Ethiopian aims higher
Africa’s largest airline and the four-star- rated airline by SKYTRAX, Ethiopian Airlines, is aiming higher in spite of the turbulent time it has been traversing through in the aftermath of its B737-8 MAX jetliner crash on March 10, 2019. The airline took the lead in grounding the MAX fleet and the rest of the world followed suit. As Boeing is trying to fix the technical glitches with the B737 MAX airplanes flight control software that nose-dived two jetliners in Indonesia and Ethiopia in five months Ethiopian is closely monitoring the developments to decide on the fate of its MAX fleet. Kaleyesus Bekele of The Reporter sat down with Ethiopian Airlines Group CEO Tewolde Gebremariam and discussed the challenges with the B737 MAX airplane and the new 15-year growth plan of the national carrier dubbed Vision 2035. Excerpts:
The Reporter: How did you evaluate the preliminary report on the accident investigation on the Ethiopian Airlines Boeing B737-8 MAX aircraft released by Ethiopia’s Accident Investigation Bureau? Were you satisfies with the investigation process?
Tewolde Gebremariam: The preliminary report as you know is still an interim report. It has only collected the factual events. We are satisfied with the factual events displayed in the preliminary report which are subject to further analysis in the main investigation. We were not surprised by the result of the preliminary report because the factual events that are listed in the preliminary report were obviously known to us. Because this was the second accident next to Lion Air crash in less than five months for a brand new airplane. Although the investigation has to go through due process we have grounded our MAX fleet and China followed us, then the European Union, then Canada and finally the US.
The investigation is being conducted in the midst of the situation where more than 370 B737 MAX aircraft are grounded. So it is a bit difficult and a bit challenging investigation. Perhaps in this history of aviation this is the second investigation where the airplane which was involved in the accident is grounded globally next to the Concord crash decades ago.
To answer your question yes we are satisfied with the preliminary report and the investigation process.
Were you briefed by Boeing about the flight control software, Maneuvering Characteristics Augmentation System (MCAS), following the Lion Air crash and how did you train your pilots?
There was a service bulletin from Boeing and there was also air worthiness directive issued by the US Federal Aviation Administration (FAA). But unfortunately the issue with the MCAS was not clear. The MCAS was not clarified. The impact of the MCAS on the flight control system was not clearly explained. It was not clarified adequately. We have distributed the service bulletin and air worthiness directive to our pilots. We have briefed them and we have included it in our training manual and flight operations manual but as it was later revealed and understood by the entire global aviation community there was no adequate disclosure.
Before you ordered the B737-8 MAX aircraft you evaluated a number of aircraft including Bombardier C Series and Airbus A320 NEO. How did you decide on B737 MAX? You made a repeated order. First you ordered 20 and then 10. Do you now regret your decision?
No we do not regret our decision because it was a right one. It is still the right one. We have compared it with A320 NEO. These airplanes were replacing their predecessor planes MAX was replacing the B737 NG and A320 NEO was replacing the A320 CEO. We made a very thorough analysis on commercial terms, technical, operational and financial. The decision was not difficult because although the airplanes are by and large similar the A320 NEO and the B737 MAX both were coming with 15 percent fuel efficiency. We analysed the benefits and the additional work to be done to phase in these airplanes we found it logical to continue with the B737 since we had the B737 NG. The B737 MAX is an upgraded version of the B737 NG. When we compare it with (A320 NEO) the additional training of pilots and technicians required and spare holding for maintenance it was a natural transition from NG to MAX. That was how we chose the B737 MAX to the A320 NEO. And the MAX was a very good airplane. Still it is a very good airplane in terms of performance, economics, and maintenance. So we have no regrets.
You have now grounded four B737 MAX aircraft. So you have pulled out five aircraft including the one that crashed from operation. This may have put pressure on your flight operations. How are you replacing them? Have you leased B737-800 NGs?
Not yet because fortunately it was slack period February, March and May is a slack period in our operation. With April and May we shouldered. So we are managing with the available capacity. As you know we have more than 110 airplanes. We are swapping capacity whenever it is needed. So far we are managing with the available aircraft within our fleet. But going forward to the summer, if the MAX does not return to flight, then we may consider leasing additional airplanes.
You have 25 B737 MAX aircraft on your order book. What are you going to do with them?
