Ethiopian Airlines interested in stake in South Africa's state-owned carrier

South African Airways needs to repay 9.2 billion rand to banks

A man cycles past Airbus Group NV A340, left, and A330-200 aircraft operated by South African Airways at O.R. Tambo International airport in Johannesburg, South Africa, on Tuesday, Feb. 24, 2015. South African Airways is close to a 1.25 billion-rand ($107 million) savings target after renegotiating airline leases and supply contracts, canceling two long-haul destinations and reviewing the route of Washington D.C. flights. Photographer: Waldo Swiegers/Bloomberg
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Ethiopian Airlines Group would consider buying a stake in South African Airways — should South Africa decide to sell equity in the struggling state carrier.

SAA hasn’t made a profit since 2011 and last week delayed the release of annual earnings due to its precarious financial state. While the ruling African National Congress has frequently said that it would consider selling equity in the airline, there’s been no visible strategy for such a plan, said Tewolde GebreMariam, the chief executive of Ethiopian, Africa’s biggest and only consistently profitable airline.

“We are interested in supporting South African Airways,” he said in an interview at Ethiopian’s head office near Addis Ababa airport. If South Africa asked Ethiopian to buy a stake, “we would consider it” Mr GebreMariam said.

Ethiopian and SAA are already partners in the Star Alliance.

The group had discussions with SAA’s former chief executive, Vuyani Jarana, before his resignation in May, Mr GebreMariam said. A deal may involve help with SAA’s chronic debt problem, with banks withholding further loans until the airline can present a repayment plan for 9.2 billion rand (Dh2.25bn) of borrowings.

SAA hasn’t yet appointed a permanent replacement for Mr Jarana.

The parlous financial state of South Africa’s weak state-owned enterprises is weighing on the economy, with Finance Minister Tito Mboweni having little choice but to allocate additional funds to debt-ridden companies, from power utility Eskom Holdings to the South African Broadcasting Corporation.

Ethiopian is Africa’s biggest aviation success story, with main rivals SAA and Kenya Airways struggling with losses and relying on government support. The company has looked to invest in other airlines around the continent, including new carriers planned for Ghana and Zambia.

“We have recently signed a shareholders agreement with the Ghanaian government,” Mr GebreMariam said. “Hopefully it will be up and running in the next six months.”

In contrast, SAA is cutting routes and needs 2bn rand alone to fund working capital for the remainder of its financial year through to March 2020. The airline has been held back by mismanagement and corruption, particularly during the scandal-hit presidential tenure of Jacob Zuma.

African operators now have 20 per cent of the continent’s market, compared with 60 per cent two decades ago, mainly due to the growth of Gulf-based carriers, Mr GebreMariam said.

“It’s a continuous decline,” Mr GebreMariam said. “If it is not addressed by African carriers — it may become zero.”