An Insight into Ethiopian Airline as a Strategic Partner for Zambia Airways
ZAMBIAs law makers nodded the re-set up of a national airline. Zambia has operated without a national carrier for over 2 decades and this decision comes at a time when Africa’s second largest copper producer is the process of building two key airports the Kenneth Kaunda and Simon Mwansa Kapwepwe at a cost of USD360million and USD440million as it vies to be in the top three of Africa’s regional hubs. The current hubs are South Africa’s ORT and Kenya’s Jomo Kenyatta dubbed the Dubai of Africa. Zambia’s air traffic has dwindled to 14 airlines daily from a time when Lusaka international airport was as busy with flights direct into and from Europe and United States. Cabinet in December approved re-set up of Zambia Airways with Ethiopian Airline as Strategic Partner to hold 45% shares in the local airline.
Why a Strategic Partnership with Ethiopian Airline?
Ethiopia Airlines was established on December 21, 1945 and it started operation on April 8, 1946. From onset it was determined to succeed and to become a dominant airline in Africa. It was one of the first airlines in the continent that developed its maintenance infrastructure and started comprehensive training of pilots, engineers and cabin crew.
An Airline with a Strategic Vision
Ethiopian Airline is the continent’s most profitable carrier with an unbeatable track record of excellence over a decade and half. The accolades it has earned include The Economists award in 1987 for excellence and economist Paul B. Henze recognized it in 2000 as being “one of the most reliable and profitable airlines in the Third World” In July 2011, Ethiopian was named Africa’s most profitable airline for the year 2010 by Air Transport World, and it has also been praised by African Airlines Association (AFRAA) for its sustained profitability over recent years.
It appears ticket sales aren’t the only cash cow for Ethiopian Airline, the carrier generates revenues by providing aircraft maintenance to foreign airlines, and specialist training for both Ethiopian and foreign trainees. Every year, pilots and technicians graduate from both the Pilot School, inaugurated in 1964, and the Aviation Maintenance Technician School, established in 1967. FAA accredited the airline’s maintenance division.
Manager of Ethiopia Airlines Holidays, Seble Wongel Azene said the airline started “Vision 2010” in 2005, which aimed to increase passenger traffic to three million (3million), revenue to $1 billion and employees to 6,000 by 2010. By the year 2010 Ethiopian had exceeded all goals set in “Vision 2010”, and the company’s net profit for the fiscal year ended 2010-6-30 was $121.4 million. The results were attributed in part to an aggressive marketing campaign and major cost cutting measures.
Mid-year through 2017, Ethiopia Airlines has 92 planes but projects to increase its fleet to 140 aircraft, operate 120 international destinations and 26 domestic destinations, airlift 22 million passengers and haul 820, 000 tons of cargo there by generating generate $10 billion in revenue.
Technical Superiority Diversification as an additional Revenue Earner
It appears that most airlines think of ticket sales are the only revenue contributor to the business costs, ETA has diversified into training facilities that for years it has pilots training school, aircraft maintenance technicians school, school of marketing and finance, cabin crew training school that has the capacity to train 400 trainees with modern mock up and full flight simulator training for Boeing B737, B757, B767, B787, B777 and Bombardier, Q400.
The airline has state-of-the-art maintenance hangar with a span of 7,200 square meters and a height of 25 meters can accommodate one B747-400 or two B737-700s or two equivalent size aircraft at any given time in different configuration.
Ethiopian has an advanced maintenance base, which is fully operational for airframe maintenance up to D-Checks, engine, overhaul, components repair and overhaul, light aircraft maintenance and technical, and management assistance for other airlines. The maintenance base is certified by the US- Federal Aviation Administration (FAA).
Ethiopian also provides management and technical assistance to other airlines on secondment basis by availing trained and skilled manpower in different areas relative to the airline industry. For many years some Nigerian airlines maintained their engines at the Ethiopian maintenance facility.
A Military Culture Like Discipline has contributed to ETs Success
Ethiopian Airlines has demonstrated resilience and discipline in turbulent times. At a time when Africa’s airlines where almost going under Ethiopian airline has remained afloat. The airline is even in talks with the Nigerian government to take over bankrupt Arik Air one of Africa’s largest carriers. Director of International Service at the Ethiopian Airlines Group, Mr Esayas Weldemariam, revealed that they were expanding their presence in West Africa.
“Following the bid opened by the Nigerian government, we are negotiating to secure management contract of Arik Air,” Mr. Esayas said.
Despite all the challenges national airlines face, there are still a few which have thrived and continue to thrive so KQ should not be buried before all options have been analysed first, after all don’t throw the baby with the birth water, right!
“there are a couple of Outliers like Ethiopian and Rwanda Air who are showing that a culture of military like discipline can create success”.
In the year to June 2015, the Ethiopian Airlines recorded a net profit of USD148m compared with KQ which recorded a historic KES25billion loss in the same period. The financial advisor finalizes by saying it is easy to propose radical measures while what needs to be done is simply being smart.
“So it’s a mixed bag. It is easy to blame size but in most examples it’s been a case of poor execution. Of course economies of scale around Fuel purchase would be helpful.”
The difference really between the African airlines contemporaneous of Ethiopia Airlines that had gone under and the later is that of patriotism, grit determination, enviable vision and the spirit of the workforce that is unencumbered by greed.
100% owned by Government but Fully Autonomous
“Ethiopia Airlines history indicated that the first time a discernible interference happened, a top army official involved was executed publicly as a deterrence to others who might dream of eroding the independence of the airline.
