ZAMBIAN AIRWAYS' FAILURE A "GOVERNMENT TAKEDOWN"

C O N F I D E N T I A L LUSAKA 000073


E.O. 12958: DECL: 02/03/2019
TAGS: ECON EAIR PGOV ZA
SUBJECT: ZAMBIAN AIRWAYS' FAILURE A "GOVERNMENT TAKEDOWN"

Classified By: Ambassador Donald E. Booth, reasons 1.4, b/d.



1. (SBU) Summary and Comment: Zambian Airways claims the
Zambian Government destroyed creditor and consumer confidence
in it and drove it into bankruptcy because of vendettas
against the airline's primary stakeholders. Although its
business practices are questionable, at the very least,
Zambian Airways has become a political football. The airline
is hoping skittish creditors will restructure its debts, but
Raytheon, to which Zambian Airways has defaulted on lease
payments, wants to move its two aircraft out of Zambia ASAP
and ultimately repossess them. The Embassy will track
Raytheon progress and make appropriate representations if
anyone tries to seize its assets. End Summary and Comment.


2. (C) Zambian Airways (ZA) Chief (and 50 percent
stakeholder) Mutembo Nchito told Pol/Econ Chief January 29
that his airline's failure was a result of a Government of
Zambia (GRZ) vendetta against him and one of his partners,
the anti-government newspaper "The Post" (a 30 percent
stakeholder). (The other main stakeholder is Seaboard
Milling, a U.S. company, which holds 12.5 percent of ZA.)
Nchito noted that he had met with Minister of Communications
and Transport Dora Siliya in May 2008 to discuss ZA's
financial troubles and request government flexibility in the
collection of debts owed to the National Airport Corporation.
Nchito said Siliya was open to arriving at some arrangement
that would keep Zambia's only quasi-national carrier afloat.
However in the subsequent period during which President
Mwanawasa fell ill and later passed away, the Minister of
Finance Magande and Siliya found themselves at odds on the
subject. According to another Embassy source, Mwanawasa had
urged Magande to buy a GRZ stake in ZA. When Magande began
using the airline to campaign against Vice President Banda
around the country, however, Banda killed the deal. The
Banda government then seemed to take delight in broadcasting
ZA's instability, which caused banks to withhold credit to
the company and travelers to seek alternative carriers. As
stories of delayed, canceled, and chaotic flights spread, the
failure of ZA became a self-fulfilling prophecy.


3. (SBU) Critics say ZA expanded too quickly, accruing too
much debt and then offering rock-bottom fares on certain
routes to undercut South African Airlines. It also
apparently delayed paying airport service charges and landing
fees to the National Airport Corporation/GRZ for almost five
years despite having collected those fees from passengers.
By 2008, it owed the National Airport Corporation USD 2
million.


4. (SBU) Nchito happens to be a prosecutor for the Task Force
on Corruption (TFC),leading the prosecution against former
President Chiluba and ruling party MMD Secretary General
Katele Kalumba, among others. The government has no love for
"The Post," the only truly independent newspaper in Zambia
and one which abandoned all standards of professionalism in
its efforts to undermine President Banda's candidacy in the
autumn of 2008. In fact, the judge in the corruption trial
of Chiluba recently barred "The Post" from covering the
trial, claiming that it was misrepresenting the facts, a
standard to which Zambian newspapers are not usually held.


5. (SBU) Nchito is hoping the banks to whom ZA is indebted
will overcome the skittishness caused by the GRZ's antipathy
toward ZA and agree to restructure ZA's debts or, if
necessary, liquidate its assets. For now, ZA is in a holding
pattern, creditors (including passengers whose flights were
canceled) are not being paid, nor are the 260 ZA employees.
The GRZ has accused Nchito of skimming money off the company,
but Nchito claims he is completely broke, which may be true
given that the Task Force on Corruption has not paid its
prosecutors in over nine months.


6. (SBU) In the meantime, the Embassy has been contacted by
Raytheon Aircraft Credit Corporation (RACC),which wants to
repossess two Beechcraft Model 1900D aircraft leased to ZA,
worth USD 2.7 million each. RACC expressed concern that in
previous repossession processes (outside of Zambia),other
creditors and even host governments try to hold hostage or
seize RACC assets in order to retrieve debts. Therefore,
RACC would like its two aircraft transferred to a Raytheon
distributor in South Africa soonest. The first aircraft is
expected to depart February 3, while the second is in need of
a new engine before it can fly. Nchito assured Pol/Econ
chief that he is in constant contact with RACC and is
cooperating to comply with Raytheon's wishes.


7. (SBU) Comment: Zambian Airways, whatever its failures as a
business might be, has obviously become a political football.
The GRZ has made statements saying that ZA is not a special
case and will not be bailed out. In the very same newscycle,
it then announced that mining parastatal ZCCM-IH would take
over a failing copper mine to keep the mineworkers employed.
The 260 employees of ZA do not have the same hold over the
MMD that the thousands of mineworkers, who overwhelmingly
support President Banda's Patriotic Front rival Michael Sata,
do. Furthermore, the GRZ's apparently active undermining of
ZA is unfortunate in an economy that can ill-afford to lose
businesses, particularly in a niche field that provides
travel infrastructure for tourists where roads are
inadequate. If there is any attempt to seize Raytheon
property, the Embassy will make appropriate representations.


BOOTH