- In K14 billion loss position, K13.8 billion debt
The board of directors of the struggling Malawi Airlines Limited has recommended an “orderly winding up” of the company, saying the airline is technically insolvent.
The resolution to dissolve the company was duly passed on March 25 2021 by the board in accordance with the memorandum or by-laws and articles of incorporation of the company.
An orderly winding up would leave at least 71 locals, currently in the employ of the airline, jobless.
According to the resolutions Weekend Nation has seen, signed by the company’s board chairperson George Partridge, the company is in a cumulative loss position of K14.09 billion ($17.86 million) as at February 2021 and has accumulated debts of up to K13.83 billion ($17.54 million).
“The directors have assessed the company and found it technically insolvent and not a going concern if shareholders do not inject equity into the company. Directors are of the opinion that the directors cannot continue the company to trade in the current state without a rescue package, while there is still a significant gap between costs and revenue,” reads the resolutions.
While the company’s revenue has been dwindling, the resolutions say its costs of operations remained high and cannot be covered by revenues when the environment remains hostile as a result of the Covid-19 pandemic.
“In the absence of any injection of capital and with all the requested cost reduction relief measures not being approved, it is, therefore, resolved that under the circumstances, where shareholders of Malawi Airlines have not committed recapitalisation of the business or approve the requested relief measures and that the going concern is uncertain, the Board of Directors recommend an orderly winding up of the company and further recommend the appointment of a liquidator to discharge obligations and minimise further liabilities,” the resolutions further say.
Malawi Airlines is a registered partnership company with shareholding between the Malawi Government (51 percent) and Ethiopian Airlines (49 percent).
According to the resolutions, the two shareholders will inform the board whether the winding up of the company will be pursued while the company is operating or by suspending operations.
Weekend Nation has also learnt that between October 2020 and February 2021, the company recorded a loss of K285 million ($361 000). While the demand for travel was better between November and December 2020, such demand started to decline following the measures taken by both Malawi and South Africa to control the rising number of Covid-19 cases.
In an interview yesterday, Malawi Airlines spokesperson Joseph Josiah confirmed the several board meetings that have taken place recently, but said he was not aware of agenda and resolutions.
Our efforts to talk to Patridge as well as Malawi Airlines (MA) chief executive officer Laeke Tadesse also yielded no results yesterday as they both did not pick up our calls after several attempts.
While saying he was unaware of the resolutions, Civil Aviation director James Chakwera, in an interview yesterday, said it would be “unfortunate” if the company would be liquidated as recommended by the board as it will inconvenience travellers outside the country, especially those that go to destinations where Malawi Airlines plies its trade.
“Already, we have had problems with Malawi Airlines as some cases passengers had to be re-routed to other countries, which is not what the traveller or the ministry [of Transport] wants.
“So, if the company will be liquidated, that will definitely not be a good thing as passengers will have to pay more as other airlines will take advantage of the situation, and that is our fear. We would like to see [continued] provision of its [Malawi Airlines] services,” he said.
Malawi Airlines has two aircraft, namely Bombardier Q400-Dash 8 and Boeing 737-700. But sources in the aviation sector yesterday said the two planes have been “technically withdrawn’ by the minority shareholder, Ethiopian Airlines following recent disagreements with the Malawi Government, over the reluctance by the latter to inject more capital in the deal.
According to other minutes of a meeting which took place last August, which Weekend Nation has also seen, Ethiopian Airlines wanted Malawi Government to inject K7 billion as recapitalisation.
“ET [Ethiopian Airlines] suggested that the Board should inform the shareholders that the company has no money and cannot resume operations and should consider looking for dissolution,” reads part of the minutes.
Treasury spokesperson Williams Banda yesterday said the ministry would only be in a better position to comment after seeing the recommendations by the Malawi Airlines board.
“We will wait to see the said resolutions and that’s when we can substantially comment on the matter,” said Banda.
A source at Ministry of Transport yesterday said following the recommendations by the MA board, the final decision on the matter now rests in the hands Office of the President and Cabinet (OPC).
Said the source: “The ultimate decision to liquidate the company now is in the hands of Cabinet. It is just a matter of when that decision can be made.”
While also expressing ignorance on the matter, acting clerk to the Cabinet Marjorie Shema yesterday said if the recommendations were sent to OPC, then it follows that the decision on the way forward is “in the pipeline”.
In December last year, Weekend Nation exposed that Malawi Airlines has been posting zero-profits in five years but, paid over K41 billion for aircraft sub-leases, management fees and other payments to its strategic partner—Ethiopian Airlines.
Partridge confirmed in an interview with Weekend Nation then that the airline had made no profits since it started operating in 2014.
“Since the airline started, I can confirm it has not made any profits. The major return and primary objective of the investment was the general economic returns on the investment due to the connectivity that the airline is providing in the most efficient and effective way.
“This objective has largely been achieved compared to the time we had no national airline,” said Patridge.
Public Accounts Committee chairperson Shadreck Namalomba—an audit advisory expert himself—described Malawi Airline’s payments to Ethiopian Airlines as a typical example of transfer pricing and suggested Malawi Revenue Authority should assess them for possible tax evasion.