Business
The Zambian Airways Saga
By LUSAKA TIMES 5/3/09
Apr 23, 2009 - 10:37:21 AM

Government has commenced civil and criminal proceedings against Mines Air Services Limited trading as Zambian Airways and its Chief Executive Officer Mutembo Nchito.

The civil proceedings are aimed at recovering over USD12million (over K60 BILLION) owed to statutory and public bodies such as Development Bank of Zambia (DBZ), National Airports Corporation (NAC), Zambia Revenue Authority (ZRA) and National Pensions Scheme Authority (NAPSA).

The criminal investigations against the directors range from theft, fraud, money laundering and tax evasion. Mutembo is accused of using Zambian Airways as a vehicle to defraud and steal public funds from banks and state institutions.

He is being accused of orchestrating purported commercial transactions that allowed him to obtain a string of loans running into millions of dollars without the intention of paying back. Every time the monies were released to Zambian Airways, Mutembo allegedly reneged on servicing the loans and would always attempt to persuade these institutions to turn the debt into shareholding without showing how and what the loans were used for or invested.

Investigating wings are particularly interested in what happened to the USD29million provided to Zambian Airways by various creditors as its asset portfolio remains poor in value and the allegation is that funds were not directed to the operations of the airline.

Zambian Airways has been known to have operated on a tight shoe-string budget. The revelation that it has over the years obtained loans and obligations totalling over USD29million is puzzling as no evidence exist that the funds were poured into Zambian Airways. This is the focus of criminal investigations by Agencies to attempt to understand what directors of Zambian Airways did with this USD29million.

MODUS OPERANDI
The theft and fraud was perpetrated by directors of Zambian Airways using political influence, to siphone money from public bodies on the pretext that it was a ‘national airline’ and required funding, loans or couldn’t pay statutory obligations.

Its CEO, Mutembo Nchito has consistently targeted public bodies to ‘finance the operations of Zambian Airways’ even when the history of the airline shows that government privatised the airline to avoid the tax payer running such an enterprise.

It is ironical that Mutembo even targeted ZCCM-Investment Holdings, technically the former owner of the airline, urging them to buy shares in the troubled airline. ZCCM-IH were careful, and commissioned a due diligence inspection. The report showed that the airline was bankrupt and relied on external sources of money to run. On this account, ZCCM-IH rejected Mutembo’s overtures and threw out the application. Zambian Airways claims that they withdrew from the negotiations. ZCCM-IH ejected the airline from its premises at Mukuba Pension House.

THE EXTENT OF THE PROBE
The probe has been widened to key persons at Bank of Zambia and Ministry of Finance who deliberately allowed and supported the current state of affairs. Despite the financial records and audit reports showing that Zambian Airways consistently suffered annual losses, lacked solvency plans and was clearly a financial failure, Mutembo sought more and more loans.

Former Finance Minister Peter Ngandu Magande and current BOZ chief Caleb Fundanga are said to be targeted in a wider probe, for their role in allowing Zambian Airways accumulate a total debt of over USD29million.

Magande is said to have used his office to dissuade and stop statutory bodies such as ZRA, NAPSA and National Airport Corporation (NAC) from collecting fees, tax liabilities and other obligations due, from Zambian Airways. For example, Magande penned a letter to Transport and Communications Minister Dora Siliya directing her to waive’ for a period of 3 years’, debts and payments Zambian Airways owed and were due to National Airport Corporation.

Magande had rescheduled and deferred debts Zambian Airways owed statutory bodies such as ZRA, NAPSA and NAC. Further, Magande had directed ministries and government departments to fly Zambian Airways to routes the airline serviced contrary to government own liberal policies and regulations.

Magande is also accused of attempting to force the Zambia State Insurance Corporation (ZSIC) to give a loan of USD4million to Zambian Airways.

Mutembo then applied to ZSIC persuading it to be shareholders. ZSIC were requested to provide Zambian Airways with an investment of USD4million. The application showed that the money was needed to purchase the leased planes and also clear outstanding lease finance expenses (USD77, 000.00 per month) that had accumulated on the books. The application also sought to use the funds if provided to help reduce the operational costs. (This is the same line of approach Mutembo has consistently given to all the institutions that are owed money).

