Ethiopian Shelves Plane Deals, Maps Out Privatization Plan

(Bloomberg) -- Ethiopian Airlines Group has shelved plans to establish a fleet of smaller jetliners as gains in demand suggest that the routes where they’d be deployed would be better served using larger planes.

Africa’s biggest airline had been looking at Bombardier Inc.’s C Series aircraft -- since taken over by Airbus SE and renamed the A220 -- together with Embraer SA’s E195. An order, which had been mooted as likely at this week’s Farnborough air show, is now off the agenda, Chief Executive Officer Tewolde GebreMariam said in an interview.

“We have decided to suspend the evaluation of the 100-seater regional aircraft acquisition project, since the market size of the selected regional routes is growing faster than we expected,” he said. Boeing Co. 737 jets from the current fleet will instead be used while the airline studies passenger trends.

Tewolde also said there’s no prospect of an order for the Airbus A350-1000 wide-body or Boeing’s rival 777X at the Farnborough expo, with Ethiopian still evaluating the two planes for its latest long-haul requirements. A purchase of more of the U.S. company’s current-generation 777s or the 787 Dreamliner remains an alternative, he said.

Outside Help

The CEO said that privatization plans, sanctioned by Ethiopia’s ruling politburo last month, are more likely to see foreign involvement in various operating units than an outright stake sale, given that Ethiopian Air already makes a significant economic contribution to the nation while being efficient, competitive internationally and able to raise capital for growth.

Of the group’s seven or eight business units, some will be “very attractive” to investors and could also benefit from outside involvement, he said. He cited the airline’s hotel business, airports and aerospace manufacturing division where negotiations are underway with companies including Boeing, Airbus and Bombardier. The carrier’s logistics arm, which has a venture with Deutsche Post AG’s DHL brand, could be transformed into a joint holding giving the German company a 49 percent stake “within weeks.”

It’s also possible that countries where Ethiopian is working on international offshoots could take reciprocal stakes in the Addis Ababa-based carrier, according to Tewolde. The CEO said in May that his company would take holdings in new operators in Zambia, Chad, Mozambique and Guinea while helping to manage existing carriers in Equatorial Guinea and the Democratic Republic of Congo.

Ethiopian has been in talks with the chairman of Djibouti Airlines over potentially swapping shares, Tewolde said. A stake in Eritrean Airlines would also be a “logical step,” the CEO said, after direct flights between the countries resume later this year. Ethiopia has already reactivated a bilateral air services agreement with its neighbor to fly over airspace and save fuel costs, one of several new agreements struck amid a thaw in relations.

Ethiopian, which has turned Addis Ababa into Africa’s equivalent of the Persian Gulf hubs, linking almost 70 global cities with close to 60 across the continent, already owns stakes in Malawi Airlines in the south and Togo-based Asky Airlines in the west. The new initiatives are aimed at consolidating its lead over rivals Kenya Airways Plc and state-owned South African Airways.

To contact the reporter on this story: Nizar Manek in Addis Ababa at nmanek2@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper, John Bowker

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