Source: Ministers reel from corrupt aircraft deal – The Zimbabwe Independent April 13, 2018
…battle to cover tracks
TRANSPORT minister Jorum Gumbo this week got further entangled in the aircraft purchase scandal which involves state-owned Air Zimbabwe (AirZim) and new airline Zimbabwe Airways (ZimAirways) whose ownership is dodgy, the Zimbabwe Independent can report.
By Bernard Mpofu
The saga has also sucked in Finance minister Patrick Chinamasa who on Wednesday tried to clear the air over the issue, together with Gumbo, although their intervention only managed to provoke more questions than answers.
Gumbo and Chinamasa’s explanation was that the four Boeing 777-200 were bought from Malaysia Airlines through their sole agent PricewaterhouseCoopers Kuala Lumpur, but are now being leased to ZimAirways via the Zimbabwe Aviation Leasing Company (ZALC). They claimed ZimAirways and ZALC are owned by government. But Gumbo had always maintained they are private companies owned by Zimbabwean Diasporans.
Chinamasa said government formed the new entities linked to Gumbo and former president Robert Mugabe’s son-in-law Simba Chikore as a sanctions-busting measure.
However, documents show there was nothing done under cover as the purchase agreement openly indicates government bought the airliners on behalf of AirZim, suggesting the sanctions-busting narrative was a convenient smokescreen to cover their tracks.
Gumbo for his party did not explain why he had been telling government ZimAirways was a government project, yet publicly insisting it was a private entity.
Initially Gumbo told the Independent ZimAirways was privately-owned by lawyers living outside the country and he was only facilitating the purchase of four Boeing 777 planes from Malaysia on behalf of the airline’s shareholders ZALC.
However, Chinamasa, who officiated at the delivery of one of the aircraft on Wednesday, said Zim Airways was wholly-owned by government contrary to Gumbo’s remarks. He also said ZALC was a government special purpose vehicle.
Aviation expert associated with ZimAirways Jerry Haas, who has been consistently posting accurate information on the project, also said the airline was a private entity.
Documents gleaned by the Independent and investigations show in October 2016 government entered into an agreement with the Malaysian Airline System Berha for the sale and purchase of four Boeing 777-200ER aircraft with manufacturer’s serial numbers 29066, 29066, 28421 and 28422.
The agreement was signed by Gumbo and former Mines minister Walter Chidhakwa on October 10, 2016. In the terms and conditions of this agreement also signed by Lim San Peen of Malaysia, the parties agreed “the aircraft are made available for sale on the basis they are solely to be used for commercial aviation purposes. The intended operator of the aircraft is Air Zimbabwe (Pvt) Ltd.”
The initial arrangement was that two of the Rolls Royce-powered planes would cost US$16,5 million each, while the other two would be bought for US$18,5 million apiece, bringing the total to US$70 million.
But Gumbo and his associates later decided to buy two Boeing 777s for US$18,5 million and US$16,5 million, a total of US$35 million. It was also later resolved to buy two Embraers for US$6 million using Treasury Bills. This brought the total of the revised deal to US$41 million.
However, documents show that even if the planes were brought under AirZim’s name, the flag carrier’s board and management were later kept in the dark after their initial involvement.
Chinamasa did not produce documents to back his account. Aviation sources told the Independent that ZimAirways is yet to be registered as a carrier even though government claims it is already leasing planes from AirZim via ZALC.
Haas on Wednesday said on microblogging site Twitter ZimAirways flying code is 0000000, “symbolising triple 7 with 7 zeroes”. The airline is not yet registered, further raising questions over why government was dealing with an unregistered entity. Experts say it could two months for the airline to have its flying code, although it now doubtful it will be ever be registered given government’s claims it owned by AirZim.
Although Gumbo said it was a private company, official documents show ZimAirways directors are Transport ministry officials who include Legal Affairs head Angeline Karonga and principal director Eric Gumbi. Last week Karonga denied she was not linked to the airline.
Documents also show Harare lawyer Phillipa Phillips is one of the two ZALC directors, together with another lawyer Gift Watinaye. It is not clear why the lawyers are representing government interests there, if Chinamasa’s explanation is anything to go by.
