Maputo, 10 May (AIM) – The Mozambican government has been obliged to intervene to save Mozambique Airlines (LAM), and the publicly owned telecommunications company, Tmcel, otherwise these companies faced the prospect of collapse, Transport Minister Mateus Magala, told the country’s parliament, the Assembly of the Republic, on Wednesday.
Speaking in a question and answer session between the government and the parliamentary deputies, Magala said LAM “has been facing considerable challenges over the past ten year. This heavy legacy of challenges has been growing and worsening”.
All analyses by Mozambican and foreign experts agreed that “LAM cannot survive in its current state”.
Its business “is 90 per cent financed through debts, a figure which is twice the global average”, said Magala. Last year, LAM informed the government of losses of 74.6 million US dollars. The company was also holding onto nine million dollars of deferred taxes.
“The situation is so serious that LAM has had difficulties in paying pensions since 2019”, added the Minister. The company had been quite unable to implement the government’s policy of attracting more passengers through low fares. On the contrary, LAM’s fares “are very high and hence elitist”.
The government had called on international consultants to identify solutions, and this assessment concluded that “without adequate intervention, LAM could be on the brink of collapse”.
The immediate challenge, said Magala, was to stabilize the company to avoid further losses. This would “provide more time so that we could review all the questions raised in the assessment, and determine with more certainty the future of LAM”.
A “Council of Transformation of LAM” was set up, led by Magala and the Minister of Economy and Finance, Max Tonela, to take “strategic decisions during a transitional period of between 12 and 18 months”.
This led to the decision to hire a South African company, Fly Modern Ark (FMA) to manage the transition of LAM. Magala described FMA as “an experienced aviation company with a diversified range of aviation knowledge”.
FMA has agreed to bear the risks of the operation. The FMA managers will be paid, not out of the Mozambican state budget, but out of “money from improved efficiency and increased revenue from the operations of LAM”.
The agreement with FMA involves “creating a mixed team led by FMA, and including some LAM cadres to transfer knowledge and increase capacity”. Thus, said Magala, FMA “has on its team Mozambican managers who are heading some areas such as risk analysis and project management”.
Later this month, he added, FMA will present the first report that identifies the rapid gains attained in the first month of operation”.
The government’s expectation is that this intervention “will normalize the main economic and financial ratios”, and ensue that “technical and operational questions reach the highest standards of the industry”.
“The LAM brand has great value and history on the national and international market, and so we will do everything to preserve this legacy and confer due pride on all Mozambicans”, declared Magala.
The Minister thought that the financial situation of Tmcel was “much more complex” than that of LAM. On occasion, it had been unable to pay wages to its 1,700 workers. Its total debt has reached 400 million dollars and is rising.
Tmcel was losing market share, said Magala, and its revenue was declining. Its technological platforms were outdated, leading to “very high operational and maintenance costs. Almost all the hardware and software are at the end of their useful life, and have no support from the supplier”.
Just as with LAM, a detailed assessment of Tmcel led to the conclusion that, without urgent intervention, the company is on the road to collapse and bankruptcy.
The favoured intervention, said Magala, would be to find a multinational telecommunications operator that was prepared to become a strategic partner of Tmcel.
But that would involve selling off 80 per cent of Tmcel shares, while the government agreed to bear all the company’s debts, and to reduce its work force by 60 per cent.
A consultative group is being set up to look into the recommendations from various reports on Mcel, including one from the World Bank. But in the meantime, a “Council of Transformation of Mcel” has been set up. This Council will “systematize concrete measures for the stabilization of Tmcel to be announced and implemented as from this month”.
Magala described Tmcel as “a strategic company with a potential to generate resources for its sustainability and to finance the economy”.
“Changes require sacrifices from everyone”, he said. “We must impose a new discipline on the commercial management of the companies being restructured, so that they really do achieve good results”.