Woes of Private Airlines

 By Kaleyesus Bekele

When Ethiopian Airlines acquired a state-of-the-art jetliner, the Boeing B787-8 Dreamliner in August of 2012, it took many by surprise. How can a poor country like Ethiopia become second next to Japan to own and operate the most sophisticated airliner in the world?
Ethiopian was the first African carrier to join the jet age in the 1960s by bringing the first B720 jetliner to Africa. Again it was the first airline in Africa to acquire the Boeing 767 in 1984. It was also the first carrier in Sub-Saharan Africa to place orders for the Airbus 350XWB in 2009.
The national flag carrier is still renewing its fleet, expanding its international and domestic routes and building its infrastructure tremendously. At a time when the global airline industry is traversing through turbulent times, Ethiopian has been recognized by the International Air Transport Association (IATA) as the largest carrier in Africa. Ethiopian became, for the first time in its 69 year history, the largest African carrier with revenue topping 2.3 billion dollars in 2013 and profit, according to the airlines ranking of the IATA published in the 58th edition of World Air Transport Statistics.
According to IATA's annual airline ranking published last June, Ethiopian ranks first in Africa and 37th in the world in revenue as well as first in Africa and 18th in the world in operating profit.
Ethiopian Airlines is a global Pan-African carrier currently serving 83 international destinations across 5 continents with over 200 daily departures and operating 66 modern aircrafts such as the B777 and B787. Ethiopian registered this remarkable growth at a time when mega carriers like Qantas and Air France KLM were declaring loss. What makes Ethiopian's success story unique is that it is a state owned company. One of the reasons often cited for most African airlines' failure is their state ownership. Ethiopian has disproved this logic.
Though Ethiopian Airlines has a glorious history that started in 1946, the general aviation in the country is at its infant stage. There are 16 foreign airlines that fly to Addis Ababa. However, it is only Ethiopian Airlines that operates scheduled domestic flight services in the country. Foreign airlines are not allowed to operate domestic flight services. Private operators until recently could not operate aircrafts that had more than 20 seats. Recently, the seat limitation was pushed to 50. Domestic flight service is only allowed for Ethiopian nationals. Foreign investors cannot invest in private airlines.
In 2011, the number of registered private airlines reached 26, out of which only six were active. Accordingly, the Ethiopian Civil Aviation Authority (ECAA), the regulatory body of the aviation sector revoked the licenses of 20 of the registered airlines on the grounds that they were not operational.
According to ECAA, currently there are 15 registered private airlines. Recently, the authority granted licenses to three new private airlines that are under preparation to launch flight services.
At the moment there are six private airlines that provide charter flight services-Abyssinian Flight Services, National Airways, Trans National Airways, Suhura Aviation, Amibara General Aviation and Zemen Flight Service. Amibara Aviation is a pesticide dusting company while Suhura Aviation provides cargo charter flight services. The rest provide charter flight services in Ethiopia and neighboring countries.
Ethiopia is a land locked country and air transport has a crucial importance. The road network and railway lines are not well developed yet and the rugged terrain of the country makes air transport an indispensable means of transport. Despite all these facts, the domestic airline industry is still at its infant stage.
Only a handful of private airlines provide charter flight services to construction and mining companies, tourists, the diplomatic community, government officials, and UN agencies. They conduct aerial services and air ambulance services. Compared to other African countries such as neighboring Kenya, Ethiopia's general aviation sector lags way behind.
According to private operators, the general aviation sector is facing several challenges. Capt. Amare G\Hana, deputy managing director of Abyssinian Flight Services, says that there is no conducive environment for the general aviation business. According to Capt. Amare the first and major problem is that the country does not have a national air transport policy. "What should be the role of the general aviation in Ethiopia? What is the government's stance towards private investment in the aviation sector? It is not clearly stated. I heard that the Ministry of Transport is preparing a national aviation policy. But we do not have detailed information about it. If we get the chance to read the draft we will comment on it," says Capt Amare.
All the private airlines are based in Addis Ababa and there is only one airport in the capital city-Addis Ababa Bole International Airport. There is only one airport that accommodates all of the international, domestic and charter flight services. A wide-body aircraft as big as a B777 and a light aircraft as small as a single engine Cessna use the same runway at the airport.
"Those of us who operate light aircrafts have to wait for the big aircraft to take off," says Capt Amare. "Addis Ababa is the political capital of Africa. As it is the seat of the African Union there is a high concentration of diplomatic missions, Addis probably has the third highest number of diplomatic missions next to New York and Geneva. But there is only one airport in the city. There is no other airport dedicated for general aviation."
The private airlines do not have a maintenance hangar at the airport. Abyssinian Flight Services asked the Ethiopian Airports Enterprise for a plot of land where it can build a maintenance hangar 14 years ago. "It is only very recently that we got a positive response from the enterprise. We participated in a bid and won a plot of land for the construction of a maintenance hangar. There are yet pending issues to secure the land and start construction," Amare says.
