Ethiopian Isn't Getting Further With Its Possible SAA Joint Venture

Simple Flying

By Pranjal Pande

Published Feb 11, 2021

A consignment of masks, testing kits and protective gear, a donation from the Chinese billionaire and Alibaba co-founder Jack Ma, are unloaded from a cargo plane operated by Ethiopian airlines on March 24, 2020 after it arrived at the Jomo Kenyatta airport in Nairobi to help enhance capacity at the COVID-19 coronavirus infection testing centres in Kenya. - As the global pandemic takes root in Africa, Chinese billionaire Jack Ma announced he was donating 20,000 testing kits, 100,000 masks and 1,000 protective suits to each of the continent's 54 countries (Photo by TONY KARUMBA / AFP) (Photo by TONY KARUMBA/AFP via Getty Images)

Ethiopian Airlines is struggling to move forward with talks to form a joint-venture with South African Airways. CEO Tewolde Gebremariam said despite discussions, Ethiopian has not made the progress it expected to at this point. SAA currently remains grounded as the government bails out the carrier and attract partners.

Challenging

According to a report in FlightGlobal, Ethiopian Airlines is not happy with the progress it has made with the South African government over a potential SAA joint-venture. The Ethiopian flag carrier offered resources like aircraft and crew to get the airline back on its feet in October. In exchange, it wanted to become a partner in the newly revived carrier.

However, talks with the government have not gone as hoped, with CEO Tewolde Gebremariam saying, "We are still discussing, but I would say it has not made the expected progress." The comment signals that the airline and government are yet to come to an agreement even after months of discussions.

South African Airways SAA A340 — The long-running SAA saga has involved dozens of state bailouts. Photo: Getty Images

Since March, SAA has found itself in a state of limbo after the carrier grounded all flights and saw management exit. While it did carry on a series of cargo and repatriation flights, its commercial operations remained out of reach. However, it was once again grounded in September after running out of funds and entered bankruptcy protection.

Still alive

Despite SAA's long history of financial difficulties, the government has decided to fund the airline further and keep it alive. The carrier received a government bailout and is undergoing a business restructuring plan. This is where Ethiopian enters the frame.

The African giant offered to joint-venture with the South African government to bring SAA back to the skies. Explaining the move, Ethiopian's CEO said that South Africa is a unique market. Unlike Ethiopian's Addis Ababa connecting hub, South Africa has an origin and destination-based traffic model.

/wordpress/wp-content/uploads/2020/04/GettyImages-1170323814-1000x667.jpg — Photo: Getty Images

Moreover, some of the world's biggest carriers serve South Africa (from British Airways to Cathay Pacific), making it a competitive market. To break in, Ethiopian plans to tie-up with SAA and win from inside the country.

Support

While Ethiopian does want to make a deal with SAA, it is holding back on some terms. For instance, the airline does not want to take on SAA's historical debt and liabilities. Instead, it plans to act as a value-add, providing the newly-restructured airline with planes, maintenance, crew, and more. This allows Ethiopian to secure an equity stake without forking out millions of dollars in such a difficult time.

Ethiopian Airlines Boeing 787-8 Dreamliner Addis Ababa Bole International Airport Ethiopia — Photo: Getty Images.

However, this week's comments cast doubt over when and if Ethiopian Airlines will be a part of SAA's future. Currently, South African Airlines is unlikely to resume operations until July, still giving Ethiopian a chance to make a deal.

What do you think about a potential tie-up between the airlines? Let us know in the comments!