ChallengeAir had filed for the loss-making flag carrier's liquidation last year, arguing Air Namibia was insolvent and unable to repay about 253 million Namibian dollars ($17 million) in debt incurred for the lease of a Boeing 767 back in 1998.

Air Namibia had cancelled the lease agreement, after finding that the aircraft was defective. Negotiations between the two firms have been deadlocked since 2019.

Air Namibia will pay ChallengeAir SA 9.9 million euros, beginning with a 5 million-euro payment before Feb. 18 and monthly instalments thereafter until January 2022, according to a settlement agreement seen by Reuters.

Air Namibia is buckling under mountains of debt. It currently employs 644 workers. The state-owned firm has failed to produce financial statements in recent years despite regular state bailouts over the last two decades.

The government has turned down the airline's pleas for more money, saying that 15 out of the airline's 19 routes were loss-making.

($1 = 0.8243 euros)

($1 = 15.1180 Namibian dollars)

(Reporting by Nyasha Nyaungwa; Editing by Mfuneko Toyana and Sonya Hepinstall)