Ethiopian Airlines may become a saviour for SAA; plan to buy 20 A220s

October 08, 2019: To rescue South African Airways (SAA) from chronic debt problems, Ethiopian Airlines would consider buying a stake in the carrier, which has not made a profit since 2011 and last week delayed the release of annual earnings due to its precarious financial state.

While the ruling African National Congress has frequently said that it would consider selling equity in the airline, there has been no visible strategy for such a plan, said Tewolde Gebre Mariam, the group chief executive officer of Ethiopian Airlines, according to Bloomberg.

“We are interested in supporting South African Airways,” he said in an interview at Ethiopian’s head office near Addis Ababa airport. “If South Africa asked Ethiopian to buy a stake, we would consider it,” Tewolde said.

The group had discussions with SAA’s former CEO, Vuyani Jarana, before his resignation in May, GebreMariam said. SAA has not yet appointed a permanent replacement for Jarana. The position is currently served by the acting group CEO Zukisa Ramasia.

While rivals like SAA and Kenya Airways are struggling with losses and relying on government support, Ethiopian Airlines has looked to invest in other airlines around the continent, including new carriers planned for Ghana and Zambia.

“We have recently signed a shareholders agreement with the Ghanaian government,” GebreMariam said. “Hopefully it will be up and running in the next six months.”

In contrast, SAA is cutting routes and needs 2 billion rand alone to fund working capital for the remainder of its fiscal year through to March 2020. The airline has been held back by mismanagement and corruption, particularly during the scandal-hit presidential tenure of Jacob Zuma.

African operators now have 20 percent of the continent’s market, compared with 60 percent two decades ago, mainly due to the growth of Gulf-based carriers, he noted.

“It’s a continuous decline. If it is not addressed by African carriers it may become zero,” GebreMariam said.

In another move, Ethiopian Airlines is close to agreeing on a deal with Airbus for as many as 20 narrow-body A220 planes worth more than $1.6 billion, reviving an earlier plan after a spell using larger B737s. The carrier is in the last stage of talks about the purchase of the 100-seater aircraft, which should be completed by the end of the year.

The move would be a reversal of a decision last year to try flying larger planes to cities including Windhoek in Namibia and the Botswana capital Gaborone. “To fill those jets, Ethiopian had to stop off at a second destination such as Victoria Falls on the way. Using A220s will make direct flights viable,” GebreMariam said. 

The A220 was formerly known as the Bombardier Inc C Series before being taken over by Airbus. Ethiopian could buy between 10 and 20 planes, he said. 

Speaking on the grounding of 737MAX, he observed, “It’s only natural for us to be the last one to decide on the MAX. If we are convinced the problems are fully addressed, and that the re-certification is done in a collaborative manner with all regulators, then we will take the time, effort and energy to convince our pilots, crew, and passengers that the aircraft is safe to get back in the air.”

With almost $100 million stuck in Angola, Sudan, Zimbabwe, and Eritrea, Ethiopian would not consider giving up on those markets, as it wants to maintain its role as a pan-African carrier serving the whole continent.

For the fiscal year 2018-2019 that ended in June 2019, Ethiopian Airlines has earned an operating profit of $260 million.