NATIONAL airline Air Zimbabwe (AirZim) is haemorrhaging under a US$40 million contingent liability sitting on its books for many years, complicating its going concern status, a report released by the auditor general (AG) indicated last week.
The audit covered a three-year period from 2019 to 2021 — the most recent by the AG.
Its financial statements are now generally historical. But it gave insights into the obstacles that the two jetliners leased from Isle of Man 12 years ago have brought to the State-run airline, especially after external administrators had recommended in 2018 that they must be returned.
Acting AG Rheah Kujinga’s reports uncovered how the airline has battled cash-flow crises, with current liabilities outweighing assets.
The Airbuses — which were at the centre of submissions by AirZim executives during an appearance before parliament last month, featured prominently in the audit, with Kujinga concerned about the US$40 million charge.
The airline incurred a US$11,1 million net losses in 2020, after reporting another US$15 million loss in 2019, pushing cumulative losses to US$417,4 million, according to the report. Current liabilities exceeded total assets by US$358,2 million in 2020.
“In addition, there is a contingent liability amounting to approximately US$39 million arising from claims being done over the ownership of ZWPN Airbus A320,” Kujinga said, referring to the 2020 audit.
“These conditions indicated uncertainties which cast significant doubt on the company's ability to continue as a going concern.”
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Referring to the 2021 financial statements, she said: “I draw your attention to the fact that Air Zimbabwe had an accumulated losses amounting to US$115,1 million (2020: US$417, million) recognised to date and that the company’s current liabilities exceeded its total assets by US$45,3 million (2020: US$358,2 million).
“In addition, there was a contingent liability amounting to approximately US$39 million arising from claims being done over the ownership of ZWPN Airbus A320.
“These conditions indicated uncertainties which cast significant doubt on the company's ability to continue as a going concern,” she added.
When the airline entered receivership in 2018, administrator Grant Thornton’s first actions were to advise government to get rid of the two aircraft.
Grant Thornton said this would enable AirZim to make extensive cost savings.
The planes had largely been grounded in Zimbabwe and South Africa since their arrival in 2012 because of technical faults and a shrinking route network.
The Zimbabwe Independent reported in 2021 that in a 130-page confidential report, Grant Thornton advised government to decommission or dispose of almost all of the airline’s fleet of 10 aircraft and replace them with better aircraft leased from other sources.
It said the Airbuses complicated and added an extra burden to the airline’s balance sheet as it lacked the expertise to maintain and repair them.
The issue of expertise was also raised by parliament in June.
The year 2018 marked four years since one of the two aircraft, code-named the Z-WPM had been parked at Oliver Tambo International Airport in South Africa where it had gone for repairs to a faulty landing gear auxiliary power unit.
It was also due to undergo a US$750 000 C-Check.
The confidential report prepared for the Ministry of Transport said as of November 2018, AirZim required US$5 million to get the process completed.
In 2019, the other jetliner went out of service after the airline failed to access the software to perform necessary repairs to the planes.
The US$5 million required in South Africa could explain why the airline has failed to fly back the aircraft to the Isle of Man, a self – governing British Crown dependency in the Irish Sea between Great Britain and Ireland, also referred to as Mann.
Two ‘special purpose vehicles’ known as South Jet One and South Jet Two are said to have leased the A320s before the deal mutated into a court battle in 2019, with the leaser demanding US$50 million in leasing fees.
“Given AirZim’s fleet size, the airline runs a varied fleet of aircraft incorporating Airbus A320, MA60 and Boeing 767/737. This presents maintenance and operational challenges since engineers and pilots are trained and licenced to a specific brand of aircraft,” Grant Thornton said.
In short, Grant Thornton said: “A320 ZWPN and ZWPM (return to owner), B737-200 ZWPB (decommission and dispose), B737-200 ZWPC (decommission and dispose), MA60 ZWPL, ZWPJ and ZWPK (decommission and dispose, B767-200 ZWPF (lease out) and B767-200 ZWPE (lease out voetstoots (as is) or convert to cargo plane long term”.
