This week the government of Namibia announced the closure of Air Namibia airline. One government official told reporters that they came to that decision as the country could no longer afford the financial losses. According to Namibia’s government, the southern African country’s state-owned airline suffered when the pandemic began. Due to this, the airline barely made enough money to support daily operations, but the government came to their rescue.
But even with the government’s help, Air Namibia didn’t have many passengers booking flights and hence made more losses. The situation prompted the government to cut ties as no money was coming in.
Air Namibia making Losses
This week Air Namibia canceled all flights and additionally closed its reservation system, and grounded ten aircraft. More than 644 employees of the airline lost their jobs due to the shutdown. But the government said the workers would receive severance packages of a year’s salary. Air Namibia announced that customers who had paid for flights could register for refunds on all its social media platforms.
In another briefing about Air Namibia’s closure, Namibia’s minister of public enterprises Leon Jooste told reporters that the airline’s closure came after a very long discussion and consideration. According to Jooste, the government had spent more than the equivalent of $550 million to maintain the airline. Even after the support, the national airline did not become profitable and has not been profitable since its inception. Thus, the net economic costs of Air Namibia’s operations outstrip the airline’s net gains. This made Air Namibia unsustainable.
Government Efforts
Currently, Namibia is struggling to deal with the effects of the Coronavirus pandemic on its economy. Due to this, the country could no longer afford to provide financial support to Air Namibia perpetually. Helping the airline anymore would force the nation to abandon supporting economic growth and critical social services.
The government considered all other options before the closure of the airline. One consideration involved finding any other airline that could be willing to invest and form a partnership with Air Namibia. The Namibian government also looked into formulating different business plans to help turn around the company’s lousy progress. But in the end, nothing could be done that could help the airline continue operating.
Challenge Air Leases a Defective Plane
According to local press reports, the cost of liquidating Air Namibia will be around $137 million. The airline has had numerous problems for years, but the situation took worse last year. Apart from the coronavirus, the airline faced a major crisis involving a controversial lease in 1998 of a 315-passenger plane. A Boeing 767-300 owned by a private company Challenge Air was leased out to Air Namibia while it was defective.
When the airline discovered the plane was defective, it was too late as Challenge Air got liquidated soon afterward. The airline could not back out of the binding agreement, and the deal has haunted it ever since.
Even with a defective plane Air Namibia still owes Challenge Air around N$333 million (US$22 million). Because of their agreement, the airline has been forced to pay the sum of money even though the plane Challenge Air leased them is defective.
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