Air Zimbabwe on life support

 In the words of Peter Chikumba, Air Zimbabwe chief executive, the national airline was on life support in the Intensive Care Unit. Although the wholly government-owned flagship air-carrier of Zimbabwe has laid-off 30 percent of its workforce since February 2009 and had significantly reduced service, the airline still operated on a US$1.4 million monthly deficit.

In order to survive, Chikumba insisted the airline must further reduce costs and obtain government relief from its US$40 million debt, while the country must ratify a new constitution that provided guarantees to foreign investors.

Full cable:

Viewing cable 09HARARE837, AIR ZIMBABWE ON LIFE SUPPORT

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VZCZCXRO4688

RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN

DE RUEHSB #0837/01 2931406

ZNR UUUUU ZZH

R 201406Z OCT 09

FM AMEMBASSY HARARE

TO RUEHC/SECSTATE WASHDC 5043

INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

RUEHDS/AMEMBASSY ADDIS ABABA 3217

RUEHKI/AMEMBASSY KINSHASA 0537

RUEHGP/AMEMBASSY SINGAPORE 0007

RUEHBJ/AMEMBASSY BEIJING 0102

RUEHKM/AMEMBASSY KAMPALA 3265

RUEHNR/AMEMBASSY NAIROBI 5712

RUEAIIA/CIA WASHDC

RUEKJCS/JOINT STAFF WASHDC

RUEATRS/DEPT OF TREASURY WASHDC

RHEFDIA/DIA WASHDC

RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK

RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE

UNCLAS SECTION 01 OF 02 HARARE 000837 

SENSITIVE 

SIPDIS 

AF/S FOR B. WALCH 

EEB/TRA 

CA/OCS/ACS/AF M. RAUGUST 

JOHANNESBURG FOR RCO K. MAY 

TREASURY FOR D. PETERS 

E.O. 12958: N/A 

TAGS: EAIR CASC ATRN ECON EFIN PGOVZI

SUBJECT: AIR ZIMBABWE ON LIFE SUPPORT 

REF: HARARE 228 

¶1. (SBU) Summary: In the words of CEO Peter Chikumba, Air Zimbabwe 

is on life support in the Intensive Care Unit. Although the wholly 

government-owned flagship air-carrier of Zimbabwe has laid-off 30 

percent of its workforce since February 2009 and has significantly 

reduced service, the airline still operates on a USD 1.4 million 

monthly deficit. In order to survive, Chikumba insists the airline 

must further reduce costs and obtain government relief from its USD 

40 million debt, while the country must ratify a new constitution 

that provides guarantees to foreign investors. End Summary. 

----------------------------------- 

Air Zim Analogous to an ICU Patient 

----------------------------------- 

¶2. (SBU) In a meeting with conoff on October 14 to discuss Air 

Zimbabwe's (Air Zim) operations and financial health, Chief 

Executive Officer Dr. Peter Chikumba outlined the airline's strategy 

by way of an analogy to an Intensive Care Unit (ICU) patient. 

According to Chikumba, Air Zim is on life support and in critical 

condition. Before the airline can be moved from the ICU to a 

regular hospital ward, the bleeding must be stopped through the 

airline generating revenues that equal costs. Although the airline 

has reduced 30 percent of its workforce since February 2009 and 

ceased operations on non-profitable routes, the airline is still 

operating at a net USD 1.4 million loss per month, further fueling a 

collective debt that exceeds USD 40 million. He said the company's 

high debt to equity ratio, aged fleet, and red ink, coupled with the 

country's political and economic uncertainty, make attracting 

foreign investors impossible. 

¶3. (SBU) For Air Zim to upgrade from the ICU and move to a ward, 

Chikumba stressed the need for immediate action on four pillars: 

Finance, People, Equipment, and Routes. In the financial pillar, he 

emphasized the need for the government to assume over USD 40 million 

in debt the company currently has on its balance sheet. He said 

that without debt relief, revenues would continue to be eaten by 

debt payments, making capital improvements impossible. In addition, 

the size of the debt in relation to the company's equity made 

attracting foreign investors nearly impossible. 

