The South African aviation company, Fly Modern Ark, has claimed to have reduced Mozambique Airlines’ debt by $47.3 million less than 45 days since starting operations.
In April, LAM (Linhas Aéreas de Moçambique – Mozambique Airlines), Mozambique’s flag carrier, entered into a management partnership with Fly Modern Ark, which is expected will help turn the Mozambican airline company’s fortune around, after decades of haemorrhaging money and running at a loss.
On Monday, Sérgio Matos, the LAM’s restructuring project manager, said at a press conference that the company’s “debt position has been reduced by $47.3 million, thus reaching a debt/equity ratio below 1 and thus LAM is no longer considered technically insolvent.”
Matos said that management had suspended all credit when selling the tickets, adding that the measure had “increased sales revenue by 15%.”
LAM’s balance sheet is in a weak position mainly due to operational losses, high levels of unsustainable debt and high fuel prices over the last few years, according to Matos.
LAM’s debt stands at $300 million.
Comment
Analysts have been very critical of Fly Modern Ark’s claims. The Mozambican government Is cash-strapped, which follows that public institutions would also be in the same situation. Even those which due to their nature generate their own revenue, would not have the wherewithal to repay their debt to LAM.
What is likely to have happened is that Fly Modern Ark management managed to get the publicly-owned institutions to own up to their debt, which enabled it to account for the long-term debt as an asset. So, it very possible that no cash flowing into LAM’s accounts: it’s a reconciliation trick that seems to have done the trick.
As for the suspension of sales on credit, what has changed? Has the ruling Frelimo party started treating LAM as a commercial entity and thus, it is paying for its share of travel? Has government also started paying for the airfare?
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