To add to the mystery and confusion, sources also said ZimAirways was operating from former Psmas manager Mavis Gumbo’s Gletwin house. But Mavis Gumbo denied this yesterday. An enquiry with the Deeds Office in Harare indicated ZALC was registered under file number 3015/12. The file was, however, missing from the office, although information is now filtering out through other channels.
The documents further show that while AirZim was initially involved in the purchase of the Boeing aircrafts, government later side-lined it along the way as shown by a series of correspondences between the airline and government officials. AirZim officials were kept in the dark after the planes order was made.
In November 2016, AirZim wrote to the State Procurement Board (SPB) principal officer requesting approval for the purchase of four planes from Price WaterhouseCoppers of Kuala Lumpur.
Initially this appeared to be line with government decision to buy planes on behalf of AirZim.
“We advise that identified aircraft are owned by Malaysian Airline, however Malaysian Airline has ceded its right to sell the aircraft to PricewaterhouseCoopers who are the sole agent dealing with the transaction on behalf of the Malaysian Airline,” wrote acting AirZim CEO Justice Makonese on November 7.
“The identification process has come within a framework of government to government co-operation and arrangements. Pursuant to the above, we advise that a government delegation, which included the Minister of Transport Hon. Mc. D Jorum Gumbo, Minister of Finance Honourable Patrick Chinamasa, the Reserve Bank of Zimbabwe governor Dr John Mangudya, Air Zimbabwe Senior Management was sent to Malaysia.”
During this period Chikore, who was then AirZim chief operating, went to Malaysia together with other senior government officials to facilitate the deal for an airline which was supposed to lead to AirZim’s closure without clarity on what would happen to the state airline’s employees and assets.
At the time AirZim was not aware that earlier on government had signed a sale/purchase agreement with the Malaysians.
By January 2018, other government bodies like the Procurement Regulatory Authority of Zimbabwe (Praz) were also not in the picture about Treasury’s decision to directly pay for the planes. While AirZim was also looking for funds and clarity to purchase Embraer jets, Chinamasa had ordered the central bank to release US$6 million in Treasury bills to procure the planes.
In February, Transport secretary George Mlilo warned AirZim over approaching the SPB bypassing the line ministry
“My advice in our meeting of 2 February 2018 is pertinent. For the avoidance of doubt, please be advised that you need to seek approval in principle, from the ministry for the purchase of aircraft. Once approval is granted your attention is drawn to the direction provided by the Procurement Regulatory Authority of Zimbabwe in their minute of 30 January 2018,” Mlilo wrote.
“You are further advised to ensure that in the process, procedures as laid out in the Public Procurement and Disposal of Public Assets [No. 5 OF 2017] Act [Chapter 22:23] are strictly adhered to.”
Before that Praz had written to AirZim bosses outlining what was required to purchase the planes.
“The Authority recalls that the State Procurement Board, through PBR 1067B of July 2017, gave a ‘No Objection’ to Air Zimbabwe’s request for Direct Purchase of 4x Second Hand Boeing 777 Aircrafts from Malaysian Airline through their sole agent, PricewaterhouseCoopers of Kuala Lumpur, in the some of US$75 million,” wrote Praz acting CEO Nyasha Chizu in a letter dated January 30, 2018.
“The Malaysian Airline, through its sole agent was required to pay US$12 000 administration fees in line with S.I 123 of 2016,” “In terms of Section 103 (5) of the Public Procurement and Disposal of Public Assets (No. 5 OF 2017) Act [22:14] on 31st December 2017 through S.I 152 of 2017. The authority, in terms of Section 7(6) of the Public Procurement and Disposal of Public Assets Act, requires the Accounting Officer to submit before 31st January 2018 the following: progress report on the purchase of the four aircrafts and an update on the payment of administration fees.”
This shows Chinamasa and Gumbo were working together to collapse AirZim as supported by a government directive to wind down the debt-ridden airline. Several scenarios were considered on what should happen to AirZim.
In March of 2016, government instructed the AirZim board to consider winding down the operations to pave way for ZimAirways, suggesting government wanted to close the state-owned airline without cabinet approval and parliament’s involvement.
