Scaling up the growth
A Star Alliance member airline and a four-star airline rated by SKYTRAX, Ethiopian Airlines Group is today the biggest airline in Africa. Globally it ranks 46. At a time when most African airlines are traversing through turbulent time Ethiopian managed to grow fast and making profit in the past successive years. Recently, it reported another profitable year. However, the 2018-2019 budget year was a very challenging year. The airline faced a tragic accident with its B737-8 MAX jetliner in March that claimed 157 lives. Managing the crisis and the grounding of the MAX fleet was a daunting task. The fuel price hike, global economic slowdown and currency devaluation are some of the major challenges that the airline faced. Kaleyesus Bekele of The Reporter sat down with Ethiopian Airlines Group CEO Tewolde Gebremariam and discussed the airlines performance and those challenges. Excerpts:
The Reporter: How did you evaluate the 2018-2019 fiscal year that ended in June 2019?
Tewolde Gebremariam: As you know, 2019-2019 was a very challenging year. In fact, we believe that it was the toughest year in our history for many reasons. First and foremost we had a very tragic accident. We suffered from that accident. From the feed back we are getting from all over the world we handled the crisis very well. The crisis management was professionally handled. The international and domestic media was very supportive. The travelling public was also very supportive. The vote of confidence even after the accident was very encouraging although it was a very sad and sorrowful accident in which we lost our colleagues and valued customers. We still remember this tragic accident in everyday of our life. Let me repeat my condolence for the victims’ families. Handling the accident was a challenge. You know the B737MAX aircraft was grounded since the accident. It has been now seven months. That has also affected us because we have had five MAX aircraft out of the 30 orders that we made and five of them were in service. We lost one in the accident and we grounded the remaining four. So aircraft shortage has been a challenge. We also have problems with the B787 Rolla Royce engines. Although Rolls Royce is compensating us still we have aircraft shortage. I think we have made a very good decision grounding the MAX fleet immediately after the accident. You can see that our decision was sound it was followed by all other countries
Oil price went up by 21 percent in Africa any point in point jet fuel is 35 more expensive than the rest of the world. We have also suffered from increased cost. The global economic slowdown in particular African economies’ slowdown has affected us from the revenue side. Uncertainties cause by the trade war between China and the US. Therefore, it has been very challenging year but on the other hand, we are encourage by the result because we have performed well.
Can tell us your performance in terms of figures?
We continued to grow. Revenue grew by 17 percent in USD and in Ethiopian birr by 25 percent. We have completed the year with profitability. We are very encourage by the result. Our passenger number grew by 17 percent 12.1 million passengers, a record high number of passengers, cargo also grew to 432,000 tons.
Our operating revenue four billion dollars. Operating profit 260 million USD net profit was also USD 189 million, the difference is caused by currency devaluation. As you know we have serious problem in fund repatriation from many African countries like Angola, Sudan Congo Brazzaville, Central African Republic, Zimbabwe, now our neighbor Eritrea. In Angola we have USD 40 million, in Sudan more than USD 30 million, in Eritrea about eight million dollars and in Zimbabwe USD 15 million. These blocked funds are causing a lot of problems. Number one we cannot access it. We cannot use it. It is stuck there.
Number two since the currency fluctuates and the fluctuation is invariably most of the time down wards the devaluation reduces our profit. We are discussing with the respective governments but we did not get any solution so far. We are not the only one, most of African airlines and most of the airlines operating to Africa are affected by this problem. Apart from that I would say the year was very successful.
Didn’t the economic slowdown in Ethiopia affect your business? Export trade has declined in particular and didn’t this affect your cargo business?
You are right. Export has been affected. It affected our cargo operation but we were very smart to move the aircraft capacity to Europe, China and of late to South America. We have ten B777 freighters, the largest cargo carriers. We also have two B737 freighters. Most of the B777s are used in China and Europe. China and Africa and Europe and South America. We are now flying to Miami in North America a dedicated cargo0 flight. We are flying to Mexico, Bogota, Quito, Lemma and Brazil Sao Polo and Peru. So we are now penetrating the South American market. We also operate passenger flight to Sao Paolo, Brazil and Buenos Aires in Argentina. Otherwise, the export has declined.
