The head of one of Africa's most vibrant airlines says the continent has been especially hard hit by COVID-19 and also discusses conditions for resuming 737 MAX service.
A rush transcript of our interview with Ethiopian Airlines CEO Tewolde Gebremariam appears below.
Kurt Hofmann: Hello, ladies and gentlemen, and welcome to another interview for our Aviation Week Network ATW Leadership Forum. My name is Kurt Hofmann I'm a correspondent for ATW, and today I have the great pleasure to talk to Tewolde Gebremarian the CEO of the Ethiopian Airlines group in Addis. Tewolde, thank you so much for your time today.
Tewolde Gebremarian: Thank you, Kurt. Thank you for having me in your program.
Kurt Hofmann: Thank you to Tewolde. IATA just mentioned a few days ago that the air traffic in Africa will just reach around 30% compared to 2019, only 45 million passengers will fly throughout Africa, according to the pandemic, what do you expect? How the market, the LM market in Africa will change with this crisis? Is it a kind of moment of choose what we see now, also in Africa?
Tewolde Gebremarian: Kurt, thank you very much. You are right, the situation in Africa is very bad, perhaps it's worse than the rest of the world. So I share with what IATA released a couple of few days ago, but actually from what we have on ground in Africa is a little bit more data than was released because as you know, most African countries were closed until end of August. So that by itself, put us in a worse situation than the rest of the world, because that by itself means that we lost the summer peak that so the airline business, June, July, August, September are the much better months, peak months where you have peak traffic, you have peak revenue, you have peak profitability, and that's the period when most airlines make their money for the rest of the world.
But unfortunately, due to the COVID restrictions, travel the bonds and limitations. Although we expected many countries to open their airspace lift travel paths, lock downs and in general the restrictions in June that didn't take place again in July also didn't take place. So most of the countries opened on the second half of August and countries like South Africa, which is by far the biggest market opened in September. So that really, the fact that we lost the summer peak is a double disadvantage for Africa airlines for all of us. So now most countries have opened almost all except very few countries in Africa, but it means we are already entering the low season. October, November is a low season, and we do not have also much of a hope because as you know, the second wave in Europe and the United States is also another problem brewing.
So we don't know, maybe we have also second wave in Africa. So the December and January peak is also in a very doubtful situation. So I would say the African aviation industry is in a worse situation than the rest of the world, and the other issue, as you know, is most airlines in Europe and America are getting bailout money from their governments, or they are accessing the capital market by selling bonds and collateralized, but airlines in Africa do not have this opportunity. Their governments are not able to bail them out because of the very bad economic situations. There is no also capital market where they can access or debt or equity in any either form. So it is very, very bad in Africa.
Kurt Hofmann: Is this also a part why you're the partly privatization of Ethiopian Airline's is not postponed. I think there was the... Your finance minister mentioned recently it's better to keep Ethiopian Airlines under the government. Is this one reason for that?
Tewolde Gebremarian: Well, in case of Ethiopian Airlines, it has always been different carters.
Kurt Hofmann: Yeah.
Tewolde Gebremarian: I think Ethiopian Airlines has been growing in the last 10 years. You have been following as and all the success factors and the successes and the remarkable growth that we have been registered in the last 10 years, by all measurements, the airline has grown by four fold, four times from what it was in 2010. So that growth, that success has created a very strong foundation for the airline to survive the crisis. So you must have heard in the mainstream media, that Ethiopian Airlines is in a different category right now, meaning we have been able to manage the crisis without any bailout money, without any employee lay off or without any salary reduction of our employees. So I think we are a unique in the world in managing the situation with such success.
So the fact that the growth in the last 10 years, and also the business model, the strategies that we followed, especially the diversification, you and I have been talking a lot about Ethiopian Airlines diversification to cargo, MRO, academy, hotel. Whether it is the right strategy or not because many people have been questioning us, is it right to diversify so much to hotels? Because, many people have still... Many people remember the situation with Swiss air. What diversification did to the airline. You remember Swiss air, very strong airline, which was closed because of too much diversification. So many experts in the industry were warning us, whether we are over stretching too much diversification, but the crisis has proved that we have a very strong business model because diversification helped us.
In March, you remember March? Last March when every airline was closed, where every airline was suspended, we were the only airline using both cargo and passenger airplane to transport medical equipment, medical supplies for the Corona virus to Europe, North America, South America, Africa. So cargo demand was booming, and we were ready to take that demand to serve that demand. And as a result of that, we managed to survive this crisis with a very strong achievement. Otherwise, we didn't have any opportunity to access capital market or get any bailout money.
Kurt Hofmann: I think about 15% of your business is cargo, with this strategy you just mentioned and just a little example, the airlines here in Europe facing really in our tough time, and many of the airlines here will probably most need money again next year, after winter. Your strategy is it sustainable? So Ethiopian airlines can survive also the next very difficult period of time, what we can see now.
Tewolde Gebremarian: You are right. I agree with you, Kurt, we are going to survive because we are heavily investing in cargo.
Kurt Hofmann: Yeah.
Tewolde Gebremarian: I don't know if you have seen our cargo terminal, which is the largest in Africa and comparable to global cargo terminal in Changi or Hong Kong, or [inaudible 00:09:49]. We have the capacity to transport more than a million tons a year for pharma for all kinds of cargo. So we are also preparing for the vaccine now, coronavirus vaccine, when it is ready, we will be in the forefront in the leading position to transport the vaccine because we are prepared all the preparations.
