If records are correct, Air Malawi became independent in 1967 following the dissolution of the Central African Airways that year and since then, the airline went through a series of tough and good times. A number of aircrafts were bought and added to the airliner’s fleet and at the turn of the political upheaval in 1993, the company had just acquired the Dornier 228, Boeing 737-300 and the ATR 42. It appears, however, that the dawn of the many changes in the political ecosystem in the mid 1990s also marked the end of the company’s heydays such that by 2000 news that the company was facing enormous financial difficulty was rampant.
I do not claim to give solutions to the ailing company. Nevertheless, it is my intention to endeavour to remind those responsible, of some important principles that govern efficiency in the hope that someone, somewhere, sometime will find these useful in their bid to breathe life back into Air Malawi. Perhaps the fact that having a national airline is pivotal for national prestige as well as economic growth cannot be overemphasised. A nation without an airline misses out on important opportunities that could foster development.
Since 2000, it appears that Air Malawi has vainly attempted to partner with South African Airways (SAA), Zambezi Airways and has only managed to get a less than better deal with Comair. It appears that the attempts taken by authorities to bring back life to Air Malawi have not been that successful and at present, pundits seem to predict only one possible outcome, Air Malawi will become extinct! This is not only disturbing to potential customers. It is defeating to nationalists and it is certainly not a plus from the perspective of development in general. What might cause such inefficiency at Air Malawi when other regional airlines such as SAA, Ethiopian Airlines and Kenya Airways seem to be thriving well?
As is often the case with any organisation where there is separation between ownership and control, issues of ownership are potentially very important. The fact that Air Malawi is owned by the State may imply a number of important issues, namely, that:
(a). Managers at Air Malawi have to be answerable to authorities that are poorly defined compared to what would be the case if Air Malawi was privately-owned and shareholders acted as bosses to the managers;
(b). The company may implicitly have a multiplicity of objectives some of which may be antagonistic such as profit maximisation and employment;
(c). Air Malawi can basically not go bust as it enjoys soft budgets from taxpayers money; and,
(d). Separation of ownership and control itself implies principal-agency problems where the taxpayer is the principal and the Air Malawi managers are the agent.
Based on ownership structure alone, it should be trivial to make some predictions as follows: Air Malawi managers have little incentive to be efficient because the company cannot go bust and it is difficult to take them to task, not only due to the antagonistic and sometimes fuzzy company objectives, but also because the principal (the taxpayer) really does not have much leverage in matters of performance monitoring, among other things. These factors may stifle managerial incentives for innovation, leading to mediocre performance.
In a world where markets for managers and corporate control exist, separation of ownership and control of Air Malawi may not necessarily pose much of a problem because it would be common knowledge among managers that poor performance could be read by the market as a sign of X-inefficiency, which could attract bids for hostile company takeovers at the expense of their very jobs.
In those cases, managers would work harder to be efficient to avoid potential hostile bids for takeover. Nevertheless, it appears that within the spheres where Air Malawi operates, there are no active markets for managers and corporate control. No other parties apart from the government or its agents can fire Air Malawi management or take the company over. It may be the case that this factor works together with the ownership issue to increase the likelihood of slack at Air Malawi’s managerial level. —To be continued next week.
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