Monday, September 10, 2012

► MOZAMBIQUE: LAM Mozambique getting a B737-500, but cash crunch delays launch of international routes.

LAM Mozambique AirlinesMozambican national carrier LAM Mozambique (TM) is, at the end of this month, to receive a Boeing 737-500 (likely MSN: 25418 | ZS-PKV), in addition to its third and final Embraer E190 due in late October/early November, as the carrier moves to consolidate itself domestically and regionally writes the Mozambican national daily, O País.

According to the paper, during a recent meeting of the 30th Coordinating Council of the Mozambican Ministry of Transport and Communications, the Chief Executive Officer of LAM, Marlene Manave, stated that the carrier is also in negotiations to acquire "two aircraft capable of carrying 50 passengers, to be positioned in the provinces of Tete and Nampula". This would then allow for the connection of Tete to South Africa, Zimbabwe and Malawi and for Nampula to connect to Dar es Salaam and other countries.

Marlene Manave
Marlene Manave (ABJ)
Most interestingly of all however, are revelations that the airline, despite seeing a viable market in flights to Europe and South America, has yet to find a suitable investor willing to provide enough funding in order to enable the launch of international flights. Manave mentioned that Lisbon (Portugal), Sao Paulo and Rio de Janeiro (Brazil) and even possibly China are amongst the most likely target routes, given their nation's high level of participation in the fast growing Mozambican economy, but lamented the high operational costs associated with either leasing or owning an aircraft.

Said Ms Manave:
"We are, at the moment, looking for a partner who can get money to acquire aircraft, or lease planes, because we have the markets and we believe that with the level of economic growth in the country, together with the experience that LAM has in operating in the intercontinental market, we can resume operations. What we lack are the resources to acquire the proper equipment."
Source [O País]

In November 2011, Brazilian development bank Banco Nacional de Desenvolvimento Económico e Social do Brasil announced it would provide Mozambique with a USD300million loan to be used in acquiring new aircraft for LAM, whilst in March this year, Manave announced the launch flights to Brazil and China in the second half of this year, again with financial support support from the Brazilians to the tune of USD10million.

LAM Mozambique's likely Boeing 737-500
LAM Mozambique's likely 737-500 (Neres)
How the airline will operate flights to Europe is still an unanswered question as LAM is banned from operating within the European Union, and flights to Lisbon that did resume in 2011 used Boeing 767-300ER equipment operated by Portugal's EuroAtlantic Airways on behalf of LAM. Fellow Lusophone carrier TAAG Angolan Airlines (DT) faced a similar ordeal in 2007 when their newly acquired Boeing 777s were banned from operating into EU airspace, only for the ban to be lifted 3 years later in 2010.

With the Mozambican economy booming, one would think that investors would be lining up to get their hands on a slice of the carrier. The reality however, is quite different. Even though LAM is one the few majority state-owned airlines (91% Government, 9% employees) in Africa to have recorded any growth in recent years, the carrier is still uncompetitive (its only local competition being KAYA Airlines) despite being  heavily protected by the Mozambican government's unwillingness to open its airspace to foreign carriers, an issue noted by Mozambican deputy Transport and Communications Minister, Manuela Rebelohas.

So which is it? Privatisation leading to profitability and hence viability? Or profitability and hence viability leading to privatisation? The choice will be a difficult one for the Government to make, but it will have to be done sooner rather than later as LAM risks being left behind by a blossoming regional African market as well as a cut-throat international market.