VZCZCXRO1340
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0228/01 0760852
ZNR UUUUU ZZH
R 170852Z MAR 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 4235
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHDS/AMEMBASSY ADDIS ABABA 2827
RUEHKI/AMEMBASSY KINSHASA 0532
RUEHGP/AMEMBASSY SINGAPORE 0002
RUEHBJ/AMEMBASSY BEIJING 0093
RUEHKM/AMEMBASSY KAMPALA 2875
RUEHNR/AMEMBASSY NAIROBI 5314
RUEAIIA/CIA WASHDC
RHMFISS/JOINT STAFF WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE

UNCLAS SECTION 01 OF 03 HARARE 000228 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR B. WALCH 
EB/TRA 
CA/OCS/ACS/AF M. RAUGUST 
JOHANNESBURG FOR RCO M. VEASY 
NSC FOR SENIOR AFRICA DIRECTOR M. GAVIN 
TREASURY FOR D. PETERS 
 
E.O. 12958: N/A 
TAGS: EAIR CASC ATRN ECON EFIN PGOV ZI
SUBJECT: AIR ZIMBABWE AT ROSSROAD TO SURVIVAL 
 
¶1. (SBU) SUMMARY:  Air Zimbabwe, the wholly government-owned 
flagship air-carrier of Zimbabwe, is at a crossroads.  After ten 
years of disastrous financial mismanagement, AirZim has become an 
enormous drain to the government's coffers, requiring continuous 
transfusions of working capital from the Reserve Bank of Zimbabwe 
(RBZ).  To remain afloat, AirZim CEO Peter Chikumba insists the 
airline must maintain international safety and maintenance 
standards, while convincing the GOZ to sell its controlling share of 
the airline, increase the efficiency of operations through a fleet 
upgrade, and enter partnership agreements with other airlines.  END 
SUMMARY. 
 
----------------------------- 
Safe, Professional Operations 
Despite Financial Woes 
----------------------------- 
 
¶2. (U) Air Zimbabwe, based in Harare, operates a fleet that includes 
two Boeing 767-ERs that serve London, Dar es Salam, Dubai, 
Singapore, and Beijing, and three Boeing 737-200s that serve 
Victoria Falls, Bulawayo, Lusaka, Nairobi, and Johannesburg.  Its 
Chief Executive Officer, Dr. Peter Chikumba, an aircraft engineer 
with 30 years of airline experience with Ethiopian Airlines, Air 
Namibia, and the International Air Transport Association (IATA), 
spoke openly about the airline during a meeting with ConOff. 
 
¶3. (U) Chikumba emphasized the airline's unwavering commitment to 
international operating and maintenance standards.  Boasting of the 
airline's recent successful completion of an International Air 
Transport Association (IATA) Operational Safety Audit (IOSA), 
Chikumba said that in spite of chronic financial problems, AirZim 
had never compromised on aircraft maintenance or crew training. 
According to Chikumba, an airline's success is directly dependent on 
its reputation and public trust.  "The moment you lose public trust, 
all is lost... And the moment you try to skimp on standards, you'll 
lose the trust." 
 
¶4. (SBU) When questioned about the carrier's chronic red ink, the 
normally high-energy CEO became even more animated and passionate. 
Chikumba said the airline's shareholder was responsible for the red 
balance sheet.  When asked for clarification, he replied that there 
was only one AirZim shareholder, the Government of Zimbabwe, and the 
shareholder's financial policies nearly killed the carrier. 
Chikumba would not talk about specific numbers, but in December 
2008, RBZ Governor Gideon Gono said the RBZ had provided AirZim over 
US$95 million in 2008.  Chikumba snubbed the role of the RBZ as 
merely being an arm of the shareholder. 
 
-------------------------------------- 
Number 1 Goal - Real Private Ownership 
-------------------------------------- 
 
¶5. (U) Chikumba explained the situation he faced upon his return to 
the airline in 2007.  Already, the Zimbabwe dollar was in the midst 
of an ever increasing spiral of decline, while 70-90 percent of the 
airline's operating expenses were in forex.  Forced by government 
policy to accept revenue in Zim dollars only, the airline was 
Qpolicy to accept revenue in Zim dollars only, the airline was 
constantly raising prices in an impossible chase to keep-up with the 
hyper-inflation.  "We were raising prices twice a week, yet the real 
operating expenses were rising twice a day." 
¶6. (U) Compounding the situation were a 7-day turnaround period 
through the RBZ for the conversion of AirZim revenue into forex 
payments, and the Real Time Gross Settlement System (RTGS).  "We 
would transfer what we thought was the equivalent of 10,000 USD 
dollars to the RBZ for payment, only to be credited one week later 
with a 1,000 USD credit."  Intended to stem cash shortages by 
facilitating electronic transfer of credited funds, RTGS transfers 
became a vehicle for transfers that took advantage of an 
exponentially rising parallel market exchange rate.  Forced to 
accept only Zim dollars in ticket sales, RTGS and the parallel 
market rate led to grossly overvalued ticket revenue.  According to 
Chikumba, customers were effectively paying only 24 USD for a ticket 
 
HARARE 00000228  002 OF 003 
 
 
from Harare to London.  "Of course we needed help." 
¶7. (SBU) When asked for the impetus that allowed business class 
ticketing in forex beginning in September 2008, Chikumba shook his 
head.  "Well, it wasn't the daily phone calls and 127 weekly reports 
I made to the Ministers of Finance and Transportation... I guess it 
was the 128th."  Chikumba described how he repeatedly pleaded with 
both ministers for a change in policy and the fallacy of accepting 
revenue in Zim dollars. 
 
