Linhas Aéreas de Moçambique (LAM), Mozambique’s national airline, has emerged from a financial crisis to achieve solvency. According to media reports, Fly Modern Ark (FMA), a South African consultancy firm, was entrusted by the government to revitalize the airline, and their efforts have yielded impressive results.
A Debt Reduction Success Story
When FMA took the reins of LAM, the airline was drowning in a staggering debt of approximately $300 million. After three months of meticulous work, the debt has been slashed by an astounding $61.6 million. This achievement marks a significant milestone in LAM’s recovery, with previous interventions in May already reducing debt by $47.3 million, followed by an additional $14.3 million reduction, announced Sérgio Matos, LAM’s restructuring project manager.
The remarkable debt reduction was not a stroke of luck but a result of precise financial management practices. As Sérgio explains, LAM’s debt position improved through adherence to international accounting standards, generally acceptable accounting practices, and guidance from the National Treasury’s accounting directives. Additionally, debts from various debtors totaling $23 million were successfully cleared. Consequently, LAM can now be considered technically solvent.
Renegotiating Contracts and Returning Aircraft
The LAM’s restructuring project manager also revealed that part of this financial success was due to astute negotiations. FMA’s intervention team meticulously reviewed invoices, uncovering duplicate charges, and rectifying them. Furthermore, their negotiations with AerCap, the entity leasing LAM’s Boeing C-9B aircraft, resulted in an early return agreement, saving LAM a substantial $3.4 million. Additionally, negotiations with Boeing are underway to reclaim $23 million from a pre-payment for undelivered aircraft.
The launch of new routes, particularly the Vilanculos-Johannesburg and Beira-Johannesburg flights in August 2023, proved to be a significant success. Passenger volumes and revenues surpassed expectations, with occupancy exceeding 50% on most flights.
Comparing the first three months of 2022 and 2023, LAM exhibited notable improvements. Passenger numbers increased by 14%, from 141,000 to 161,000. Revenue also saw a 6% boost, rising from 1.9 billion meticais to 2 billion meticais. Operational punctuality improved by 16%, from 70% to 81%. Moreover, the airline conducted 12% more flights in the first quarter of 2023 compared to the same period in the previous year.
While LAM’s financial recovery is a remarkable feat, the road to complete stability is not without its challenges. To continue on this trajectory, LAM needs to expand its aircraft fleet. FMA suggests that acquiring at least 22 aircraft is necessary to serve all critical routes and further reduce the remaining debt of $240 million. Currently, LAM operates with only five aircraft.
Moçambique Expresso (MEX)
Meanwhile, LAM’s regional subsidiary Moçambique Expresso had to throw in the towel. The regional subsidiary Moçambique Expresso, or Mex for short, has already fallen victim to the austerity measures. The LAM subsidiary ceased operations at the end of August. The airline operated three Embraer ERJ 145s that flew to various domestic and international destinations for LAM.
According to Simple Flying, Moçambique Expresso has accumulated a massive mountain of debt, including with Rolls-Royce, Embraer and American General Supplies. Almost exactly 28 years after its founding in September 1995, the airline is history.