However, In November 2008, ZSIC declined to provide funds to Zambian Airways for its ‘rescue plan’ The ZSIC investment committee headed by Judge Anderson Zikonda rejected the bid citing ‘bad books’ and bankruptcy as the reason not to risk public funds.

ZRA, DBZ and ZSIC fall under Ministry of Finance which Magande headed until recently when he recently lost his ministerial position to Musokotwane.

Zambian Airways directors also failed to remit and pay taxes to ZRA has resulted in the debt of USD2million.

Even when extensive loans were obtained and waivers given for its tax liabilities, the airline continued to show features of bankruptcy raising the key question of whether any financing arrangement obtained was ever put into the airline. This is the foundation of the fraud and theft charges against Mutembo.

In a twist turn of events, it is said that even The Post were duped to invest USD3million by Mutembo. The Post are said to have bought 30% shares in the airline and are owed undisclosed amount in monies lent to Zambian Airways for operations. (Isn’t there honour even among thieves? Though shall not steal from each other?)

Mutembo Nchito is a Lusaka corporate lawyer from MNB Partners and Associates a firm owned by himself, his brother Nchima and current Law Association of Zambia (LAZ) President Elijah Banda. Mutembo is also a private prosecutor at the Task-Force on Corruption handpicked by the late President, Levy Patrick Mwanawasa.

Among other persons targeted in the probe is suspended NAPSA Director General, Dr Aubrey Munyeke Chibumba, who pumped USD2m into Zambian Airways. Chibumba is also being investigated for his role in Zambia Lotto where NAPSA went into a joint business with Lebanese nationals and invested K10billion. He is also being investigated for his role in the purchase of Munali Coffee. Chibumba is said to be currently ‘on the run’ and is outside the country (Germany).

BOZ governor Caleb Fundanga is accused of allowing irresponsible borrowing by commercial banks who gave loans to an entity that was bankrupt and was therefore not eligible for such loans. The loans were however disbursed despite Zambian Airways adverse financial position and in total breach of the Banking and Financial Services Act. The loans were also given in clear breach of BOZ own regulations on large loan exposures. In cases of DBZ and Finance Bank these institutions gave loans or overdrafts beyond their required threshold.

In one instance, the airline used leased planes as collateral security, and valued at USD1.2million (Valuation done by Zambian Airways itself), to obtain a huge loan of over USD4million contrary to banking and financial regulations. The regulations require that loans provided by financial institutions should be far less than that of the value of the asset mortgaged.

In another instance, Zambian Airways as mere agents of National Airports Corporation collected departure fees from passengers and refused to remit such revenues resulting in the current debt of over USD2million.

Fundanga at a Zambian Airways official function gave a public statement ‘directing’ local banks to help and support the ‘efforts’ of Zambian Airways.

In ordinary circumstances, these violations by financial institutions would attract severe sanctions from Bank of Zambia. The external lawyers for the central Bank are MNB, the law firm owned by Mutembo and Nchima Nchito and LAZ President Elijah Banda, and own the airline. It is interesting to establish if interest was declared by the Nchitos.

The BOZ governor, Caleb Fundanga enjoyed a good personal and working relation with Finance Minister then Ngandu Magande.

THE LOANS DISAPPEAR
Despite huge loans obtained, the airline continued to lease very old, cheap and rickety planes.

Government is also trying to establish how financial institutions continued to provide huge loans to a firm that was clearly bankrupt and despite Bank of Zambia strict and supervisory regulations. The airline was provided with huge loans contrary to auditors’ reports that showed that the firm was non-performing and its business was not viable owing to its huge debts. In many cases loans were disbursed to Zambian Airways even when the institution did not pass required credit evaluation procedures or did not provide security documents.

In all these cases Zambian Airways agents obtained from public bodies loans or refused to pay for services and taxes, charges and fees due . The investigations are also attempting to establish allegations that Zambian airways directors used blackmail, threats and extortion methods to cow public officers into submission.

