The airline, whose sole shareholder is the government, is reported to be on the brink of collapse as it struggles to find funds to pay its workers while facing a US$30 million debt.
The airline, like many other parastatals, has been hit by sanctions and credit lines have been exhausted or denied.
In the past 10 years the airline has seen a reduction in government funding as shortages of foreign currency to buy spares has been scarce.
The harsh macro-economic conditions in the country affected the airline’s viability.
In a bid to cut costs the airline has indicated plans to lay off over 700 of its workers, with whom it currently is locked in a bitter labour dispute.
The workers are fiercely resisting involuntary leave ranging between three to 12 months.
The acrimonious dispute has spilled into the labour court, with court documents revealing the extent of the airline’s woes.
"The honourable arbitrator is reminded of the dire financial state of the respondent (AirZim), which is no secret,” said Dube, Manikai and Hwacha, Air Zimbabwe‘s legal representatives in court documents.
"Its shareholder (government) is out of funds to finance its operations and capitalisation. It is on the verge of collapse.
"Ordering the restoration of the status quo (working without involuntary leave) would send the respondent (AirZim) almost immediately straight into real liquidation and the forced retrenchment of all employees on paltry packages, which may not exceed their present monthly incomes,” the lawyers said.
The documents show that Air Zimbabwe has a weak balance sheet with creditors in excess of US$28 million.
In February, Finance Minister Tendai Biti said the airline had been getting US$3 million per week from the fiscus.
The government parastatal has resorted to borrowing to procure fuel and pay allowances.
"The company is actually insolvent," an internal document presented by Air Zimbabwe’s chief economist and treasurer on April 22, 2009 reads in part.
Cost-cutting measures, which started in January, are projected to save up to US$1 million per month, or US$12 million per year.
So far, the measures have saved US$500 000 per month.
This is still inadequate to meet the airline’s operating costs. Cashflow deficits have remained at unsustainably high levels of US$4, 5 million, US$2, 2 million, and US$3, 5 million in January, February and March 2009 respectively.
The airlines’s chief executive, Dr Peter Chikumba apportioned part of the crisis to the prevailing world recession.
"The national carrier will not collapse," said Dr Chikumba who intends to retrench workers as part of the turnaround strategy.
According to Chikumba, some of the challenges facing the airline include undercapitalisation, a huge debt, poor load factors and foreign currency shortages.
"The airline is presently in the intensive care unit.
"We are battling for survival and cannot afford to maintain the current number of employees," he added.
The national carrier has 1,500 employees but Chikumba said under the present harsh conditions, the company could not even afford to employ more than 800 workers.
The retrenchment exercise was expected to trim down the airline’s staff complement to 1,080.