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Government off the hook for Air Namibia lease guarantees

Government off the hook for Air Namibia lease guarantees

A month ago, at the end of July, the government paid N$1.6 Billion to Castlelake, an international aircraft leasing company, to get off the hook for the full amount of the lease of the two Airbus aeroplanes operated by Air Namibia.

This week the Ministry of Public Enterprises lifted the lid on the 10-months negotiations with Castlelake which resulted in a saving of N$667 million but only after spending N$5 million in legal fees to reach the negotiated settlement.

“This was an intense and extremely complicated negotiation process that went on non-stop for ten exhausting months. I believe that we were successful when one considers the baseline from where we started, the fact that the lessor had grounds to call on the guarantee resulting in a US$154 million (minimum) immediate payment, and the risk mitigation measures built into the agreements. I further believe that the cost of around N$5 million spent on professionals to provide the required technical assistance represents incredibly good value and was money well spent considering the fact that we are saving Treasury close to N$1 billion that can now be redirected to other important priorities. The funds were duly transferred on 30 July 2021,” according to the statement from the Office of the Minister of Public Enterprises.

Were these negotiations not successful, Castlelake as the new owner of the aircraft lease, could demand immediate payment of the outstanding lease, based on the guarantees that was extended by the Ministry of Finance. The combined guarantees for the two aircraft exceed N$2.1 billion.

The precursor to the protracted negotiations with Castlelake started in August 2019 when the Cabinet Committee on Treasury instructed the Minister of Public Enterprises to visit the company to determine their appetite for an agreed settlement.

At that point the government could either default, look for another operator to take over the leases, buy the aircraft from Castlelacke and then resell them, or extend a hand to Castlelake to negotiate a settlement.

Although all options were considered, the first three were overtaken by events when Covid-19 hit, bringing a large measure of redundancy to the aircraft market. Eventually, the only viable route was to negotiate.

“On 25 August 2019 Cabinet resolved that the Ministry of Public Enterprises be mandated to appoint a commercial lawyer and a consultant to advise Government on renegotiating favourable terms to terminate the A330 lease agreements and settle the Government Guarantee.” In Namibia, the services of a local law firm was obtained, supported by the technical expertise of a UK-based firm that specialises in aviation.

After ten months, the negotiating teams reached consensus on the amounts payable for each aircraft, and with the proviso that Castlelake will seek to sublet the aircraft to another operator. When this happens, the Namibian government will earn a small US$20 million windfall, which will bring the total saving generated by the settlement close to one billion Namibia Dollar.


 

About The Author

Daniel Steinmann

Daniel Steinmann is the editor of the Namibia Economist. Send comments or enquiries to [email protected]