Clearly the scandal will engulf powerful people and forces. The threat of exposure has sent jitters in many spines. It is for this reason that there are high handed attempts to stop, thwart, frustrate and rubbish the on-going probe. The probe is also being undermined by Mutembo who is said to be connected to top investigators in the country who were under his direction during the investigations of cases of corruption against Chiluba’s administration. Officials are having difficulties to keep facts under the lid as key investigation findings or stages are being leaked to The Post.

ZAMBIAN AIRWAYS’ AND MUTEMBO’S DEFENCE
Zambian Airways and Mutembo have so far remained quiet. Mutembo has continued to work for the Taskforce on Corruption as a prosecutor and is carrying himself in a ‘business as usual’ mood. However many are concerned about the airline’s asset since creditors have so far not secured them.

However, a vigorous and robust defence for Zambian Airways and its directors has come from The Post newspaper which is a shareholder. Its Editor Fred Mmembe sits on the airline Board.

The Post has embarked on a vicious campaign aimed at winning public sympathy. The campaign is so effective that Mmembe and Mutembo are being viewed as mere victims of government persecution.

Although The Post is not the target of the investigations so far, and is in fact a shareholder and creditor too, Mmembe has chosen to draw the paper into the scandal.

It has portrayed the USD12million obligations owed to public bodies as similar to any business. For example, it says the default of USD2million taxes by Zambian Airways to ZRA is similar to President Rupiah Banda’s company, which had an outstanding tax obligation of K96million in the past.

The Post has since ran several editorials vigorously defending its actions to invest USD3million in Zambian Airways. The newspaper has also strongly defended the actions of Mutembo Nchito stating that ‘’No single Director or employee can today be held responsible for the dealings and obligations of Zambian airways.’’ (The Post February 20th 2009)

The editorials have called the on-going investigations as ‘’trumped-up charges by those bent on abusing the judicial process’’. The editorials have ridiculed President Rupiah Banda as desperate intent on doing desperate things and only aim to silence Mutembo and Mmembe and escape the allegations of his own acts of corruption in the ‘’GMO Maize Scandal and the Dora Siliya RP Capitals deals’’. The Post has questioned the investigations into Zambian Airways claiming that such a probe could only be designed to cripple the operations of ‘’us and operations of this newspaper’’.

The editorials have also directed that if investigations against the Zambian Airways directors were commenced, the corporate veil currently enjoyed by directors and owners should only be pierced by government ‘’if they follow the proper procedure’’ of going to the High Court.

But many wonder why government should be bothered with such a procedure when Mutembo, whilst acting as prosecutor at the Taskforce on Corruption, has proceeded to arrest and prosecute numerous persons who were acting as company directors, such as Access Financial Services (AFSL) directors Faustin Kabwe and Aaron Chungu without following the law and lifting the corporate veil. Similarly the state has proceeded to arrest and prosecute Inktech Managing Directors Mohan Mathews without bothering with the law.

Others are Hetro Mining CEO; Fawaz was arrested and prosecuted for activities related to his mining operations. Base Chemicals CEO, Amon Sibanda was arrested and prosecuted and jointly charged with former ZAF Commander Sundie Kayumba, without the corporate veil lifted.

The Post is now encouraging civil society members such as LAZ, Transparency International Zambia (TIZ) who are key to its previous causes to ‘investigate and establish the truth’. It has called for a parallel probe.

Although all criminal investigations can only be conducted by competent law enforcement agencies, the paper is pushing a hard-line that the findings of a state probe will not be fair as Rupiah Banda is trying to silence them.

The Post has proceeded to ask ZCTU and SACCORD to demand for a full- fledged civil society led investigations. It has demanded that government should act with caution until a ‘’forensic audit’’ is done by an association of accountants, Zambia Institute of Chartered Accountants (ZICA).

Government has since warned The Post and its allies of civil society organisations to respect lawful investigations and stop undermining legally constituted proceedings. Deputy Minister of Justice, Todd Chilembo has observed that side and parallel investigations were illegal and The Post should wait for the outcome of the lawful investigations. Government has warned that the loss of colossal sums of public funds was a serious matter and no one should deem themselves to be above the law.

