By Staff Reporter
Public Enterprises minister, Leon Jooste, is currently in the United States of America where he has been delegated to find the best way possible to save Air Namibia from liquidation by exiting its costly lease agreements.
The minister’s trip comes at a time when Air Namibia is currently financially overwhelmed due to leases entered into without an exit clause. The Patriot is reliably informed that Air Namibia is currently paying US$1.1 million per aircraft per month while the current going rate is around US$300 and US$400.
Air Namibia remains trapped in the lease for yet another six years which will see it hemorhagging for years to come.
The major headache facing both the airline and its shareholder is that the leases are backed up by full government guarantees.
“I’m rather focussing on the best way forward now. I want Air Namibia to get a fair chance before any final decisions are taken. These leases are killing the airline. We need to identify the combination of the least risky and least expensive option,” said the minister in correspondence with The Patriot this week.
Government as guarantor and a company known as Intrepid as lessor, signed the killer-lease agreement back on the 19th of April 2012.
Then finance minister Saara Kuugongelwa-Amadhila signed the lease agreement in favour of Intrepid Aircraft Leasing LLC in respect of the obligations of Air Namibia with no exit clause. Theo Namases was the Managing Director of the beleaguered airline at the time.
This made it possible for Air Namibia to lease two aircraft from the company, a single Airbus A330-200 aircraft which was then scheduled for delivery in September 2013.
The current owners of the aircraft, Intrepid have turned out not to be the same as those that signed the agreements.
A company known as a Castlelake bought Intrepid towards the end of 2018, The Patriot can disclose. Castlelake according to its website is a global private investment firm managing funds in excess of U$ 14,3 billion and its director of global special situations investing, Emre Ersenkal lived and worked in Namibia for two years as a peace corps volunteer.
“The Air Namibia item was referred to the Cabinet Committee on Treasury (CCT) by the Cabinet Committee on Overall Policy and Priorities and CCT will report back once the various a”ssignments have been concluded”, confided Jooste this week.
We are not going to meet with Airbus but rather with the owner and lessor of the two Airbus A330 aircraft. This mission is in line with directives from the Cabinet Committee on Overall Policy and Priorities and Cabinet on Treasury where the decision was taken to delegate me to lead this delegation for this particular purposes,” said the minister.
He said the current engagement in the US does not relate to liquidating Air Namibia but deals with the issue from the shareholder perspective, “since government as the shareholder is financially exposed through government guarantees entered into between the lessor and government, not Air Namibia”.
The minister did emphasize that the discussions in the US will be of an exploratory nature to assess what options may be available to terminate the lease agreements and are therefore not actual negotiations.
“The lease agreements for the two Airbus A330 aircraft is one of the primary reasons for Air Namibia’s current financial difficulties and a critical component in our efforts to save the airline. As mentioned before, this is an issue elevated to the level of the shareholder as it deals with our exposure through the guarantees and to explore ways to mitigate potential consequences,” said Jooste.
He added that if his delegation fails to terminate the lease agreements on acceptable terms, Air Namibia will take up the process to enter into the actual negotiations with the owners as that then becomes an operational matter where the shareholder will not be directly involved in.
Jooste is presently accompanied by officials from the Ministries of Works and Transport, Finance, Public Enterprises and the Office of the Attorney-General (as directed by the Cabinet Committee on Treasury).
“The outcome of this engagement will give us a far more accurate indication of what options are available and at what cost. Cabinet cannot take decisions without facts and we are in the process of gathering the facts to allow for informed, calculated decision-making.
I think it should be welcomed that the issue is obviously of such importance that a decision was taken to delegate one of our Ministers to lead the delegation on this mission.
So essentially a meeting at the level of the shareholder rather than an operational matter which should be at the level of the company.
The Guarantee is between the Shareholder and the Lessor, not the company and the Lessor and any cost associated with terminating the lease agreement will have to be borne by Government as the Shareholder in any case,” he said.
How to exit the lease agreement
Meanwhile, Amy Walters and Robert McGregor, from Cirrus Securities in a document titled Flash Note: Air Namibia Expenditure Shock have said government appears to have two main options with regards to funding this early exit from these leases.
They said this is either through reallocating funds from the current budget (most likely the development budget), or running a larger budget deficit, and thus borrowing more funds.
“The former will likely be difficult to achieve, given the magnitude of the amount required, and will have a highly detrimental impact on the struggling Namibian economy, particularly the construction sector. Therefore, we assume the latter option is more likely,” they said.
Exiting Air Namibia from the lease agreement has been calculated to cost government some N$2.5 billion.This is unbudgeted, Walters and McGregor have disclosed.
“The shock is applied to our adjusted model, and includes an interest cost estimation on top of the N$2.5 billion, totalling N$213.7 million per year. This assumption is based on the full amount being borrowed domestically at the current per-instrument cost of domestic debt issuance, weighted to align additional issuance to the same weightings as the current domestic borrowing plan, they said.
Both have cautioned that the lease-exit route would mean that the total expenditure will increase from N$66.6 billion (MoF Figures) to N$69.7 billion – an increase of 4.79%.
“The budget deficit would therefore increase to N$11.3 billion, from its current level of N$8.2 billion, some 5.8% of GDP, and a 1.7 percentage point increase over the 4.1% forecast by MoF. As a result of this, as well as a refinancing of the government overdraft with the Bank of Namibia, the borrowing requirement (from the market) for the FY2019/20 jumps to N$12.8 billion,” they warned.
They added that the additional debt would see total debt increase to N$99.3 billion, which will increase the debt to GDP ratio beyond the 50.0% mark in the current financial year, increasing from 48.9% to 50.5%.
“Finally, it is worth noting that should Government fund the lease-exit through domestic debt issuance, these funds will be raised in country but paid to external parties, thus having a negative impact on the balance of payments.
Nevertheless, and despite the somewhat concerning figures presented above and through this note, we are of the view that the closure of the national airline, or certain routes thereof, while expensive in the short-term, remains the best option for the country and fiscus in the longer term,” they said.