CEO of the Ethiopian Airports Enterprise, Tewodros Dawit said that there was no legal framework that enables the enterprise to grant land to anyone. "Recently, we prepared a directive that allows private operators secure space for the construction of a maintenance hangar. And we will soon be able to grant land to the private operators. But we will not give the land to all applicants. There are things that we consider. Some of the applicants do not have the capacity to build a maintenance hangar. We have our own evaluation methods. We grant the land to those who are really committed to develop their business," Tewodros said.
Capt Abera Lemi, CEO of National Airways, says the general aviation is a sector that is highly regulated and under-supported. "The government does not give due attention to general aviation. It could be lack of awareness," Capt Abera laments. "The government is striving to develop the agriculture, manufacturing and tourism sectors. Why not the aviation sector? It could be lack of awareness. They do not seem to understand the importance of general aviation. The government is committed to develop the tourism sector. The general aviation could support the tourism sector if there is a conducive environment for it to grow," Abera says.
Capt. Abera comments "Many people in the government do not understand the role the general aviation sector could play in the economic development of the country. "When you speak to some of the government officials about the aviation sector they tell you about Ethiopian Airlines. When we ask permission they ask us if we have consulted with Ethiopian Airlines. Ethiopian Airlines is an operator like any of us, even if it is 100 percent owned by the government."
Finance is the other major problem facing the general aviation sector. The private operators claim that the local banks do not have a clue about aviation. Capt. Amare says executives of the banks do not even know how to extend loans to airlines. "When we went to the biggest commercial bank in the country asking for a loan for aircraft purchase we got a big no. Executives of the Commercial Bank of Ethiopia asked us funny questions. What if the aircraft crashes? What if it flies out of the country and never gets back? This shows you that there is no awareness at all at the banks," Capt Amare said. The National Bank of Ethiopia allows limited businesses to access foreign financing and this makes it harder for private operators to access financing.
Capt Abera says the sector is highly regulated. "We are not allowed to operate an aircraft with more than 50 seats. Today you do not easily find aircrafts with less than 50 seats. Even if you find some, you cannot be profitable with such a small aircraft. How can we venture into scheduled flight services?"
Capt Abera says the government wants to protect Ethiopian Airlines. "Ethiopian is globally competing with mega carriers like Emirates. How can we small private airlines be a threat to the national flag carrier?" Abera asks.
CEO of Ethiopian Airlines, Tewolde Gebremariam, says that his management has no objection with the domestic market being liberalized. "The issue does not have anything to do with Ethiopian Airlines. We are not making money from our domestic operations. In fact we subsidize the domestic services from the revenue we generate from international operations. As a national carrier we are obliged to offer affordable fares on domestic routes. Do the local private operators have the capacity to launch scheduled services? No, I do not think so," Tewolde said.
Tax is another debatable issue. The private operators claim that there is no clear written information regarding customs duty that private airlines should pay to the government. They claim that based on the country's investment law they were supposed to be exempted from customs duty for aircraft parts that they import from abroad. "However, we often engage into disagreements with the Ethiopian Revenue and Customs Authority because of tax issues," they said.
General manager of Amibara Aviation, Capt Biniyam Birbo, says that his company was requested to pay customs duty for the spray aircraft that it imported some time ago. "Tractors are imported free of customs duty. How come you tax a spray aircraft? Both are machines used for farming. But we were forced to deposit a huge sum of money at the customs authority until the issue was resolved for a long time. And our money was tied up," Capt Biniyam said.
Col. Wossenyeleh Hunegnaw, director general of the Ethiopian Civil Aviation Authority, on his part said that the government wants the general aviation sector to prosper. According to Wossenyeleh, the major problem is the absence of a national air transport policy. "Though the country has a long aviation history, to date it does not have an air transport policy that governs the aviation industry," he said. Adding that for the first time the authority, in collaboration with the Ministry of Transport is formulating the national air transport policy. "The transport policy would address all the concerns of the private operators," he commented.
The local private operators also cry for market protection. The private airlines said that charter flight service providers come from other countries and operate in Ethiopia though the ECAA's regulation does not allow foreign airlines to operate. The foreign companies take millions of dollars every month. "We cannot go to Kenya and operate there. But Kenyan registered aircrafts are providing charter flight services in Ethiopia," Capt. Abera said. Capt Amare agrees with Capt. Abera's view. "While we (the local operators) can provide the service, foreign companies are taking the business. We pay tax to our government. We employ native people. But the foreign companies come and take a huge portion of the small pie," Amare laments.
Col. Wossenyeleh denies the accusation. "We give priority to the local operators. However, the capacity of the local private airlines is limited. When foreign mining and construction companies are unable to find the type of aircraft they require, we allow them to bring a foreign operator," he said. The private operators demand that they need to sit down with senior government officials (policymakers) and discuss the fate of general aviation.

Source: AllAfrica.com