The global airline industry is traversing a turbulent time. In the wake of the Arab revolution, the price of fuel is soaring. The price of a barrel of crude oil has been hovering around 120 dollars. Fuel expense accounts for 50 percent of an airline’s total expense. The global economic crisis is like adding salt to a wound for the airline business. A number of major international carriers have declared bankruptcy.
Some have even ceased operation. Despite all the challenges, Ethiopian Airlines has sustained its profitability. In fact it is growing at a faster rate at this trying time. Tewolde Gebremaraim, chief executive officer of Ethiopian Airlines, spoke to Kaleyesus Bekele of The Reporter.
The Reporter: It has been over two years since you began implementing the Vision 2025 development strategy. Tell us about its progress.
Tewolde Gebremariam: Now we are in the third financial year since we began implementing Vision 2025. We drafted the Vision 2025 development strategy after evaluating the achievements of Vision 2010. When we were drafting Vision 2025 we assumed that the world economic growth will be sustained. There is what we call a two-leg economic growth. There are countries whose economy is growing at a fast rate while others’ economy has matured and their economic growth pace is slow. Countries like China, India, Asia as a whole, Africa, Middle East and South America are growing fast. The economic growth in Europe and America has slackened. Europeans are almost in recession.
We anticipated that America and Europe will recover soon as they did in 2008. The reports of the World Bank and the IMF made similar projections. But things turned out the other way. The US economy is recovering slowly. The situation in Europe is worse. So we were forced to focus on Asia and the Middle East. Despite all the challenges, we are doing well in implementing Vision 2025. When we drafted Vision 2010 people were skeptical. They doubted if we would achieve the goals we set. They said it was too ambitious. The same remarks were made when we introduced Vision 2025. But we are achieving the goals.
Can you mention some of your achievements?
In the first year of operation, we planned to increase the number of passengers by 28 percent. But it grew by more than that. We planned to generate 24.3 billion birr revenue. We anticipated to boost our revenue by 35 percent but it increased by 43 percent. In the second year, the number of passenger was projected to grow by 16 percent but it grew by 25 percent. We planned to earn 32.7 billion birr but we actually bagged 33.8 billion. Our plan was to increase our revenue by 31 percent but it grew by 37 percent. We can see that we are realising our goals by more than we anticipated.
Following the Arab revolution the price of fuel in the international market has spiked. It is a very unfortunate incident. The price of oil has been hovering around 120 dollars per barrel. The price of fuel always oscilates but what makes the recent incident unique is that the price went up and remained high in the sky. Fuel now accounts for 50 percent of our total expense. A number of airlines have declared bankruptcy. Some have even ceased operation. A number of airlines have laid off their employees. Lufthansa, Air France KLM and British Airways have laid off their employees due to the huge loss they had incurred. African carriers are also traversing a turbulent time. Our neighbor Kenya Airways has laid off 600 employees. Royal Air Marroclaid laid off 1500 employees. Despite all the challenges, we sustained our profitability. In the fiscal year that ended in June 2012, we made an operating profit of one billion birr. We made a net profit of 732 million.
The past two years have been very challenging for Ethiopian. It was a tough time because of two reasons. One is the soaring fuel price. The second one is acquisition of a new fleet. In the 2011-2012 and 2012-2013 fiscal years we acquired many new aircraft. To accommodate these new aircraft we have to put in place all the required facilities. Last year we acquired 13 new aircraft. This year we are taking delivery of 14 new aircraft. We acquired Boeing three B787 Dreamliner and one B777 freighter. We are also acquiring new Bombardier Q400 and B737-800 Sky interior aircraft. All these aircraft require new facilities. We have to buy maintenance equipment. Cockpit crew and maintenance technicians have to be trained. In the month of October alone, we took delivery of six aircraft. At this turbulent time there is no airline that acquires six aircraft in a month’s time. We need to work hard on staff training. We have to pay for the aircraft. There is what we call pre-delivery payment. This causes financial constraint. There is what we call service readiness. The preparation work is proceeding to put in place the required facility. This would escalate our cost. Coupled with the soaring fuel price, the situation is bleak.
