VZCZCXRO9005
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLG #0799/01 2981027
ZNR UUUUU ZZH
R 251027Z OCT 07
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC 4736
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHLO/AMEMBASSY LONDON 0247

UNCLAS SECTION 01 OF 02 LILONGWE 000799 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR KPRV MI
SUBJECT: AIR MALAWI PRIVATIZATION REDUX 
 
 
THIS MESSAGE CONTAINS PROPRIETARY BUSINESS INFORMATION; 
PLEASE PROTECT. 
 
¶1.  Summary.  Privatization for Air Malawi is again being 
discussed, this time through a liquidation and sale of assets 
to COMAIR of South Africa.  Finance Minister Gondwe has 
supported the plan, but potential divestiture of the flag 
carrier has drawn fire from Air Malawi's board and from some 
opposition leaders.  Privatization and/or further opening the 
aviation market could potentially lead to expanded services 
and lower prices, but only if the GOM manages regulatory 
policy skillfully.  End summary. 
 
¶2. Privatization for Air Malawi has once again become a hot 
topic in Malawi.  Recent newspaper reports, confirmed through 
Embassy contacts, indicate that the GOM has been in 
discussions to sell the national carrier to COMAIR of South 
Africa, a franchisee of British Airways.  The potential sale 
has caused controversy over the modality of the sale, the 
appropriateness of selling the national carrier, and the 
prospects for the future of air service to and within the 
country. 
 
PRIVATIZATION OR LIQUIDATION? 
----------------------------- 
 
¶3. Air Malawi has long been on the government's list of state 
enterprises to be privatized.  Past administrations have in 
fact attempted to sell the carrier on three separate 
occasions unsuccessfully.  The small size of the airline's 
fleet (three aircraft, one of which is currently leased out), 
and its unprofitability were major reasons these efforts 
failed.  According to recent reports, COMAIR was invited to 
do due diligence on the airline with a view to buying it, but 
having done so found that in its present form Air Malawi was 
not viable.  The current proposal would be to liquidate the 
airline and sell its assets to COMAIR, which would then 
reconstitute it as a new company under the name COMAIR Malawi 
Limited. 
 
¶4. The Privatization Commission has been handling the 
negotiations with COMAIR under its mandate to divest Air 
Malawi.  According to a source with the Commission, the 
details remain to be negotiated, but the government is 
committed to the sale.  The fate of Air Malawi's catering, 
ground handling, and maintenance units, as well as its ATR 
turbo-prop aircraft, which would not be part of the COMAIR 
deal, remains undetermined. 
 
BOARD, OPPOSITION AGAINST SALE 
------------------------------ 
 
¶5. News of the potential liquidation/sale of the national air 
carrier has sparked opposition.  The Air Malawi board opposes 
the sale, arguing that recent restructuring has made the 
airline profitable after years of losses.  Other observers 
have objected to the sale on the basis of national pride and 
the exposure that the carrier brings to Malawi 
internationally. 
 
¶6. Some opponents have charged that COMAIR as a prospective 
buyer has a strong incentive to underestimate the value of 
Air Malawi, but the airline board's claims of profitability 
also cannot be taken simply at face value.  Landing and 
parking fees in Malawi are high, and it is unclear whether 
Air Malawi, as a state corporation, pays the same charges as 
its foreign competitors.  One reliable source described the 
claim to profitability as "rubbish," noting that it ignores 
debt service and depreciation.  The airline also continues to 
receive subventions from the national budget and its 
viability without state support remains to be proven. 
 
¶7. The immediate proceeds a liquidation of Air Malawi would 
bring the GOM would be relatively modest.  COMAIR's offer to 
buy one of the airline's two Boeing 737's for 9 million USD 
would only be enough to cancel the airline's debt and cover 
closing costs.  The government might expect to earn more on 
the sale of the functioning airline, but the past record 
demonstrates that a buyer has been be difficult to find. 
 
IMPLICATIONS FOR AIR SERVICE IN MALAWI 
-------------------------------------- 
 
¶8. If Air Malawi is liquidated as proposed, the future of air 
service in the country becomes murky.  Theoretically, 
privatization of the aviation sector could lead to increased 
competition, improved service and reduced fares. 
 
¶9. Liquidation of Air Malawi is a bit of a gamble, however, 
since the airline is the only carrier operating scheduled 
flights within the country.  To date COMAIR has not indicated 
 
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publicly which domestic destinations the proposed COMAIR 
Malawi would serve on what schedule.  Industry sources 
suggest COMAIR intends to service only the Lilongwe/ and 
Blantyre/Johannesburg routes. 
 
¶10. Regulatory issues will impact the scenario.  Although 
several foreign carriers operate flights to Malawi, the 
country does not have Open Skies agreements with anyone.  Any 
expansion or change of service would need to get government 
approval.  Nyasa Express, a start-up airline that has not yet 
received formal permission to operate, plans to offer 
expanded domestic and regional flights on routes not 
currently served.  Nyasa representatives believe that there 
is untapped potential in the market.  Nyasa's current 
application for a license to operate has been made in 
partnership with another South African firm - South African 
Express.  A local Nyasa representative indicated that Nyasa 
Express would be part of a larger East African regional 
network of "Express" firms with interlocking board 
membership. 
 
COMMENT 
------- 
 
¶11. Air service within Malawi is limited and international 
fares are expensive.  As a state corporation, Air Malawi has 
been a drain on the government budget for years, and it is 
doubtful that recent restructuring has made the airline 
profitable.  Malawi could clearly benefit from the increased 
competition and better service that might come with 
privatization.  State ownership of the national airline is 
not the only problem with the aviation sector in Malawi, 
however.  Ultimately whether a liquidation or sale of Air 
Malawi would result in an improvement or a deterioration of 
air service will depend heavily on the regulatory policy that 
the government adopts.  Many observers will also be looking 
to market the case of Air Malawi as an indicator of how 
seriously the GOM intends to pursue additional privatizations. 
EASTHAM