in Air Transport / Features

Why you can now buy Ethiopian off the shelf

Posted 21 November 2018 · Add Comment

Africa’s most profitable airline has been put up for partial privatisation. Kaleyesus Bekele explains.

According to the International Air Transport Association (IATA), Ethiopian Airlines became the largest airline in Africa in 2014, taking over from EgyptAir and South African Airways.
After launching a 15-year development strategy in 2010 dubbed Vision 2025, Ethiopian has been growing at a rate of 20% every year.
Under Vision 2025, the airline has transformed itself into the largest aviation group in Africa with eight profit centres – Ethiopian International Airlines; Ethiopian Express; Ethiopian MRO; Ethiopian Inflight Catering; Ethiopian Aviation Academy; Ethiopian Cargo and Logistics Services; Ethiopian Ground Handling Services; and Ethiopian Airports Services.
It is also establishing an aerospace manufacturing capability and is building two five-star hotels, which will have 1,000 rooms near its main HQ in Addis Ababa. Ethiopian Hotel and Tour Services is coming into being.
When it introduced the Vision 2025 strategy, Ethiopian was the fourth largest airline in Africa following South African, EgyptAir and Kenya Airways. Back then, it had only 34 aircraft serving 58 international destinations and generating an annual revenue of $1 billion. Its annual passenger traffic stood at 3.2 million.
Today, Ethiopian Airlines has an annual revenue of $3 billion. It operates a fleet of more than 100 aircraft serving 116 international destinations on five continents. Its fleet contains the most modern and fuel-efficient aircraft, such as the B787 and A350. It has 16,000 employees on its payroll.
Ethiopian Airlines Group CEO, Tewolde Gebremariam, proudly states that the airline grew threefold in just eight years. According to him, Ethiopian Aviation Group aims to generate an annual revenue of $10 billion by 2025.
In the fiscal year ending in June 2018, Ethiopian made a net profit of $233 million. This makes it the most profitable airline in Africa. The airline transported 10.6 million passengers and 400,339 tonnes of cargo.
Ethiopian Airlines is wholly owned by the Ethiopian Government. Aviation experts say the company has disproved the rhetoric that says that state-owned airlines are inefficient and loss-making. Unlike many state-owned airlines in Africa, Ethiopian has been registering a steady growth and making a profit in successive years.
This was the reason why many were stunned by the Ethiopian Government’s abrupt decision, announced recently, to privatise Ethiopian Airlines along with a number of other state-owned enterprises.
The government will put shares on sale for foreign and local investors but hasn’t yet revealed the amount. It will, however, retain the majority stake.
Many wonder why the Ethiopian Government has decided to privatise the most successful and profitable airline in Africa.
Alemayehu Geda, a renowned Ethiopian economist, argues that it is not a wise decision, pointing out that African countries usually privatise loss-making airlines to transform them into a profit-making companies, which is not needed in this case. “The national airline is the major foreign currency earner for the country,” he added.
Zemedeneh Negatu, chairman of Fairfax Africa Fund, also questioned the wisdom of privatising Ethiopian and urged the government to reconsider.
There are also concerns as to how Ethiopian’s assets and goodwill will be valued and how the shares are going to be floated to potential buyers. Given the efficiency and competence of the airline, could the decision even jeopardise future growth?
However, the Ethiopian CEO defends the government’s position, saying privatisation will, in fact, help the company grow further.
He confirmed that the hospitality business and the aerospace manufacturing business would also be part of the privatisation plan and said that fears about share price values were unfounded. Ethiopian holds a 40% stake in Togo-based Asky Airlines, another 49% in Air Malawi, a 45% share in Zambian Airways, 49% stakes in the Chadian and Guinean airlines, and has 99% control of an emerging airline in Mozambique. Consequently, the privatisation of the national flag-carrier might require cross-equity partnerships, which Tewolde sees as an important step to expand Ethiopian’s business portfolio.
He added that the Ethiopian Government has been registering a double-digit economic growth in recent successive years. “Now Ethiopia is in the process of joining the World Trade Organization (WTO),” he said. “As it is warming up to join the globalised world it has to open up its markets. Ethiopia will open its telecom sector and other state monopolies as it joins the WTO.”
Ethiopian Airlines has always been globally competitive. “It is true that Ethiopian is the most successful airline in Africa. It has transformed itself into the largest aviation group in Africa. To sustain its fast growth, it is expected to make a big leap forward,” Gebremariam said.
According to him, Ethiopian is planning to transform into a holding company with eight or nine subsidiary companies. Ethiopian Airlines will be a parent company while the international service airline, regional airline, catering, cargo and logistics, MRO, aviation academy, airport services, ground-handling, hotel and tour services, and aerospace manufacturing will be subsidiary companies.
The existing Ethiopian commercial code does not recognise holding companies. Hence, the government is revising it in such a way as to enable holding companies to flourish. “Then we will develop Ethiopian Airlines into a holding company with subsidiary companies and each will be floated open for partial privatisation,” Tewolde said.
Ethiopian has already started the privatisation process in some aspects. Recently, it signed an agreement with DHL Global Forwarding to jointly establish a cargo and logistics company. Ethiopian will own 51% and DHL 49% of the new joint venture that will provide cargo and logistics services for African and Asian companies.
The company will focus on the African and Chinese markets. “This is the first big step towards the privatisation process,” the CEO said.
Ethiopian is planning to start manufacturing labour-intensive products such as aircraft seats, wire harnesses, thermal blankets, and metal sheets, in partnership with OEMs.
According to Tewolde, the planned aerospace project and Ethiopian Airports will be available for partial acquisition. The percentage of the stake in each subsidiary company will be determined based on a detailed study that would be undertaken by international consultants.

 

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