Max Disaster Pits Boeing Against Ethiopia’s Prized Carrier

ACCRA (Capital Markets in Africa) – African air disasters always used to lead to the same conclusion — with the airline blamed for poor maintenance, ancient planes or poorly trained pilots, and often a combination of all three.

But when an Ethiopian Airlines Boeing Co. 737 crashed near Addis Ababa last month, a curious thing happened: Industry experts immediately began to question the safety not of the carrier, but the plane itself.

The focus on Boeing’s new Max jet, rather than the perceived unreliability of an emerging-market airline, has a lot to do with the model’s two fatal — and strikingly similar — crashes within five months. But it also speaks volumes for the strides made by an African carrier that’s thrived against some of the biggest names in global aviation, in some of their most competitive markets.

“Ethiopian has long taken the crown as the best airline in Africa but is also well regarded globally,” said John Strickland, an aviation analyst at JLS Consulting in London. Chief Executive Officer Tewolde GebreMariam “has had a long career in the industry and has overseen fleet investment and impressive network development strategy.”

Uniquely Profitable
Boeing hit a setback on Thursday, when Ethiopian authorities defended the pilots of Ethiopian Airlines Flight 302, saying the 737 Max 8 plane crashed on March 10 despite the cockpit crew having followed Boeing’s safety procedures. During the press briefing in Addis Ababa, Ethiopian Transport Minister Dagmawit Moges also called on Boeing to review its aircraft control system. Still, the officials stopped short of saying the plane has a structural problem.

That Ethiopian has mostly evaded criticism is partly due to the success of an airline founded more than half a century ago under former Emperor Haile Selassie. The carrier has expanded beyond its home market with a hub model that pulls in passengers from around the world to Addis Ababa and sends them onward to cities across sub-Saharan Africa.

The strategy has made Ethiopian the continent’s biggest airline and its only consistently profitable one, a beacon of corporate free-thinking in a region where flag carriers are often government playthings. That’s despite being 100 percent owned by the Ethiopian state.

Ethiopian has focused on transfer traffic in a similar manner to Persian Gulf carriers such as Dubai-based Emirates — connecting global cities from Buenos Aires to Shanghai with over 60 African destinations. It’s also built a network of subsidiaries and minority holdings in more than a dozen countries from Togo to Malawi that helps feed even more passengers through Addis Ababa, driving average passenger growth of 21 percent in 2018 to 10.6 million.

The fleet is dominated by new aircraft models including the Boeing 787 Dreamliner and Airbus SE A350 wide-bodies, as well as 737s. And alongside the hub strategy, the carrier has tapped into Ethiopia’s booming flower industry, exporting stems to mainly European countries.

International Problem
“This is the symbol of the country,” said Ahmed Zekaria, chief curator at the Institute of Ethiopian Studies museum in Addis Ababa. The crash that killed all 157 on board “is a really sad story, you can’t forget, but it’s not our mistake. It’s now an international problem that Boeing has to handle.”

The 737 Max model has been grounded worldwide, putting billions of dollars of orders in jeopardy, and U.S. investigators are reviewing whether any corners were cut as Boeing raced to get the plane to market. Meanwhile, European rival Airbus is filling its boots, securing a $35 billion jet deal from China.

Founded in 1945, Ethiopian successfully resisted state pressure to switch allegiance from Boeing to Russia’s Ilyushin aircraft during Marxist rule. Under the more liberal regime of Prime Minister Abiy Ahmed, who surged to power just over a year ago, the ruling politburo slated the carrier for partial privatization as part of a wider opening up of state monopolies — but the plans remain at an early stage.

Notwithstanding the proposal for a stake sale, the government’s iron grip is a risk to governance at the airline, even if that wasn’t a cause for the Boeing crash, according to Captain Franz Rasmussen, who flew with Ethiopian for two years from July 2014.

Andrew Herdman of the Association of Asia Pacific Airlines talks about last month’s crash of a Boeing 737 Max jet.

Ethiopian is a major contributor of government revenue, he said by the phone from the U.S. “So if they say jump, the Civil Aviation Authority jumps. Nothing interferes with the flow of money. I think that’s a very bad set up. There are no checks and balances.”

In a throwback to a more authoritarian past, pilots are banned from talking to the media about last month’s crash pending the outcome of the investigation.

“Doing so would be against the law of the country,” Yohannes Hailemariam Seifu, vice president of flight operations, said in a memo to pilots seen by Bloomberg. Another note said that discussing the crash would be a cause for automatic job termination.

Gagging Policy
“This is normal company policy,” Yohannes said by phone. “Nobody can give any information.”

Yet so effective is the Ethiopian Airlines model that the carrier has been profitable every year this decade, a run unique in African aviation, where relatively low levels of travel, limited business demand, and fleets dominated by inefficient planes make it almost impossible to make money.

Addis Ababa has also become an African center of expertise for the industry, with a recently expanded pilot school and world-class maintenance facilities that service planes from as far afield as Mozambique and Nigeria.

“Of course it’s not like Emirates or Etihad Airways because of the back-up or finance but this airline is doing very well,” said Afework Telila, an Etihad pilot who used to fly for Ethiopian. “Its connection in Africa is one of the best, nobody has that kind of connection. You want to travel in Africa, you don’t have to think twice.”

Source: Bloomberg Business News