We have very large cargo fleet as you know, 10777 and 2737 freighters. We have also now on the final stage to convert our 767 passenger aircraft to cargo, we're going to send them to IAI in Israel.
Kurt Hofmann: Israel.
Tewolde Gebremarian: For comparison or I will come to our descend to join until convert of the airplanes here. We are also discussing with the de Havilland to convert some of our key 400 to cargo for a short and small package. So that will put us in a better position to generate revenue and manage the airline finance cash flow until the passenger business recovers fully.
Kurt Hofmann: Yeah.
Tewolde Gebremarian: Because the passenger business recovery as you have observed is extremely slow.
Kurt Hofmann: Yeah.
Tewolde Gebremarian: And very frustrating.
Kurt Hofmann: Yeah. Especially, on the long, long haul segment. And you have a lot of long haul flights.
Tewolde Gebremarian: We have a very... in proportionate time in a long-haul is very large, whether it is to China, the United States, Europe, South America, we are a Longhorn care area,
Kurt Hofmann: But it is all effected. But Tewolde talking about fleets, we expect the 737 max to return quite soon actually to the airline business. I know after your tragic accident, you said "Ethiopian Airlines will be probably the last airline in the world to fly the max again." From your point of view today, what you can tell us regarding your opinion, the max, and a comeback with your airline
Tewolde Gebremarian: Kurt. Let me put it this way, our position has not changed because we had a very terrible accident. So we'll be the last one to fly the airplane. If we fly the airplane again, because the decision to fly the airplane depends on many factors for Ethiopian Airlines. Number one, it depends on the compensation that we are discussing with Boeing. We have not yet reached into an agreement, so that is a very, very important and deciding factor, whether we fly the airplane or not, hopefully we will finalize that. The second one is we understand the FAA is going to clear it, Canada and Europe is going to clear it. And then once it is cleared, we'll have to talk to our pilots, going to the airplane, to see the airplane. If it is correctly or adequately addressed all the problems, then we need to hear that from our pilots although the airplane is certified.
But again, we need to hear that from our pilots and our engineers, because we are an airline, a victim of the accident, as you know, the third factor is how do we go about to the next stage? Meaning we have four of them grounded here, and we have more than I think total 25 to 30 airplanes on order. So the order now needs to restructure because of the delay, so that by itself is a long discussion with Boeing. So because of the factors that I mentioned, we have not yet decided to fly the airplane.
Kurt Hofmann: Do you think about another narrow body aircraft. I think you need someday a new aircrafts again for this segment, do you think about the treatment in yours or some other aircraft models?
Tewolde Gebremarian: Yeah. Again, that depends on the outcome of the discussion on the 737. If we agree, if all our issues that I mentioned before are adequately addressed by Boeing, and we decide to continue with the max, then we don't need any other narrow body. If not, yes, we will need to look at the Airbus A320 or the A220, as you know, the previous CSeries airplanes, and so on.
Kurt Hofmann: Final question Tewolde, you own the airline for Africa, more or less, you have airlines in Mozambique, in Togo, in Malawi and so on recently, [inaudible 00:15:20] said to you they want to plan an airline in Ghana. What's about your project or talks with South African airways. For example, you can provide them with some help with some management support or maybe aircraft and how many markets you can see for Ethiopian airlines group in Africa, to help some governments or nations to establish an airline?
Tewolde Gebremarian: Kurt, we have many of them, as you know, we are in Togo with a very successful airline ASKY, by the way it's doing very well. They are using all their airplanes right now. And the load factor is close to 50%, which is much better than ours than the Ethiopian Airlines. We have also a small airline in [chat, 00:16:07] small airline in Malawi and another small airline in Mozambique and Zambia will also fly maybe December, mid December. So all we have the AOC, we have the airplanes and everything, we are also discussing in DRC, we also manage the Equatorial Guinea airline Ceiba.
Kurt Hofmann: Ceiba, yeah.
Tewolde Gebremarian: Well, yes, we are also discussing with South African airways, not airline to airline, but we are discussing with the minister of public enterprises, which is the supervisory ministry of the South African airways. We are making progress, but there are a couple of issues that we need to iron out. As you know, there is business rescue company hired.
So they are working on restructuring the legacy issues. But we have told them that we don't want to be involved with in the legacy issues. Legacy issues. By, legacy issues I mean about labor, about debt, about pre prior commitments and prior obligations. Our offer is to support them in restarting new airlines, because they have a plan to restart SAA as a new airline in 2021, beginning of 2021 next year. So we have offered them all the support for that airplanes, pilots, technicians, leadership, whatever is needed to restart the airline. So they need to make a decision because starting the new airline is one thing, but how to handle the legacy issues is another things.
Kurt Hofmann: Is another thing.
Tewolde Gebremarian: So they are also looking for some banks or some investors, which can take both together.
Kurt Hofmann: Right.
Tewolde Gebremarian: But Ethiopian Airlines is only involved in the new one.
Kurt Hofmann: There will be many other nations in Africa, which would need the support and experience from Ethiopian Airlines. Tewolde Gebremarian, the CEO of the Ethiopian Airlines group, Tewolde thank you so much for your time today and your insights about Africa and Ethiopian Airlines. I wish you all the best, a good recovery for your company and hub system in Addis and the... Ladies and gentlemen, wherever you are in the world thank you very much for following us again, look into this interview and take care and goodbye.
Tewolde Gebremarian: Thank you, Kurt. Thank you very much and I appreciate, and I thank you very much for your usual support.