The Post is among the institutional investors in Zambian Airways and Fred Mmembe and Gaudensio Rossi from The Post sit on the Zambian Airways board.

LEGAL PROCEEDINGS TAKE OFF
However, the civil and criminal proceedings are underway and in earnest despite the diversion and desperate antics being orchestrated by forces led by The Post.

On Friday February 20th 2009, High Court Judge, Prisca Nyambe, in a civil matter ordered that, Mine Air Services Ltd, trading as Zambian Airways, pay National Airports Corporation over K12.6billion.

The Court ordered Zambian Airways to immediately pay USD1, 020,788.95 in unremitted passenger service charges collected on behalf National Airports Corporation Limited. Further the court also directed that an outstanding and growing amount of USD1, 154,371.13 in parking fees, ground and air handling charges be settled without delay.

The court also ordered that Zambian Airways pay outstanding office rentals, water and electricity charges standing at K31, 635,120.00. This stems from services provided by National Airport Corporation Limited to Zambian Airways in Lusaka, Ndola, Livingstone and Mfuwe.

THE FACTS
This saga came to the fore on Saturday January 10th, 2009, when Zambian Airways issued a terse statement announcing the suspension of operations. Its chief Executive Officer (CEO) Mutembo Nchito stated that the board of directors had decided to suspend all operations with immediate effect citing the high cost of aviation fuel as the major reason for such a decision.

Many in the industry knew that Nchito was being economical with facts. There was mounting speculation in previous few months that the troubled airline would close owing to financial problems. The real reasons for the shut- down quickly came to the fore. This became apparent on Wednesday January 21st 2009, when Minister of Communications and Transport, Dora Siliya issued a ministerial statement in parliament where she announced that government would not bail-out the airline and that the business had a huge debt totalling USD29million.

She stated that government through the Energy Regulation Board (ERB) had infact, significantly reduced the cost of aviation fuel from USD1.58 per litre to USD0.85 cents. This was aimed at reducing operational costs for airline operators following a meeting held on December 4th 2008 between the aviation industry and government.

She informed the House that Zambian Airways was not even a member of the International Air Transport Association (IATA), a clearing house for airline operators. IATA is a world-wide body, created for carriers, airports and travel agencies to promote travel standards, passenger safety and convenience and other air transport affairs. Before licences and membership are issued the association conducts a stringent operational safety audit that ensures that airline operators adhere to minimum and accepted international safety standards.

Siliya said that Zambian Airways did not meet IATA required conditions. She said efforts by oversight institutions and aviation authorities to enforce the law were thwarted by political forces friendly to directors of Zambian Airways.

Further Siliya announced that information recently obtained from Patent and Company Registration Office (PACRO) revealed that fresh amendments were recently effected to show that the airline is wholly owned by Mutembo and his brother Nchima with a 50% shareholding each.

However, in its official documents to financing houses, the airline was touted as having diverse ownership spread among, JCN Holdings (Mutembo and Nchima) 57.5%, The Post Newspapers 30%, and Seaboard (Owner of National Milling Company) 12.5%. The Post Newspaper were recent institutional investors to Zambian Airways and are said to have given a USD3million cash injection with a loan obtained from Investrust bank. The documents also showed that the board comprised of Board Chairman, Passmore Hamukoma, Chief Executive Officer and member Mutembo Nchito, Post Newspaper Editor, Fred Mmembe and well known hotelier, Gaudensio Rossi,

On the assertion that the Development Bank of Zambia’s (DBZ) loan to Zambian airways of over USD4million had been turned into equity (Shareholding), Siliya stated that DBZ and government had rejected the offer from Mutembo to purchase shares in Zambian Airways and consequently turn the debt into equity.

She said government had rejected a bail-out proposal from Zambian Airways as the business survival plan relied heavily on political favours and decisions instead of a viable business strategy.