¶4. (U) Immediate action in the remaining three pillars is designed 

to control costs and improve profitability.   Chikumba said the 

single most critical goal of the airline is to equate revenues with 

costs. Toward this goal, Air Zim is looking at further personnel 

cuts, with a goal of reducing personnel costs 50 percent from those 

of February 2009. To improve profitability, he said the airline was 

analyzing all its routes and load factors, had just ceased service 

to Dubai completely, and had reduced London service to twice a week. 

 The airline is also trying to lower maintenance and fuel costs by 

upgrading its B737-200 fleet with B737-300s (equipped with more 

economical high-bypass CFM-56 engines) which would result in a 30 

percent savings in fuel. Chikumba acknowledged it was unrealistic 

Qpercent savings in fuel. Chikumba acknowledged it was unrealistic 

to expect financing for new planes, and said the airline needed to 

end the mindset of procuring airplanes. Instead, Chikumba said the 

airline should lease planes and was scouring the used airliner 

market in an attempt to find two B737-300s as soon as possible. 

¶5. (U) Fuel costs continue to be a major hurdle for the airline. 

While the open market fuel cost is approximately, USD 0.45 per liter 

in London and Johannesburg, fuel at Air Zim's hub, Harare, is USD 

1.0 per liter. Harare jet fuel must be trucked from Beira, 

Mozambique, which doubles its price. To work around the high cost 

of fuel in Harare, Chikumba said the airline was purposefully 

loading more fuel than necessary on return routes from Johannesburg 

and occasionally using its long-range B767s to serve this 

short-range route. Admitting to the inefficiency of flying a nearly 

empty big jet on the relatively short route to Johannesburg, 

Chikumba said it was worth the savings in fuel when the aircraft 

returned to Harare nearly full, in preparation for its next flight 

to London. 

HARARE 00000837 002 OF 002 

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Constitutional Guarantee for Investors 

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¶6. (SBU) To insure the long-term viability of the airline, Chikumba 

said it was vital to improve the investment climate in Zimbabwe in 

order to attract outside investors. He said the drafting of a new 

constitution was particularly important, and that it had to include 

a "catastrophic clause" for foreign investors. Lamenting the 

current state of affairs, Chikumba said, "There are enough crazy 

people in Zimbabwe who will try to limit foreign investments to 10 

years. We must do the exact opposite and include a guarantee for 

investors in the new constitution." He said that without such a 

guarantee written into the constitution, efforts to attract outside 

foreign investment would be futile. 

¶7. Paralleling the constitutional reform, Chikumba hopes to 

eventually sell 60 percent of the airline, to create a 60/40 

(private/government) owned airline. Acknowledging that 

privatization was not currently possible, he stressed his belief 

that the long-term viability of Air Zim depends upon the sale of the 

controlling interest from the government. First, it would raise 

capital. Second, it would create a corporate board focused on 

profitability. Finally, it would shelter the carrier from 

inappropriate interference from the government. Chikumba remarked 

that attracting foreign investment and privatization was the 

airline's principal goal, once it moved out of the ICU. 

¶8. (SBU) Comment: With the economic and political collapse of the 

country, together with a worldwide decline in airline passenger 

demand, passenger revenue to Zimbabwe has plummeted. Since 2001, 15 

international airlines have suspended service to Zimbabwe and Air 

Zim's passenger load has decreased from one million to less than 

250,000 per year. Even though every day represents another day in 

the red, we expect subsidies to Air Zim to continue. In a country 

that has so many pressing needs in health care, education, 

agriculture, housing, transportation, and infrastructure, the loss 

in national prestige that would result from the failure of Air Zim 

appears to be a pill the GOZ can not swallow. End Comment. 

PETTERSON

(74 VIEWS)