Well it depends on the solution that Boeing is working on. As you might have heard Boeing is in the final stage of software upgrade and better training so it will take it to the FAA for certification and we will see if the FAA certifies it. Then we will also monitor the reaction of the global aviation regulators like the European Aviation Safety Agency (EASA), China and Canada aviation regulatory bodies. And then we will definitely not be the first one to return the airplane back to the air. We will definitely be the last one. Our decision follows those developments. Right now our decision is to wait and see the progress of Boeing’s solution and also the certification by the FAA. We will also see the global aviation community reaction.
Currently, a lot of investigations are being conducted on the airplane, on Boeing and FAA on how the aircraft was certified. So we will be monitoring these developments. Our decision will follow the developments of these events which are taking place in our industry.
Boeing has completed flight testing on the MCAS software upgrade. If the problem with the flight software is solved, will your confidence on MAX aircraft be restored?
Yes and no. We still believe in Boeing. We believe in the FAA. Boeing is more than 100 years old successful engineering company with high standards of quality. We definitely have confidence in Boeing. We believe that they would do the right thing. We also have strong confidence in the FAA. We hope that they will go through a rigorous re-certification process. But again since one of the two fatal accidents occurred in our airline unfortunately we will be seriously considering our analysis.
While we still follow what Boeing and FAA are going to do with full confidence, at the same time we will do our own analysis as an airline to build our own internal confidence. We need to build confidence in our service, in our pilots and in our travelling public to make sure that the airplane is safe.
The FAA has established an international panel consisting of Chinese and other aviation authorities that oversees the certification MAX. Is Ethiopia represented in that panel?
I remember that we have been invited as an airline to participate but we were very busy with managing the crisis and the aftermath of the accident. So we told them that we were so busy and unable to participate in the panel but going forward we will participate and make an active analysis with Boeing because this is an airline with a lot of data on the airplane right now because of the investigation.
Ordering new aircraft has obviously several advantages from commercial point of view. But whenever a new aircraft comes out of the final assembly line there some challenges related to the new technologies. Being a launch customer has several advantages but on the flip side it has some disadvantages related to the hiccups with new technologies. How do you see the advantages and disadvantages of ordering new aircraft?
I agree with you that there are advantages and disadvantages with ordering new airplanes like anything in life. Any initiative in life has its own advantages and disadvantages. So when you make a decision you weigh the advantages and disadvantages. When the advantage outweighs the disadvantages you make that decision. Ethiopian Airlines has been a launch customer on a couple of airplanes, at least three airplane models that I know. B767, B787 and A350.
On the B767 we were the among the very early launch customers. In 1984 Ethiopian Airlines was the second in the world next to El Al of Israel to acquire the B767 jetliner. It was a very successful airplane. It is still a successful airplane which is now in its final stage of its product life cycle to phase out. On the B757 were also among the early customers.
The big bang was the B787 again we were among the early launch customers. So I do not think we have any regrets on those airplanes. Because we have taken advantage of new technological advancement opportunities that were prevailing at that time although the B787 had some technical difficulties.
With the A350 again we were among the launch customers. We do not have any regret with the A350. It is a very good airplane and it is much liked by customers, airlines. It is a stable airplane. When it comes to the MAX we were not launch customers. This has to be clear. We are not part of the launch customers. We have joined a little bit later.
MAX started service in 2017. The first MAX airplane joined Ethiopian Airlines fleet in June 2018, after a year it entered into commercial operation. There are close to 400 MAX airplanes in the world today and only five of them are with us. We are not a large customer of MAX. We in fact took a little bit longer time to evaluate the selection between the Airbus A320 NEO and B737 MAX.
Going forward we made that distinction. There is also financial decisions, dilemmas to decide. When you order much longer a head of time before delivery the pre delivery payment (PDP) and the interest kicks in and it makes it expensive up on delivery. When you make the purchase decision closer to the delivery time the aircraft price go up. Especially when the airplane succeeds in the market or becomes very popular in the market. So we have to always compare this balance.
Who is your insurer? How are you going to compensate the victims’ families?
The aviation insurance is a bit complex. There is no one insurer. There are syndicates of underwriters. I think we have more than ten mostly based in Europe. The insurance is syndicated in London in the Lloyd’s insurance market. We will deal with them. The compensation will take its own international regulation and process.
Have you filed compensation for the aircraft?
