ADMINISTRATORS of Air Zimbabwe (AirZim) have persuaded government to roll out a foreign currency funding model under which industries would be directed to deploy United States dollars into the broke airline and prop up its flagging fortunes, businessdigest can report.
If government accepts the plan that was proposed in a secret paper presented to the Transport ministry when chartered accountants Grant Thornton clinched a deal giving it stewardship over the reconstruction effort, it will exert fresh pain on companies that have been crashing following the introduction of a foreign currency retention scheme that compels firms to surrender a substantial part of their earnings to the Reserve Bank of Zimbabwe.
Several recommendations made in the paper, which is titled Reconstruction Report 28 November 2018 have already been adopted by the government, although the funding proposal has not yet been rolled out.
Companies have been battling to shake off the effects of a diminishing market and high utility costs that have pushed hundreds into bankruptcy since 2016 when the government reintroduced bond notes and sparked an inflationary surge.
In the 130-page confidential report obtained by businessdigest, Grant Thornton laid out a radical transformative strategy, justifying its forex push by telling authorities that the airline sat at the heart of industries’ transportation requirements, hence the need to grant it flawless access to forex.
The government controls 100% shareholding in AirZim, a commercial operation that is only part of a logistics and tourism industry that generates billions for the economy.
“Air Zimbabwe as the national flag carrier is primarily responsible for the facilitation of tourism, trade and commerce,” Grant Thornton said in the paper.
“It is important to emphasise that while the airline is a commercial entity, it also serves national interests through such facilitation responsibilities. Air Zimbabwe is operating in an environment where it is earning most of its revenue in local currency (RTGS).
“However, most of its costs are denominated in foreign currency. Cumulatively over the years, the airline owes foreign creditors a total of US$30 258 618 as at 4 October 2018. The national airline therefore, requires prioritisation in foreign currency allocation in order to meet monthly foreign currency requirements. It is therefore imperative that the national airline is allocated a stipulated percentage of foreign currency generated from the tourism, business and industry sectors. These are the primary beneficiaries of the airline operations.
This week, Grant Thornton did not respond to a request to explain how the strategy would work, and if this would be introduced in the form of a tax for industries.
But the airline was already struggling to service US$370 million in debts to local and foreign creditors who were pushing to dispose of assets to get their dues when the proposal was made.
As Grant Thornton gave the impression that AirZim was a vital cog in Zimbabwe’s trade and tourism, the national flag carrier had been knocked out of the game by global and regional airlines that were being granted rights to take over routes previously reserved for domestic airlines.
AirZim’s passenger numbers and load factors were plummeting during the lead up to October 2018.
Passenger numbers fell from a peak of 194 254 in 2016 to 122 334 in 2018, with load factors plummeting to 40% in 2018 after reaching 48% in 2014, according to the airline’s data.
Cargo loads also declined.
Grant Thornton acknowledged this in its paper, which revealed an exodus of passengers to Fastjet, which had introduced frequencies in most lucrative routes from 2014.
South African Airways also chipped away AirZim’s market.
“The airline faces competition particularly from South African Airways and Fastjet on the regional routes as the competing airlines have deployed cost-effective equipment (planes),” Grant Thornton said.
“Both are able to operate up to four daily return frequencies on the Harare-Johannesburg route as compared to Air Zimbabwe’s single frequency, which has a day stop in Johannesburg,” Grant Thornton added.
Transport minister Felix Mhona has not responded to several questions sent to him about a month ago, in which businessdigest tried to understand if several proposals made by AirZim administrators were still under consideration.
The paper also said Grant Thornton pushed for the return of two Airbus 320 (A320) jetliners leased from the Isle of Man about eight years ago to prop up the troubled airline’s flagging fortunes, saying they had become an unnecessary drain to the cash-strapped carrier’s meagre resources.
The planes had largely been grounded in Zimbabwe and South Africa since their arrival in 2012 due to technical faults and a shrinking route network.