Ethiopian Will Weigh Stake in South Africa’s Debt-Ridden Airline

(Bloomberg) -- Ethiopian Airlines Group would consider buying a stake in South African Airways -- should South Africa decide to sell equity in the struggling state carrier.

SAA hasn’t 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’s been no visible strategy for such a plan, said Tewolde Gebre Mariam, the chief executive officer of Ethiopian, Africa’s biggest and only consistently profitable airline.

“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.

Ethiopian and SAA are already partners in the Star Alliance.

Debt Problem

The group had discussions with SAA’s former Chief Executive Officer Vuyani Jarana before his resignation in May, Tewolde said. A deal may involve help with SAA’s chronic debt problem, with banks withholding further loans until the airline can present a repayment plan for 9.2 billion rand ($611 million) of borrowings.

SAA hasn’t yet appointed a permanent replacement for Jarana.

The parlous financial state of South Africa’s weak state-owned enterprises is weighing on the economy, with Finance Minister Tito Mboweni having little choice but to allocate additional funds to debt-ridden companies, from power utility Eskom Holdings SOC Ltd. to the South African Broadcasting Corp. Ltd.

Ethiopian is Africa’s biggest aviation success story, with main rivals SAA and Kenya Airways Plc struggling with losses and relying on government support. The Horn of Africa carrier 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,” Tewolde said. “Hopefully it will be up and running in the next six months.”

Cutting Routes

In contrast, SAA is cutting routes and needs 2 billion rand alone to fund working capital for the remainder of its financial year through 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% of the continent’s market compared with 60% two decades ago, mainly due to the growth of Gulf-based carriers, Tewolde said.

“It’s a continuous decline,” Tewolde said. “If it is not addressed by African carriers -- it may become zero. If that happens it means we are all wiped out.”

--With assistance from Nizar Manek.

To contact the reporter on this story: John Bowker in Johannesburg at jbowker2@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Andre Janse van Vuuren, Nick Rigillo

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