One striking feature about ET is that it is 100% government owned by operates fully autonomous. In other parts of Africa and beyond, interference’s contributed to the extinction of many airlines established during or before the independence of most African states.
Such airlines that died due to the failure of government to stay away from their operations included the Nigeria Airways Limited, Air Afrique, Ghana Airways,
“The Aviation Industry is one of Zambia’s biggest money spinners. Generating in excess of US $I.5 Billion in revenue from air ticket sales per annum.” – Hon Brian Mushimba.
“We are excited about the news of the new airline, Zambian Airports Director – Agness Chaila said on a live ZNBC TV interview in Lusaka on 19 December 2017. We will work with the Zambia Tourism Agency to determine synergies with the new airport construction. The new airport in Lusaka will have over 4 million people in traffic and will create vast opportunities through building of two hotels on the inside and outside, prestige banking and may other support services,” she said.
, Gambia Airlines, Air Angola, Botswana Airlines, Congo Airlines, Air Djibouti and Zambia Airways to mention but a few.
These airlines were not professionally run like today’s Ethiopia Airlines and, ironically, the defunct Nigeria Airways Limited, according to industry experts, had more prospects than any other African airline. In the 1990s the airline was doing about 202 fights weekly.
Even during the politically undulating fortunes of Ethiopia, its airline held sway, it burrowed through the challenges of the failed experiment on communism when Ethiopian government started a romance with Russia and China in the 1970s and wanted Ethiopia Airlines to re-fleet, exchanging its US made aircraft with that of Russia. But subtly, the management of the airline reminded the government then that this would mean replacing the whole training facilities, including maintenance, spares and even the retraining of personnel, a challenge that would pose huge fiscal sacrifice to the airline and the state. The idea was dropped.
Ethiopian Airline Strategic Partnership
Ethiopian Airline has key strategic partnerships with African carriers in Togo and Malawi. Ethiopian Hub ASKY is a multinational private airline based in Lome, Togo. Its inauguration marked to meet the growing demands for safe, reliable and competitive air transportation services in Central and West Africa with new-generation aircraft. ASKY’s equity ownership also includes the private multinational ECOBANK and major development banks of the region, namely EBID, the Economic Community of West African States (ECOWAS), Bank of Investment and Development and West African Development Bank. Ethiopian Airlines is a major shareholder in ASKY and has a management contract to manage and operate its services. Ethiopian’s cooperation and partnership with ASKY Airline has introduced new connectivity between west Africa and Ethiopian worldwide network.
The second strategic partnership was signed between Ethiopian and Malawi Airlines on July 11, 2013. Through this strategic partnership, Ethiopian and the newly formed Malawi Airlines will harmonize their flight schedules so as to provide seamless and best connectivity options for travellers within, to and from the Southern Africa region.The third partnership will be with Zambia Airways.
Aviation Market Commentary
The nodding of re-setting up of Zambia Airways is a welcome move for the Zambia as a sovereign especially at a time when the Southern Africa nation is erecting (2) state of the art airport facilities for a total of USD800million. One airport will be based on the copperbelt province – Zambia’s copper and limestone hotspot. Zambia is in the middle of key construction projects such as the setup of the USD520million ICBC funded ZCCM-IH cement plant, USD400 million Dangote Cement plant expansion of a Lusaka South Economic Facility Processing Zones to mention but a few. Lack of a regional airline has penalized Zambia’s tourism industry for a long time which has given opportunity to competitors such as SAA and KQ to tap into the opportunity thereby making Zambia look like a province or extension of South and East Africa. Good examples are during the World Cup 2010, soccer fans in SA were offered tourist packages that included visiting Livingstone to view the falls. It was easy to convince a soccer fan to spend 1 hour and 45 minutes on a flight to see the mighty Victoria falls and return just in time for their soccer game. Kenyan Airways flies directly into Livingstone and in this vein ferries tourists that have viewed the $5 billion Kenyan tourist industry attractions and then seeing the falls is merely icing on the cake after all the flight is merely 180 minutes.
A game changer for Zambia
The airline will be a game changer for Zambia from a tourism perspective, bulk transportation and generally opening up the country to closed routes. Zambia is strategically positioned as a landlocked country and will be a perfect hub for interconnecting flights.
It provides a transportation opportunity for exports like fresh cut flowers to the Europe or just sugar to the great lakes region. The airline will blend in well with the (2) new airports to beef up competition in the aviation business especially on domestic routes which ticket rates are deemed high compared to peers. Leveraging all the strengths of Ethiopian Airline as a strategic partner will highly likely make Zambia Airways a profitable business to run. We expect that Zambia Airways will replicate the self-sustaining model of Ethiopian Airways where ticket sales will not be the only revenue earner but that the airline will be able to diversify into technical support services and even owning of real estate to ensure viability of the entity. Much as airline business is clouded by state and political interference in most cases, we believe Zambia Airways will pick a leaf from how its strategic partner is 100% state owned but operates with autonomy. All things constant, politics aside this strategic partnership has more positives than negatives for Zambia. Quality of Management and Boards will be the key driver of the success of the carrier. The government should subject the selection of the management team to a competitive process so that the highest tenets of professionalism can benefit the resilience of the airline. Arguably other schools of thought have challenged the re-set up of Zambia Airways on account of timing but our argument is there is no better time for this investment than now. This article was written by the Chief Market Analyst for the Zambian Business Times and the views given are the newspapers.