Do you have an adequate number of professionals who can operate and maintain all these aircraft? What is your source of finance? You are also opening new routes. Some fear that you might be over-stretched. What is your comment on this?
The concern is appropriate. When we drafted Vision 2025 we thoroughly discussed the resources we need to grow fast. We evaluated the capacities we have. Some temporary problems should not be an obstacle to our long-term vision. When we plan a one-year plan it takes us a month. Every department discusses the details of its plan. Every department presents its plan. New fleet acquisition, the number of new routes that will be opened etc will be listed. In a top-down approach, the senior management team will pass the plan to all the concerned officials. After evaluating the plan, each department then comes up with its capacity. It reports what it can fulfill and what it lacks. We do not venture into what is beyond our capability.
But one thing has to be clear. We need to grow fast. We cannot keep going as a small airline. Even if we want, it does not work out that way. The giant airline will dominate and crash us unless we grow fast. The current business model requires you to be big.
Do you have an adequate number of professionals?
Yes we have. We have invested 42 million dollars on the aviation academy. Currently we are training 300 technicians at a time. In addition to our aviation academy, we are using the facilities of the Ethiopian Air force to train our pilots in Dire Dawa and Bishoftu. We are training technicians at the Ethiopian Air force and Defense College. We are also training more cabin crew and marketing professionals.
How many foreign pilots do you currently have?
We have about 70 foreign nationals.
From where do you get the aircraft financing?
As you know, the airline does not get financing from the Ethiopian government. Our government does not invest in the airline. It only provides the required assistance. The US EXIM bank grants loan guarantee for US manufactured aircraft. After we get the loan guarantee we float a bid inviting commercial banks to present their commercial loan proposals. So for Boeing aircraft we get 85 percent loan guarantee. For the Bombardier aircraft there is a Canada-based bank called EDC (Export Development Bank). EDC not only gives a loan guarantee but it also disburses loans. Eight-five percent of the loan is guaranteed and 12.5 percent is a commercial loan. We draw 2.5 percent from our coffer.
Your loan was amounting to seven billion birr. How much is it now?
Our total loan has reached 18 million birr. But we are servicing the loan according to schedule.
You were contemplating to order additional Dreamliner aircraft but Boeing is fully booked. And you were holding talks with Boeing. Any luck?
As you said, Boeing is fully booked. So we will lease three Dreamliners from IFLC. We will bring the aircraft in 2015.
Ethiopian’s first Dreamliner engine has been replaced. What happened?
When you have a new technology you will find some faults in it. Defects had been identified when B767, B777 were launched. Whenever you have new aircraft you will find some defects. That is very common. Problems will be rectified through time. We noted oil leakage in one of the engines. It is a GE engine. We have a team of experts drawn from GE and Boeing. There are about 43 experts based in Addis Ababa. They monitor the performance of the aircraft. We reported the oil leakage. They replaced some parts but could not stop the leakage. Then we requested them to replace it. They agreed and replaced the engine. Now the aircraft is operating efficiently.
How is the performance of the aircraft at Addis Ababa? Did the aircraft meet your expectations? How do you evaluate what you have been told when it was on the drawing board and what is delivered?
It is performing well. We are happy with its performance. The performance of the aircraft was included in the purchasing contract. In particular, its fuel efficiency is remarkable. It is very fuel efficient.
A number of African airlines such as Nigeria Airways, Air Afrique and Ghana Airlines have been liquidated. Ethiopian is growing fast. What is the secret behind your success?
There are a number of factors. For the sake of time constraint let me mention two factors. The major contributing factor is the dedication of the employees. Ethiopian staff love the airline. They are dedicated. They always put the company first. Whenever the airline is in trouble, they work harder. The second factor is management autonomy. The government respects our managerial independence. The government does not meddle in the day-to-day operation of the airline. I think that is very important. (The Reporter)
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