It does not work that way. Both for our airplane and for the victims’ families the insurers take the lead and they follow the international regulation of course they will consult with us and they settle the claim. But later on there will be some kind of subrogation with Boeing insurers.
As Ethiopian Airlines is a state-owned enterprise its insurer is Ethiopian Insurance Corporation (EIC) and there are some reinsurers involved.
No. The EIC has a very small coverage I think it is less than two percent.
Though you have a long relationship with Boeing you had some issues with the B787. Now you have serious problem with B737 MAX aircraft. There is also one pushing factor from Boeing – the US EXIM Bank has suspended operation. Some industry analysts assert that Ethiopian Airlines will strengthen its new partnership with Airbus. What is your comment on that?
It is a very interesting question. As you know we are a customer of Boeing for a long time. Actually one can say that the aviation industry in Ethiopia is a brain child of US aviation industry. Ethiopian Airlines itself was established by Emperor Haile-Selassie I with the support of Trans World Airline (TWA), a US airline. I believe Emperor Haile-Selassie was very strategic and visionary leader. In the early stage of the airline with a humble beginning we needed support from the developed world particularly from the US with the largest aviation industry. There was a management contract signed with TWA. Ever since we have always used Boeing airplanes; of course we have also used Canadian airplanes-DH-6 and DH-5, Macdonald Douglas airplanes and Fokker airplanes, a Dutch company. Now we are using Bombardier Q400, another Canadian company. We are also using Airbus aircraft.
While Boeing has a dominant fleet we also use other airplanes. The relationship with Boeing has always been cordial. It has always been a win-win and very good relationship. It is more of a partnership based on mutual trust and confidence. So we have every reason that this relationship will continue if not strengthened more. Of course in any partnership there are hiccups here and there. I agree with you we had some hiccups with the B787 with the delay and the battery issue which grounded the airplane for a couple of months. But we have resolved them. The fact that we have resolved them those problems shows you how the relationship is strong enough to withstand any kind of turbulence that we face together. So that gives you confidence that we will overcome the current problem that both of us are facing. But again with the mutual trust and confidence we will overcome this challenge and we will continue our relationship. At the same time we will also build our relationship with other manufacturers. We will work Bombardier, Airbus-the A350 is a very good airplane. We have 24 of them on order 11 delivered.
What about the new Chinese made aircraft, COMAC?
We are also considering COMAC. China is a very strong partner. Business is based on partnership. China is the biggest per country market for Ethiopian Airlines. And we have been very pleased with the way the Chinese government has been treating us. This relationship is more than 40 years old. We have been flying to China since 1973. So we are happy that China is joining the single aisle jet aircraft manufacturing industry. We will evaluate it but to be honest with you it is at its early stage. I think the Chinese company COMAC estimates that the airplane would be flying in 2021. The C919 is a very good airplane but we will see. We are monitoring the technological progress.
Boeing recently unveiled the B777X, a new wide body aircraft. Ethiopian Airlines has been evaluating that aircraft. Are you still interested in the aircraft?
We have a mixed fleeing in that airplane. There are two models B777-8X and B777-9X on one side Ethiopian Airlines needs this airplane because of the high altitude of Addis Ababa. Addis is among very few airports in the world with 2400 meter altitude. There are may be four or five airports at this high altitude. All the other airports are at sea level. We have a special challenge because of the altitude as a result we need especial airplanes to manage this altitude. We lose ten to 20 tons up lift capacity at every take off on a wide body airplane. So because of that the B777X will enable us to fly nonstop may be from Addis to DC. At the same time with the information that we have so far the airplane is a bit expensive. We are still monitoring the development the airplane. We are taking our time to monitor how the airplane is going to appeal to the market. We know that Emirates has a big order. Not many other airlines have ordered. There are few other airlines. But the global spread is not as we expected. We are facing a problem like what we faced with C Series. The C Series by and large is confined to North America only. That is why we were very sceptical to order. Otherwise it is a very good airplane. The global distribution of airplanes is very important.
If an airplane is confined to a niche market or one region then the support network engineering, parts distribution will suffer. The market success of an airplane is very important for the customer not only to the manufacture.
Ethiopian Airlines will soon launch Vision 2035. Can you briefly tell us what the new growth strategy consists of?