You have established a joint venture company with DHL. Can you tell us what exactly you are doing with DHL? What do you plan to achieve?
We aspire to expand our cargo business to full-fledged logistics business meaning to multi modal logistics business in line with the industrialization initiative of the Ethiopian government. We now have many industrial parks up and running in Hawassa, Adama, Kimbolcha, Mekelle, Dire Dawa and Jimma. Most of these industrial parks are occupied by manufacturers with sole intention of exporting their products. Logistics is essential in their success. It is a very critical factor in their success. Because whatever they produce it has to be transported efficiently, cost effectively and with a high quality to the consumer market in Europe, America and Asia. Logistics has been a concern for the industrialists. Particularly for the manufacturers. You know that the industrial parks have attracted global brands. Unfortunately as a country we are lagging behind in logistics competitiveness. We are at 132 out of 164 countries. Even our neighbors like Kenya are better than us in logistics competitiveness index.
So Ethiopian Airlines a successful carrier it was natural for us to expand to multi modal logistics. But we did not want to do it alone because that area is new for us. That is why we want to forge joint venture company with the number one logistics company, DHL. It is marriage of two competitive companies DHL is a market leader in the global logistics business. Ethiopian Airlines is the largest African cargo carrier. That is why we ventured into the business. And so far so good. We have started operation already and the JV company is doing well. It has opened offices in Hawassa and Adama. They are under preparation to open offices in Kombolcha , Dire Dawa and Mekelle.
As Ethiopian Airlines is a profitable company it should reward its employees. You recently made a 15 percent salary increment to the employees. You are also under preparation to build 11,000 new residential apartments for your employees. Can you briefly tell us what the airline is doing to reward your employees?
Staff retention in the aviation industry is very critical. It is a very mobile talent. Talent mobility is very high in the aviation industry. Ethiopian Airlines has an aviation academy whereby we train all aviation professionals and then we want them to continue working in the airline. We have to do enough effort to make our reward package attractive. Besides the salary we must have other benefits. Few years ago we made a study and the most critical element for employees or youngsters to build a carrier in Ethiopia with the company that they are working with they need two things. Number one is housing and number two is transport or cars. Realising this we started employee housing project nine years ago. It was delayed because of the complication in securing the land and also we tried to secure loans. Last year we were very lucky when we delivered 1,200 housing units to our employees. But they are 1,200. We have today 14,000 regular and 3,000 contract employees.
We came up with the idea of expanding the project since we have land in the Ethiopian Village. Now we are on the final stage to break ground to start construction of 11,000 apartments. This is going to cost us USD 550 million. That is a big project. I hope that we will finish it as soon as possible so that we can relieve our employees from housing problems that is prevailing today in Addis Ababa.
You have already mentioned the challenges you faced in grounding the B737-8 MAX fleet. How closely are you following the effort being made by Boeing and the US Federal Aviation Administration to recertify the aircraft and return it back to service?
I would say we have not attended as many conferences they were for two reasons. One initially we made our position very clear. We have been vocal on the problems because we have the data and all relevant information. Initially we had misunderstandings between us and Boeing. Later Boeing accepted the facts and then we were busy with managing the crisis. We are also busy with the investigation. It was a very important project not only for us but also the Ethiopian Civil Aviation Authority and Accident Investigation Bureau. We did not get time to participate in most of the conferences.
On the other hand we wanted to take the back seat because we are the airline which had an accident. We want to see from behind the problems of the aircraft adequately addressed. We want to see that the certification process is done in due process. It has to be done in global cooperation. In addition to the FAA other regulators should get involved in the recertification process. We do not have detail information but still work in progress brining everybody on board. We have been informed by Boeing that it is almost on the last stage of the recertification process.
Recently, a former employee of Ethiopian Airlines filed serious accusations against the airline in the US. The former employee claims that Ethiopian Airlines compromises safety for the sake of fast growth. And days later an Ethiopian Airlines B767 en route from Senegal to Addis Ababa via Bamako made an emergency landing few minutes after takeoff. How do you explain these incidents? Does Ethiopian compromise safety?
