Chad.

Ethiopian Airlines drew up a 15-year strategic plan called “Vision 2025“ to make the airline the leading aviation group in Africa in eight areas: regional, international, freight, maintenance and repair operations, an aviation academy, board catering, ground operations and airport enterprise.

The targets are ambitious: by the year 2025 the airline plans to have an annual turnover of US$10-billion, a fleet of 120 aircraft and 90 international destinations.

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