“The board and management of Air Zimbabwe were tasked by its parent ministry to come up with proposals for the migration of Air Zimbabwe to Zimbabwe Airways. We have explored five legal options in which to do this within the framework of the Companies Act, and the Air Zimbabwe Corporation Repeal Act. The five options looked at were winding up, judicial management, reconstruction, name change and becoming a successor company, wrote the AirZim board in March 2016,” the AirZim board wrote to management.
However, Chinamasa said government through ZALC bought the planes to lease to third parties, while AirZim “puts its house in order”. He said government would constitute the ZimAirways board and expect to operate at break-even at the very minimal level. The finance minister said government, through his ministry, took a decision to secure funding for the procurement of the four big planes together with eight Embraer aircrafts.
“Government also took a decision to lease the planes to third parties up to such a time as Air Zimbabwe develops a credible business plan to run the planes on a sustainable profitable basis. Accordingly, government decided to lease the planes to a new aircraft firm called Zimbabwe Airways which has already put in place credible plans for the said planes,” said Chinamasa.
While they were trying to close AirZim, they also let its management to produce the 2018-2020 Turnaround Plan, suggesting bad faith on ministers’ part. Gumbo even wrote the foreword for this plan. In September 2017, Gumbo wrote to Chinamasa requesting funding to purchase three Embraer aircraft for AirZim after describing the situation at the airline as “pathetic”. This was in line with AirZim’s recovery plan now dead in the water.
“The situation at the airline is pathetic with limited fleet and most of the equipment is now beyond useful life. This increases the cost of operations as fuel consumption increases,” Gumbo wrote in a letter dated September 5, 2017.
“The airline is now seeking funding to purchaser three Embraer ERJ 145 LR aircraft. These are fifty-seater jets which are convenient for both domestic and regional routes. This recapitalisation process will ensure continued operations by the airline. I have attached the business plan for Air Zimbabwe for your consideration.”
Chinamasa also appealed for public support on ZimAirways. But documents show government is reluctant to release US$4,5 million required by the International Aviation Transport Association to allow AirZim to clear its arrears and fly internationally.
“We pondered over options and it became clear to me that we could not put more resources into a bottomless pit because that would not save a purpose that we wanted, a strong airline to service the interests of the country,” Chinamasa said. “For that we needed a strong airline under a strong leadership, under a strong management so given these discussions, we decided, when the opportunity arose that we should avail ourselves the opportunity to buy four Boeing 777s from Malaysia. The person who assisted us in the negotiations and with technical advice was Mr Simba Chikore.”
Documents show Gumbo is frustrating AirZim’s plans to recruit a substantive CEO after Ripton Muzenda left last year.
“The ministry acknowledges receipt of your minute and wishes to inform you that contents therein are duly noted.
However, the ministry wishes to advise that the advertisement for the post of chief executive officer for the national airline, Air Zimbabwe, be put in abeyance. The advice is given on account of the impeding restructuring of the airline and as a cost containment measure in the interim period,” Gumbo wrote to AirZim board chair Chipo Dyanda in a letter dated March 28. Gumbo also publicly blamed AirZim and Civil Aviation Authority of Zimbabwe officials for leaking information to the media and is likely now to fire senior management and the board as he pushes the ZimAirways project.
Aviation experts have also asked why government decided to buy aircraft that had been decommissioned by Malaysia Airlines.
In 2016 the airline retired its entire fleet of Being 777 as part of its restructuring plan. This came after Malaysia Airlines lost aircraft in the MH370 and MH17 air disasters.
However, the Finance minister said the planes were still viable for ZimAir Airways. “We sought advice from Boeing, from Seatle, they have been with us from the beginning. They did a due diligence exercise test on the four aeroplanes and they recommended that they were good assets for us to acquire. In fact, they advised us that they have a lifespan of 15 to 20 years given our good record in terms of maintenance of aircraft.”
An aviation expert said Chinamasa seems not know the difference between the commercial viability lifecycle and lifespan of an aircraft, showing the dangers of ministers abandoning their policy-making and oversight roles to interfere in the operations of state-owned enterprises under their purview.