As we have repeatedly explained to the Associated Press (AP), all of the allegations by the disgruntled ex-employee are baseless, false and fabricated conspiracy intended to serve his asylum case. He is an asylum seeker desperate to build his case. Ethiopian Airlines Group is the largest aviation group in the entire continent performing all maintenance work as per the global standards. The airline has been audited by the national regulator – the Ethiopian Civil Aviation Authority – regional regulatory authorities like the US Federal Aviation Administration (FAA), the European Aviation Safety Agency (EASA) of the EU and international standard setters like International Air Transport Association (IATA) Operational safety Audit (IOSA). Ethiopian Airlines multiple departments of quality controllers and quality assurance divisions also conduct frequent inspections and audits. Some of the external audits are conducted every six months, some are every year and IOSA is every two years. We also comply the safety audits of all the countries that we fly to.
All of the auditor organizations have maintained the required certification by confirming all global standards and recommended practices. As you know some of our aircraft are leased from international lessors and we are required to maintain them as per EASA standards and the lessors continuously inspect our maintenance practices to ensure compliances.
In fact, Ethiopian Airlines technicians are trained longer than industry average training period before they start actual work, which is very costly to the airline but assures safety beyond the required global standard. You can interview our technicians at your convenience and learn from them more details.
The aircraft which was on scheduled services from Senegal to Addis Ababa via Bamako encountered technical problem on one of its engines and the crew performed a normal turnaround as per the flight operations and landed back to the airport and we had to rebook the passengers on alternative flights as per our procedures.
Is your insurance company handling the victims’ families’ compensation process? How are you handling the compensation cases?
Ethiopian Airlines has made advance payments to the victims’ families. We want to make sure that the families are attended to. We want to make sure that the families are well taken care of. They have to be compensated. We have not yet completed. We are discussing with our insurers. It is a complex issue. Some of the victims’ families have sued Boeing in the US. There are discussions going on between our insurer and the insurer of Boeing. It is a complex issue but we are handling that.
Does this mean that if the victims’ families file legal charges against Boeing, they cannot claim compensation from Ethiopian Airlines?
It is a bit complex because Boeing has insurers. We also have our own insurers. They insurance companies have what they call subrogation. Subrogation means both insurers will discuss. Now the problem is with the design of the aircraft then they will find out how to settle the claims. Beyond that some of the victims’ families decided to go to court. Of course they will have to wait for the court ruling.
Recently, Boeing made an announcement pledging USD 100 million USD for the victims’ families. Few days ago, it made another announcement citing that it allocated money to be disbursed to the families.
Some of the news articles may not be accurate but we know that Boeing made a provision for 100 million dollars not only for Ethiopia but also for Indonesia. They may divide it into two. Boeing has notified us that they have allocated this for the victims’ families and associated costs.
Going back to business, you have opened a new hotel-Ethiopian Skylight Hotel. You have also commenced work on the second phase of the hotel. How is the hotel business going?
The hotel business is new for us. It is not our speciality. We are an airline but had to build a hotel for two reasons. One of tourism. As a national airline we want to contribute our share, a significant share in promoting Ethiopian tourism. The second reason is to accommodate our transit passengers. We successfully built the first phase. It is a big hotel. With 373 rooms it is the largest hotel in Ethiopia today. It has become very popular not only for room guests but for banquet. It is hosting conferences, media briefing, wedding and other events. Lots of events taking place. I think the hotel has contributed towards making Addis Ababa a very vibrant city for conferences tourism and investment. Right now we do not have hotel shortage in Addis Ababa. There also other hotels. Ethiopian Skylight Hotel is located in a prime location, a stone throw away from the Addis Ababa Bole International Airport. It is well designed and equipped with all the necessary facilities and amenities. It has the biggest Chinese and Ethiopian cultural restaurant. It has a big conference hall which can accommodate more than 2000 delegates at a time. We are very happy with the hotel.
The hotel helped our sales workforce to sell travel package-air ticket and hotel rooms to customers. It also helped the customer when they want to travel to Ethiopia they can buy the ticket from Ethiopian Airlines and at the same time book their hotel room. So it is promoting tourism.
You recently opened the Addis Ababa Bole International Airport passenger terminal new wings. It is a spacious one and eased the congestion. But it seems that you will fill in the extra capacity in the coming few years. What progress are you making in realising the planed mega airport project?
