Mahogany en route to a solid base

When Zambia’s late president, Michael Sata, called for Zambia Airways to be resurrected in 2011, local entrepreneur Jim Belemu sensed an opportunity to move into a new sector.
The molecular scientist had already enjoyed a colourful career since obtaining his doctorate, working as a veterinary surgeon, a civil servant, a United Nations researcher and, more recently, setting up a successful mining company. With metal prices peaking in 2011, he and wife Cynthia were actively searching for their next business venture.
“We decided we needed to do something else which is long-term, maybe not very profitable but at least which keeps us going,” Belemu recalled.
“At the time there was a new government and their policies were to develop the aviation sector. And, although their emphasis was on recreating the national airline, we knew it might take long. So, if the direction of government policies was towards revamping the aviation sector, we decided to go ahead ourselves. We knew as private persons we would put our act together quickly and have an airline launched.”
The result was that Mahogany Air took to the skies in February 2014, bringing welcome competition to a domestic market dominated by Proflight Zambia, another privately owned airline.
Just as Belemu predicted, progress has been much slower with the country’s proposed flag-carrier, which only appointed a chief executive this year and has yet to set a firm date for launching flights.
Despite its first-mover advantage, however, Mahogany quickly hit turbulence when the husband and wife duo identified flaws in their financial projections. “Just at the time we were launching we realised that the business plan was too good to be true, because airline costs are very high,” Belemu admitted. “We realised that if we had continued, the end result is we would have gone down maybe in three years to come.
“So we decided to take a very bold step to stop the operation, to really fine-tune and come back.”
Successful re-launches are rare in the airline industry and Belemu knew that customers would be sceptical of Mahogany’s promise to return. But he concluded that short-term reputational damage was a price worth paying for long-term sustainability.
During the three-year grounding that followed, Mahogany’s management team dissected every aspect of the business model. They restructured the network around business routes first and “rural routes supported by the government” later on; they re-negotiated aircraft leases and airport charges; they built slack into the carrier’s “excessive” schedules; and – most important of all – they secured $23 million of funding from a consortium of local and Gulf investors.
Mahogany finally resumed operations in July 2017, linking capital city Lusaka with Ndola in the central Copperbelt Province and Livingstone by Victoria Falls in the south. It later added flights to Mansa in the north and Lubumbashi, situated across the border in the Democratic Republic of the Congo.
The network is served by a 30-seat Embraer EMB-120 and a 19-seat Beechcraft 1900 – both fully owned.
Talks are under way with South Africa’s Sahara African Aviation about leasing a second EMB-120, which will facilitate expansion to Zambia’s northern border towns and a handful of international markets that Belemu described as “thin” but “worth developing”.
“Our expansion is focused on the northern region of Zambia. We think the traditional southern part – Livingstone – is well covered,” he explained.
“We want to take advantage of opening the northern part of Zambia to cover it quickly. It makes sense because these are highly populated areas. There is a lot of business that goes around these areas, but the connectivity is a problem. For us, as an airline, we think investing in such routes is worthwhile.”
Mbala and Nakonde are particularly attractive, Belemu said, because the border towns could be springboards for regional expansion. He envisages flights from Lusaka stopping in Mbala en route to Bujumbura, Burundi, for example, and Nakonde en route to Dar es Salaam, Tanzania. Other possibilities include Lubumbashi to Dar es Salaam via either Ndola or Mansa, and Lusaka to Mbeya, just inside Tanzanian territory.
Solwezi in the north-west is also expected to join the network in the near future, followed by either Chipata or Mfuwe in the east. Kasama may then be considered as a stopover for flights to the far north.
Asked why Zambia is ranked as one of the smallest domestic aviation markets in the world by the International Civil Aviation Organization (ICAO) – despite having a population of 17 million and a land mass of 750,000sqkm – Belemu pointed to the country’s reliable road infrastructure.
“In Zambia there are quite good roads, so it is tempting to drive,” he explained. “We want to break the niche by saying look, you will do your business more efficiently, you will be able to minimise your risks [if you fly instead]. We expect that a lot of businesses are suffering right now because it takes so many hours to drive.”
He welcomed pledges by the government to spend $1.7 billion on the aviation sector. The funding drive has already seen Livingstone Airport fully renovated and Mbala Airport turned from an air force base into a commercial gateway. Major projects currently under way include new passenger and cargo terminals at Lusaka Airport, Zambia’s main hub, and the laying of a bituminous runway at Kasama Airport.
Elsewhere in the country, though, facilities are basic and unpaved airstrips remain common.
“That’s why we acquired the Beechcraft 1900,” Belemu affirmed. “They are paving the runways but, for now, many are still gravel. The Beechcraft will help us in the interim while we wait for those runways.”
Developing immature markets has other advantages. Although Zambia Airways has not yet fleshed out its business strategy, Belemu is certain that it will target major regional destinations with medium-sized aircraft. Mahogany has, therefore, scrapped plans to serve Johannesburg and Dar es Salaam from Lusaka, averting a showdown with a deep-pocketed, state-owned entity.
“We don’t want to take a huge risk to come and compete with [Zambia Airways on] the regional routes,” he insisted.
“It is just prudent that as they come in we give each other support rather than competing, because all of us – Mahogany, Proflight – would be Zambian airlines. It is only good that we work as a team. We promote the bringing of passengers from outlying areas and then they come on to the regional routes.”
Whether or not Zambia Airways will be receptive to the offer of feeder traffic remains to be seen. But, with shareholder Ethiopian Airlines steering the company during its launch, Belemu has high hopes.
“What will matter most, I think, is the model. How are they going to partner with the private sector? Without that, the question will arise, ‘Is it sustainable?’ I know how intricate the aviation business is. It requires timely decisions and less bureaucracy. What we are saying is the national airline should have an ingredient of private partnership.”
If all goes according to plan, Mahogany’s next step will be adding jet aircraft in 2020 or 2021. The Embraer ERJ-145 and the Bombardier CRJ family will both be considered.
Belemu admitted that Zambia’s risk-averse banks will require significant persuasion before agreeing to fund jet purchases.
However, the government’s new focus on aviation is likely to help matters, raising Mahogany’s profile just as the country reclaims its skies from foreign airlines – several of which are currently exploiting fifth-freedom traffic rights.
“The main reason why a Zambian cannot take a risk by going into the aviation business is because they will not get financial support,” Belemu stressed. “If Zambians don’t take a stance on the front line, obviously foreign operators will. So, now that the government has taken a stride, I think the banks and the financial institutions also must take a positive stance.”