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When kwacha flies away

The Malawi Government, in other words, the people of Malawi have a majority shareholding in the Malawian Airlines. When Air Malawi was liquidated in 2013, the Malawi Government using the taxpayers’ money through the Public Private Partnership Commission (PPPC) struck a deal with Ethiopian Airlines. In this deal, the Malawi Government has a 51 percent shareholding in Malawian Airlines while Ethiopian Airlines has 49 percent. This means that the people of Malawi have a majority shareholding in this venture. While the deal was completed in February 2013, the airline commenced operations on 31 January 2014. The question we should be asking is what are the benefits to the taxpayer from this relationship?

When this partnership was launched, the people of Malawi were told that government would offload 31 percent of its stake to private investors after a year of operations. In 2013, the PPPC assured the country that the 31 percent to be offloaded would add $6 million to the government coffers. It is now October 2016 and the government has not yet offloaded the promised 31 percent to private investors. In fact, in March 2016, it was reported in one of the newspapers that the chief executive officer of the PPPC Jimmy Lipunga said the plans to offload the 31 percent private investors would depend on the airline attaining profitability. This is where the problem begins! In the years 2014 and 2015, the airline made losses. One would argue that it is expected that a new airline should make loses bearing in mind that the aviation industry is very difficult.

While it is easier to agree with this reason, I am at loss to understand the logic behind the operational arrangement of the airline. You see while Ethiopian Airline owns 49 percent of the airline, they were also given a management contract to manage the airline. This means that whether the airline makes a loss of a profit, Ethiopian Airlines get management fees. So, while the losses are shared between the people of Malawi and Ethiopian Airlines, the airline is making a profit through its management contract fees. This is a conflict of interest in a way. Ethiopian Airlines does not have an incentive to declare a profit. What was the logic of giving a management contract to entity with some vested interest?

The other interesting thing is that Malawian Airlines has two air crafts: the 67-seater Bombardier Q400 and the 118 Boeing 737-700. These aircrafts are leased from Ethiopian Airlines. While the normal practice is that most aircrafts are leased through brokers, there is no evidence that this was the case. In other words, there was no competition in the leasing arrangement. Malawian Airlines pays Ethiopian Airlines leasing fees. There is no way of knowing whether these leasing fees are within the normal range or too excessive. Again, whether Malawian Airlines makes a loss of not, Ethiopian Airlines makes a profit from the Malawian Airlines deal.

Thirdly, the booking and revenue management system used by Malawian Airlines is owned by Ethiopian Airlines. They charge Malawian Airlines for the use of these systems. Once again, whether Malawian Airlines makes a loss or nor, Ethiopian Airlines makes a profit from the use of these systems. Even though the Boeing 737-700 used by Malawian Airlines is to the same generation as the Sapitwa and Kwacha that Air Malawi owned, Malawian Airlines hires engineers from Ethiopia to do any maintenance operations. Any spare part is again imported from Ethiopian Airlines at duty-free price. Again, as with any insider trading, there is no way of knowing whether the prices for these spare parts are normal or excessive. Even the cabin crew are trained by Ethiopian Airlines at a cost in Ethiopia. Is it possible that it would be in Ethiopian Airlines’ interest to inflate the prices of all these services and make massive profits while Malawian Airlines is making losses?

Since Ethiopian Airlines came into the deal as a foreign investor, they also enjoy several benefits and incentives accruing to foreign investors. All the top executive at Malawian Airlines are Ethiopians. It is also important to note that while they earn their income in Malawi, these do not pay income tax in Malawi. The salaries of Malawian staff at Malawian Airlines are so low that the tax bill from Malawian Airlines is almost negligible. The type of jobs that have been created are low-level jobs and limited. The idea was very good but a little more thought on the execution could have made sense.

I have spent the last few years of my life trying to understand the public private partnership and how they can aid the development of a nation. One of the supposedly successful partnership of a public private partnership in Malawi is Malawian Airlines. I must confess that in terms of giving an alternative air travel between Malawi and South Africa, the coming in of this airline has been a benefit. Similarly, this is the only airline offering a direct route by air between Malawi and Zimbabwe and between Malawi and Tanzania. In addition, the age of cancellations and uncertainty which characterised the final days of Air Malawi is surely gone. But with this, millions of Malawi kwacha might also have found some direct route out of Malawi and out of the government coffers.

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