Yes, you are right. It will. We are making a very good progress. We have identified the site location. It is somewhere between Adama and Addis Ababa. We have made several discussions with the Oromia Regional State and they are very supportive. They are ready to give us the land. We have tasked the French firm, ADPI as airport master plan developer. They are working in the master plan. We have to study the airport development. It is a complex task. You have to study the wind direction for a long period of time so that you can determine the runway orientation. We are going to start that study. But we do not think that it will be very difficult because it is in the same area with Bole so that it will be in the same orientation or the same wind direction.
We also have settled the issue with the Ethiopian Airforce because they are very close to the location. We are working together to find means and ways where we can work together in that area. The next stage is to develop the land in one side and to develop financing of the project on the other side. And then work on the engineering side. We have opened a project office. In the current New Year, we will make tangible progress.
The government is saying that there is debt stress so it does not want to take new loans. Isn’t that going to be a challenge to access financing for the airport development?
What matters most is the ability of the airline to pay back its loans. As long as you are a good payer and as long as you have a strong balance sheet credit worthy bankable balance sheet, I do not think that debt is a problem. Last week we released an (RFP) to finance one Airbus A350 aircraft purchase which we are going to receive this week. To your surprise 23 banks are interested to finance the purchase. We have to select from the list of 23 banks. This shows you the confidence the banks have on Ethiopian Airlines. Loan is not a problem to Ethiopian Airlines. In addition, you must know that we borrow money on our own without any state guarantee.
You have drafted Vision 2035, a 15-year growth strategy. Can you tell us about the new strategy?
The reason why we started working on Vision 2035 is because of the success of Vision 2025. We have achieved all the parameters a head of the plan. From now on wards it will not be meaningful to talk about Vision 2025 because all the parameters are achieved. So we decided to come up with Vision 2035 to be implemented in the next 15 years. Vision 2035 basically is scaling up the growth of the airline. The business model is still sound. We maintain the business model. The strategy is still sound. It is still viable and applicable. We will scale up the growth. It is still under discussion with our board. May be in the next couple of months it will be released.
I heard that you want to make Ethiopian Airlines a 25 billion USD company with more than 200 aircraft.
Slightly more than that. I do not have the exact final figure.
Where do you want to see Ethiopian Airlines by 2035?
I want to see Ethiopian Airlines at the global stage. Today, Ethiopian Airlines ranks 46 in the world and our aim is to make it number 20 in the world.
Recently a former employee of Ethiopian Airlines is reported to have filed serious accusations against the airline in the US. He claims that Ethiopian Airlines compromises safety for the sake of fast growth. And days later, an Ethiopian Airlines B767 en route from Senegal to Addis Ababa via Bamako made an emergency landing few minutes after takeoff. How do you explain these incidents? Does Ethiopian compromise safety?
As we have repeatedly explained to the Associated Press (AP) (media house which came out with the story), all of the allegations made by the disgruntled ex-employee are baseless, false and fabricated conspiracies intended to serve his asylum case. He is an asylum seeker desperate to build his case. Ethiopian Airlines Group is the largest aviation group in the entire continent performing all maintenance work as per the global standards. The airline has been audited by the national regulator-the Ethiopian Civil Aviation Authority-, regional regulatory authorities like the US Federal Aviation Administration (FAA), the European Aviation Safety Agency (EASA) of the EU and international standard setters like International Air Transport Association (IATA) Operational safety Audit (IOSA). Ethiopian Airlines have multiple departments of quality controllers and quality assurances; also conducts frequent inspections and audits. Some of the external audits are conducted every six months, some are every year and IOSA is every two years. We also comply with the safety audits of all the countries that we fly to.
All of the auditor organizations have maintained the required certification by confirming all global standards and recommended practices. As you know some of our aircrafts are leased from international lessors and we are required to maintain them as per EASA standards and the lessors continuously inspect our maintenance practices to ensure compliances.
In fact, Ethiopian Airlines technicians are trained longer than industry average training period before they start actual work which is very costly to the airline but assures safety beyond the required global standard. Anyone can interview our technicians at their convenience and learn from them in more detail.
The aircraft which was on scheduled services from Senegal to Addis Ababa via Bamako encountered technical problem on one of its engines and the crew performed a normal turnaround as per the flight operations [guideline] and landed back at the airport and we had to rebook the passengers on alternative flights as per our procedures.