¶8. (SBU) While acknowledging that the change to forex ticket revenue 
was a major victory for the airline, Chikumba says it's not enough. 
Explaining that AirZim effectively has zero cash reserves and 
services its domestic and regional routes with 23-year old aircraft 
(B737-200s), the airline is in critical need of both operating 
capital and an upgrade in aircraft.  He said off-shore banks are not 
interested in funding capitalization projects because of the 
shareholder's poor creditworthiness.  Instead, Chikumba believes the 
success of AirZim depends upon the sale of the controlling interest 
from the government.  Chikumba remarked that the only viable means 
of raising money for capital investment is through true 
privatization.  First, it would raise capital.  Second, it would 
create a corporate board focused on profitability.  Finally, it 
would shelter the carrier from inappropriate interference from the 
government.  Chikumba added that this was his number one goal in the 
next 12 months. 
 
----------------------------- 
Immediate Imperative - 
Decrease Costs, Upgrade Fleet 
----------------------------- 
 
¶9. (U) With the economic and political collapse of the country, 
together with Western sanctions against the Mugabe regime, passenger 
demand to Zimbabwe has plummeted.  Since 2001, 15 international 
airlines have suspended service to Zimbabwe and AirZim's passenger 
load has decreased from one million to less than 300,000 per year. 
 
¶10. (SBU) To weather the current environment, AirZim is attempting 
to cut costs.  The carrier recently suspended service to Kinshasa 
and Lubumbashi in the Democratic Republic of Congo, where fuel costs 
are particularly high.  Chikumba explained that jet fuel costs 0.54 
USD per liter in London, Johannesburg, and Singapore, but that it 
costs 1.76 in the DRC.  Chikumba remarked that fuel was also a huge 
problem in Harare.  Although fuel is unloaded at Beira, Mozambique 
at the world market rate of 0.54 USD per liter, it is trucked to 
Harare, where transportation costs have more than doubled the rate 
to 1.20 USD.  To work around both the scarcity and cost of fuel in 
Harare, Chikumba said the airline was occasionally using its 
long-range B767s to serve its short-range route to Johannesburg, 
simply to take advantage of lower fuel costs.  Admitting to the 
inefficiency of flying the nearly empty big jet on the relatively 
short route, Chikumba said it was worth the savings in fuel when the 
aircraft returned to Harare nearly full, in preparation for its next 
Qaircraft returned to Harare nearly full, in preparation for its next 
flight to London. 
 
¶11. (SBU) The airline is also trying to reduce costs by reducng the 
amount of fuel it burns.  Chikumba said the airline was attempting 
to upgrade AirZim's B737-200 fleet with B737-300s (equipped with 
more economical high-bypass CFM-56 engines) which would result in a 
30 percent savings in fuel.  Acknowledging it was unrealistic to 
expect financing for new planes, Chikumba said the airline was 
scouring the used airliner market in an attempt to lease two 
B737-300s as soon as possible.  Noting both the extra fuel burn and 
mounting maintenance costs associated with the 23 year-old 
B737-200s, Chikumba said arranging the lease for two replacement 
B737-300s was an immediate imperative and on-going effort. 
 
--------------------------- 
Growth Through Partnerships 
--------------------------- 
 
¶12. (U) Chikumba's vision for solvency includes positioning the 
 
HARARE 00000228  003 OF 003 
 
 
airline for the "reemergence" of Zimbabwe.  Acknowledging the 
carrier's lack of working capital and negative credit worthiness, 
the airline is focusing on revenue expansion through partnership 
agreements with other airlines.  He said a partnership ticketing 
agreement was just reached with U.S. Airways that will hopefully 
lead to a code-sharing agreement in the future.  Describing the 
agreement as a baby step, he said such agreements were a vehicle for 
building trust and confidence in the world market.  Through the 
airline's London service, Chikumba remarked the carrier didn't have 
to operate to the U.S. in order to profit from American travelers. 
In Chikumba's vision, the West will someday return to Zimbabwe and 
he wants to position the airline through agreements reached today. 
 
¶13. (SBU) COMMENT:  Although privatization of Air Zimbabwe makes 
financial sense, there's no clear indication the new unity 
government will go for it.  Putting the airline up for sale might be 
a difficult pill for some in the GOZ to swallow as they would view 
it as a loss in international prestige.  Nonetheless, every day 
under the status quo represents another day in the red for AirZim. 
In a country that has so many pressing needs in health care, 
education, agriculture, housing, transportation, and infrastructure, 
subsidies to AirZim represent an unfortunate GOZ choice.  END 
COMMENT. 
 
MCGEE