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Africa Aviation

South African Airways takes ailing Tanzanian national airline to court

Apolinari Tairo  Nov 12, 2008

DAR ES SALAAM, Tanzania (eTN) - Failure to operate profitably, lack of viable business plans and failure to repay its loan to its former partner, Tanzania’s cash-strapped national airline Air Tanzania Company Limited (ATCL) is waiting a court action to decide its fate.

Air Tanzania’s former partner South African Airways (SAA) has gone to court in a new attempt to recover its US $4.1 million that ATCL owes it in outstanding loan balances.

SAA’s move follows a year-long delay by the loss-making Tanzanian national airliner’s failure in setting the debt.

In civil suit filed under a certificate of urgency at the Commercial Division of the High Court here in the Tanzanian of capital of Dar es Salaam, SAA wants the court to order Air Tanzania to pay US$4,197,298 with accrued interest, it has been known earlier this week.

SAA and the former Air Tanzania Corporation (ATC) entered into a partnership in December 2002 paving the way for the formation of ATCL, but the Tanzanian government terminated the agreement in 2006 following persistent losses incurred by the Tanzanian carrier.

The debt arises from a loan agreement the two parties entered into action in April 2002 in which SAA extended loans to ATCL in three installments of US$635,884 then US$1.1 million and US$3,269,277, respectively.

Air Tanzania has yet to repay the total amount of US $ 4.1 million to SAA since then.

Under the terms of agreement, the amount of money to be paid with interest was supposed to be settled by October last year, but the cash-strapped Tanzanian airline failed to do so despite several reminders from South Africa’s national carrier.

After the merger of the two African airlines failed to achieve its goals, the two parties entered into sales of shares agreement under which SAA sold its 49 percent stake in Air Tanzania to the Tanzanian government, which has agreed to take the burden.

Through its suit, the plaintiff wrote to Air Tanzania on October 11 this year demanding the Tanzanian flag carrier to settle the debt or face legal action.

The government of Tanzania, which is now the sole owner of Air Tanzania, had earlier wrote to SAA on October 19th last year and committed itself to settle the debt by March this year and pleaded with the South African carrier not to take legal action against its debtor.

Having failed to fulfill its pledge, the Tanzanian government wrote to Air Tanzania again in April this year promising that it would clear the debt by August 31st this year, but with nothing was ever paid.

“Until now, the debt has not been paid despite several demands”, SAA said.

Former SAA executive manager Mr. Kevin Weir had earlier demanded the debt be paid as agreed upon the two parties. He expressed his concern over the delay in settling the debt in accordance with the terms of the agreement.

“It is our intention to take legal action against Air Tanzania should the amount not be settled in full by the close to business on 19th October 2007,” Mr. Weir said in her letter to the Air Tanzania management last year.

The Tanzanian government earlier last year responded to SAA requesting its management to be patient until August 31st this year to settle the debt and stop any legal action that could lead to SAA’s permission to impound Air Tanzania’s leased planes.

Air Tanzania flies daily to Johannesburg where SAA commands a big business stake.

Tanzania’s national airline was launched on March 2003 as Air Tanzania Company Limited (ATCL) but recorded a pre-tax loss of up to US$7.3 million in its first year of operation. Until now, the airline operates under government subsidy of US$500,000 per month.

To save the ball, the Tanzanian government has plans to team up with one Chinese airline, CSIL, in a joint venture aimed at better managing Air Tanzania. Reports revealed that the negotiations between the two governments are at an advanced stage. This marks the second time for Air Tanzania to go into partnership after a soured deal with SAA two years ago.

The government attempts at injecting some capital into Air Tanzania shortly after it parted ways with SAA had done little to turn the airline around, since it failed to deliver on its earlier promises.

Drawing from its nasty past experience, Air Tanzania’s management has been cautioned by the Tanzanian parliament (Congress) to exercise utmost care in its new partnership with the Chinese firm, saying it ought to ensure the deal was beneficial to the company, its workers and the Tanzania.

To start with, the ailing airline would sell off its fuel-guzzling Boeing 737-200, which it inherited from the defunct East African Airways (EAA) over 30 years ago. That will leave the ATC with just two aircraft of its own.

South African Airways takes ailing Tanzanian national airline to court

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