WHO DOES ZAMBIAN AIRWAYS OWE?
It has since emerged that Zambian Airways owes the Zambia Revenue Authority (ZRA) USD2million in unremitted taxes and obligations.

It owes National Pensions Scheme Authority (NAPSA) USD2.5million.

It also owes the National Airports Corporation (NAC) USD2.5million in unremitted air- passenger service charge, navigation and parking fees.

Zambian Airways also owes various financial institutions huge sums of money. It owes Finance Bank USD6.3million, Trade Creditor USD USD9.5 million, Inter-market Banking Corporation USD1.5million, Bravo Capita USD1.0 million and Investrust USD1.0million.

Zambian Airways was a company originally owned by ZCCM as Mines Air Services Ltd founded in 1948. During the privatisation process, ZCCM sold the small airline to its employees in a Management Buy-Out (MBO) process. The lawyers for the process were the Nchitos and their firm MNB. It is said that the airline was unfairly wrestled from the employees when the Nchitos turned a huge legal bill tendered into shareholding and took over ownership of the airline.

The airline now has a fleet of 7 planes mostly leased planes. It has 5 small and locally registered ones and two Boeing 737-200 series. Among the fleet are two 30-seater capacity Embraer. It has a workforce of 250 employees.

THE CRUNCH
Clearly, it is strange that this small company and its limited operation would borrow and owe so much money. The operation remained small with limited routes to Johannesburg and Dar-es-Salaam and local routes to Mfuwe, Livingstone and Ndola. The airline runs a rickety and old fleet of planes with unknown but poor value.

Trouble seemed to have started when President Levy Mwanawasa died. Mwanawasa on one hand and Fred Mmembe, Mutembo Nchito and Mark Chona were close allies in ‘’unholy alliance’’ in ‘’the fight against corruption’’. This relationship seems to have cost Zambia a huge loss of USD29million.

After the death of Mwanawasa, The Post and its forces supported the candidature of Ngandu Magande as the preferred and suitable successor to Mwanawasa. Even before Mwanawasa was buried there was fiery fight for the presidency with the ‘grieving’ widow Maureen Mwanawasa issuing statement that her late husband chose Magande as a suitable successor. Magande’s bid for the presidency failed. He has since been replaced as Finance Minister by a known financial technocrat Dr. Situmbeko Musokotwane.

CONCLUSIONS

It has been learnt that a plot exist aimed at impeaching President Rupiah Banda using Patriotic Front (PF) and United Party for National Development (UPND) MPs. The plan is to use business contracts and agreements from all government ministries that pass through the Attorney General’s Chambers and tout them as corruption scandals. The Post will then orchestrate public disgust against Banda’s government that will lead to its eventual fall through an impeachment. The reports will smear Banda’s government as corrupt, inefficient and portray him as running a criminal empire with his children. Political enemies in government, the MMD and opposition parties will be used against Banda as he seems to be slow to find his feet.

Strong insinuations were made that close ally of The Post, Attorney General; Mumba Malila had leaked official documents and correspondence between his chambers and Siliya on the RP Capital saga. The executive assistant to the attorney General quickly issued a statement that Mr. Malila could not leak official documents to the press and that legal advice rendered to ministries remained confidential and enjoyed privilege and could therefore not be divulged.

Clearly the daggers are drawn. It is Fred Mmembe, Mutembo Nchito and their backers against President Rupiah Banda’s government. It is yet to be seen who will fall in this waged war steeped into the USD29million Zambian Airways debt. So far, Communications and Transport minister Dora Siliya who was brave enough to face and initially defeat the forces behind Zambian Airways has been exposed and fought tenaciously leading to a tribunal set up by the Acting Chief Justice, Irene Mambilima to probe Siliya. She clearly is the first victim this war has claimed.

The Post continues to fiercely campaign that the USD29million Zambian Airways debt was caused in the ordinary circumstances of running commercial business and transactions. It has continued to show that the attempts by government to embark on legal proceedings is only aimed at ‘silencing them’ over their criticism of Banda’s government.

Zambian Airways remains closed so far and creditors have been meeting to plan how to recover their monies.


Source: Ocnus.net 2009