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Malawi Airlines Faces liquidation As Cash Flows Dwindle

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Malawi Airlines (3W, Lilongwe) could be liquidated should its two shareholders, the Malawian government (51%) and Ethiopian Airlines (ET, Addis Ababa) (49%), fail to inject much-needed fresh capital. The Nation newspaper cited company documents last week saying that the airline’s board of directors had declared it technically insolvent during a meeting on March 25.

According to the report, by February, the carrier had cumulative losses of MWK14.09 billion kwacha (USD17.86 million) against total debts of MWK13.83 billion (USD17.54 million).

“The directors have assessed the company and found it technically insolvent and not a going concern if shareholders do not inject equity into the company. The directors are of the opinion that the company cannot continue to trade in its current state without a rescue package, while there is still a significant gap between costs and revenue,” the resolutions said.

The board said that Malawi Airlines’ losses had started even before the pandemic, given intense regional competition from other southern African carriers as well as high operating costs. While COVID has worsened the situation, shareholder failure to assist the airline would be the final blow.

“In the absence of an injection of capital and with all the requested cost reduction relief measures not being approved, it is resolved that under the circumstances, where the shareholders of Malawi Airlines have not committed to the recapitalisation of the business or approved the requested relief measures and that the going concern is uncertain, the board of directors recommends an orderly winding up of the company and further recommends the appointment of a liquidator to discharge obligations and minimise further liabilities,” the resolutions said.

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The board of directors will now pass the board recommendation to the two shareholders, who will then decide whether to proceed with the airline’s orderly liquidation.

Company sources told The Nation that the two aircraft Ethiopian had provided to the carrier – a B737-700 and a Dash 8-400 – have been “technically withdrawn” following recent disagreements with the Malawian government over its reluctance to shore up the airline’s cash pile to the tune of MWK7 billion (USD9.016 million). In turn, Lilongwe’s lack of enthusiasm has reportedly stemmed from Malawi Airlines’ failure to turn a profit in the seven years it has been operational, while it has had to pay Ethiopian MWK41 billion (USD52.8 million) for aircraft sub-leases and management fees, among other charges.

As it stands, the final decision on the matter now rests in the hands of the Office of the President and Cabinet (OPC).

Neither the government, Malawi Airlines, nor Ethiopian has commented on the report.

Founded in 2013 as the successor to Air Malawi (QM, Blantyre), Malawi Airlines was to have been developed into Ethiopian’s primary feeder carrier for the southern Africa region using Lilongwe as a regional hub. However, high operating costs, including import duties and aviation-specific duties, have thwarted these plans, resulting in the airline suffering little to no growth. Over the last six months, it has also had to cope with the impact of COVID-19, which has led to key markets like South Africa being closed to foreign passenger traffic.

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