No clipping Ethiopian's wings

24 March 2019 - 05:03 By OMAR MOHAMMED


Financiers, passengers and industry partners are, for now, still backing Ethiopian Airlines' quest to become Africa's dominant carrier, despite the crash this month that killed 157 people.
The causes of the Flight 302 tragedy will likely take months to establish. While much of the international focus has been on US aviation giant Boeing and its 737 MAX-8 jet, the airline's reputation could also hinge on the results of the investigation.
Although crash inquiries focus on preventing future accidents rather than attributing liability, any findings that the carrier fell short in maintenance or piloting could be damaging. For the present, passenger confidence in Ethiopian Airlines, long regarded as one of Africa's most reliable carriers, has remained steady, according to the company.
Cancellation and booking rates are unchanged since the crash, said spokesperson Asrat Begashaw. "We are operating as normal," he said.
Two banking sources with knowledge of the matter said that, barring a major new twist in the investigation, banks were still comfortable lending to Ethiopian Airlines.
"Ethiopian is a solid company," said one, an official from an international bank that helped finance the acquisition of some Ethiopian Airlines planes. A vote of confidence from lenders is important for the airline because its rapid expansion has largely been financed by international borrowing.
The second source, a top European aviation banker, said Ethiopian Airlines was "a good airline, with a good reputation".
"So unless it [the crash] is a major problem of piloting or maintenance - and it is far too early to talk about that - they will still have access to financing," the source added.
Ethiopian Airlines has borrowed from foreign banks including JP Morgan, ING Capital and Societe Generale over the past decade. It also has outstanding bonds worth $540m (R7.8bn), though none due until 2024.
The loans helped the airline buy stakes in, or establish partnerships with, at least four African carriers. This established hubs to feed traffic into Addis Ababa, which last year overtook Dubai as the main gateway for long-haul passengers into Africa.
The airline's fleet grew from 35 planes in 2007 to 111 in 2019. It now flies to more than 119 international destinations, up from 52 a decade ago.
The expansion has made the state-owned carrier, founded in 1945, the most profitable major airline on the continent. Ethiopian's net profit in the 2017-18 financial year rose to $233m from $229m the previous year; operating revenue jumped 43% to $3.7bn.
Last year, prime minister Abiy Ahmed announced plans to sell a minority stake in the airline as part of a broad strategy to open up the country to foreign investors.
Industry analysts said it was too early to evaluate the impact of the crash on the airline's long-term plans.
"It's a very strong management team, with good vision," said Nawal Taneja, of Ohio State University's Center for Aviation Studies. "We've got to look at the strength of the airline as a whole, not just this incident."
Analysts said the Flight 302 crash was unlikely to damage Ethiopian's partnerships with African carriers, key to a strategy that helped increase passenger numbers from 2.5-million a decade ago to 10.6-million last year, or with other industry players.
The crash, which saw the Nairobi-bound flight go down minutes after take-off from Addis Ababa, triggered a global grounding of 737 MAX planes, wiping about 10% off Boeing shares. Investigators have noted similarities with another deadly crash in Indonesia five months ago involving a plane of the same type owned by Lion Air.
Ethiopian Airlines, which grounded its handful of remaining 737 MAX planes, said it would decide whether to cancel orders for 29 others after a preliminary investigation. Analysts said it was unlikely that the carrier would cancel the orders, worth $3.5bn at the current list price, because Boeing would have to fix any problems before regulators permit the jet to fly again.
Boeing will be keen to retain the airline as a customer; more than half of Ethiopian's fleet are Boeing jets.
"Ethiopian have been very loyal to Boeing in the past," said Phil Seymour, CEO of the IBA Group, an aviation consultancy. "They will be in control of the conversation with Boeing now," he added. "I would suspect that the business decision is to stick with the order."
Reuters

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