Our 15 year growth strategy Vision 2025 is still going on. Fortunately, we have accomplished all of the targets that we planned to achieve in 2025 – eight years ahead. Since we have accomplished all the targets there is no point in talking about Vision 2025. We discussed with our board of directors and agreed that we should come up with a new strategic road map. That strategic road map has to comply with our planning policy which requires us to have 15 years strategic road map any time of the year on rolling basis. When we calculate 15 years from next year it becomes Vision2035. In about couple of months we are going to unveil our Vision 2035. It will be by and large scaling up the growth-fast, profitable and sustainable growth. We will not have much of strategic change or business model change but it will be scaling up the growth that we have witnessed in the Vision 2025.
In about eight years we have been able to triple the size of the airline – by revenue, number of passengers, number of international destinations and cargo. When we start Vision 2025 we were around USD 1.3 billion USD company. This year we may be closing at USD 4.1 billion. That is effectively more than three fold. This is phenomenal. It is an exponential growth by any standard. In the industry the growth rate is 5-6 percent.
Can you give us some figures in terms of revenue, number of aircraft and destinations? What you plan to achieve by 2035?
We have not completed it but it would be more than 200 airplanes and then revenue will be more than USD 25 billion. As acclaimed and recognised by the industry Ethiopian Airlines is definitely one of the fastest growing airline in the world today. We will continue to be an African based global airline. There are new businesses that we started to invest in.
The first one is the travel and tourism. It is a very vast field. We are entering that business mainly because there is a vacuum in Ethiopia. The private sector has not progressed very well in terms of developing attractive tourism industry in Ethiopia. As a result of that although the country has so much to offer the international tourists in terms of natural beauty, cultural and wild life still our tourist number is very low. It is not comparable. As a national carrier, we want to help the country. We want to be a catalyst in the tourism sector. We want to go beyond the duty of transporting tourists more than 120 cities in the world to Ethiopia. We want to enter the hotel business and tourism business. That is why we have built the Ethiopian Skylight Hotel here in Addis Ababa. If need be if we find a vacuum in the regions where the private sector is not able to fill in the gap then we will continue building hotels. Over all we will be focusing on promoting Ethiopia as a tourist destination all over the world with our vast channel of distribution, more than 120 international offices and representative offices, Star Alliance offices. This is a huge opportunity. It is a huge internal capacity.
We will be packaging hotel and air ticket for the international tourists and sell Ethiopia as a tourist destination. We are gearing all our resources aligning all resources in such a way that we make it very easy for international tourists to get the right information about Ethiopia, the right air transport and hotel. We will increase the number of tourists coming to Ethiopia by large number. We are estimating that by 2035 we should be able to carry more than 15 million tourists to Ethiopia.
We are also entering the logistics business. We are transforming our cargo business to a full-fledged multi modal logistics business. We are going to do it with a joint venture company between Ethiopian Cargo and DHL, a global leader in this field. That is a JV company with 51 percent owned by Ethiopian Airlines and 49 percent owned by DHL. The JV is going to manage the logistics business in Ethiopia and the rest of the continent. We will provide multi modal logistics services for the manufacturing sector. We will serve the Industrial parks found in Hawassa, Kombolcha, Mekelle, Adama and Jimma. If they want air transport our airports located in those areas we can up lift it by our cargo. If they want a combination of trucking and sea transport we will provide that at a very competitive rate. If they want a combination of rail and sea again we can do that. If they want air and sea we can do that. We will be availing all these services. That is not meant for return on investment but because we want to support the local manufacturing sector. With all the industrial parks mushrooming in our country a lot of industrialists are going to come to our country.
The weakest link that we see in this value chain is the logistics so we will be stepping in to fill that gap.
The third one is aerospace manufacturing. Ethiopian Airlines is providing Boeing wire harness for electrical works. That is very small in quantity. We are expanding that business to include labor intensive aircraft components and parts like seat cover, blankets and sheet cover metal and so on. The purpose of this business unit is to create jobs for the hundreds of thousands youth graduating from the higher education institutions. We want to contribute our share by creating high quality jobs for young engineers. These are the new business ventures that we are adding to our group.
The fourth one is airport management. Ethiopian Airports Enterprise has been merged with the Ethiopian Aviation Group. We are managing Ethiopian Airports. We want to expand that expertise to manage other airports in Africa. Not only manage but build, maintain and manage. That will be also another business unit.