Category Archives: Ethiopia

Another Ethiopian Airlines Dreamliner First

Last week, Ethiopian Airlines welcomed a new Dreamliner model, the Boeing 787-900 at their base in Addis Ababa. Group CEO Ethiopian Airlines, Mr. Tewolde GebreMariam, said “Our investment in latest technology aircraft such as the 787 and (Airbus) A350, which makes us among the very few airlines in the world to simultaneously operate these two most cutting edge airplanes, is part and parcel of our Vision 2025”

The strategic plan consolidates seven business units including maintenance & repairs, cargo, training, hotels and ground services at the airline which has registered 25% annual growth over the last seven years.

Ethiopian currently has 92 aircraft with 60 on order, and operate from three hubs in Africa (Addis, Lome, Lilongwe) flying to 100 destinations on 5 continents. The fleet includes 20 Boeing 787-800 which have 271 seats, and the new  Boeing 787-9, which is 20 feet longer than the 787-8, will carry 315 passengers and has more cargo space.

Ethiopian was the first airline outside Japan to operate the Boeing 787 in 2012 and also the first African airline to operate the Airbus A350 in 2016. There has been discussion about the diverse fleet at the airline with some expectation that ultimately their long-haul fleet of the future will comprise Boeing 787’s and Airbus A350’s.

Ethiopian Airlines merges with Addis Hub Plan

Last month, Ethiopian Airlines announced that the Ethiopian government had decided to create a new Aviation Holding Group that would include the airline as a centre point.

.. (the)  new Aviation Holding Group with various diversified aviation strategic business units like: Ethiopian Airports Enterprises, Passenger Airline, Cargo Airline and Logistics Company, Ethiopian Aviation Academy, Ethiopian Inflight Catering Services, Ethiopian MRO Services, Ethiopian Hotel and Tourism Services etc.

It will promote customer services by a marriage of passenger inflight experiences with service on the ground at Addis Ababa, Ethiopia. The model seems to be along the lines of Dubai, and is one that Kenya Airways management has lamented about the need to also have at Nairobi –  and getting Kenya’s national airline aligned with other sectors of the airport and city for Nairobi to be a true aviation hub.

The ultimate aim is to upgrade the customer experience at the airport to meet global standard and thereby making ADD (Addis) airport the best connecting hub in Africa.

More from this Addis Fortune newspaper article:

  • The merger, which is said to be requested by the leadership at Ethiopian Airlines, gave the Group a mandate of providing airport services without discrimination including constructing, expanding, maintaining and managing airports, according to its establishment regulation.
  • Established with an authorised capital of 100 billion Br, the Group was formed after the approval of the regulation by the Council of Ministers. Before the merger, a committee chaired by Sufian Ahmed, an adviser to the Prime Minister and Tewolde, made a feasibility study to draft the regulation.
  • Founded in 1945, Ethiopian Airlines claims to be sub-Saharan Africa’s largest carrier with more than 95 international and 21 domestic destinations. In 2014/15, Ethiopian Airlines earned a net profit of 3.5 billion Br, which makes it among the highest profit earning state-owned enterprises in the country. During the same period, the Airports Enterprise also netted a profit of over half a billion Birr.
  • One of the major goals of the merger of the two state-owned enterprises is also raising the efficiency of the airports and profit.

EAVCA: East Africa Private Equity Snapshot

Ahead of the 3rd Annual Private Equity in East Africa Conference, (taking place on June 15 in Nairobi) the East Africa Private Equity & Venture Capital Association (EAVCA) and KPMG East Africa released their second private equity survey showing increased funding and activity, and with a lot more opportunity for deals to be done.

They estimated that of the $4.8 trillion raised between by P/E funds globally between 2007 and 2016, about $28 billion was raised by Africa-focused funds and $2.7 (including $1.1 billion in 2015-2016) had been earmarked for investment activity in East Africa.

This private equity had funded over 115 deals in the period that were included in the survey. Out of these  the 115 deals, 23 were agri-business, 20 were financial services, 13 manufacturing, and 12 FMGC representing 59% of deal volume. The average deal size had also grown to the $10-15 million range, while in the initial survey it was below $5 million.

East Africa Private Equity Survey

Of the 115 deals, Kenya had 72 deals (63% of the total), Tanzania 19, Ethiopia 8, Uganda 12, and Rwanda at 4. Some of the large deals in the survey, by country, include:

Rwanda: Cimerwa – PPC ($69M), Cogebanque ($41M), BPR-Atlas Mara ($20M), Pfunda Tea ($20M)
Uganda: topped by oil deals CNOOC and Total SA (both $1,467 million), Tullow $1,350M, Total $900M, CSquared-Mitsui $100M, Sadolin-Kansai $88M
Ethiopia: National Tobacco – Japan ($510M), Meta Abo-Johnnie Walker ($255M), Dashen-Duet ($90M), Bedele-Heineken ($85M) and Harar-Heineken ($78M), Tullow-Marathon ($50M)
Tanzania: Africa Barrick Gold ($4,781 million), Tanzania – Pavilion ($1,250M), Vodacom ($243M), Export Trading Co ($210M), Millicom-SREI ($86M), Zanzibar Telecom-Millicom ($74M)
Kenya: Safaricom-Vodacom ($2,600 million), Africa Oil-Maersk ($845M), I&M-City Trust ($335M), Ardan-Africa Oil ($329M), Kenya Breweries-EABL $224M, UAP-Old Mutual ($155M), ARM Cement-CDC ($140M), Wananchi ($130M), CMC-AlFuttaim ($127M), Essar ($120M)

P/E operations: There are about 72 funds operating/focused in East Africa (up from 36 in the first survey) with over 300 employees. 89% of the survey respondents have a local presence in East Africa.

Some of the fund companies that responded to the survey include Acumen, Abraaj, AfricInvest, AHL, Ascent, , Catalyst, Centum, CrossBoundary, Grofin, Emerging Capital Partners, Kuramo, Metier, Mkoba, NorFund, Novastar, Phatisa, Pearl Proparco, Swedfund, and TBL Mirror

Returns:  Of  the deals done, survey responders had an average IRR target was 22% while the actual IRR achieved was 19%.  There were 34 exits between 2007 and 2016, with increased recent activity; 2014 (had 7), 2015 (7) and 2016 (6). The preferred mode of exit is sale to a strategic investors (preferred by 78% while this mode accounts for 38% of exits) followed by share buy backs (32%), then sales to another P/E (21%).

Many of the funds in the region are still in early stages, and 54% have made nil returns to their investors. They surveyors estimate there are more opportunities for Africa private equity in health, education, retail, and manufacturing sectors.

Atlas Africa Exits

In axhe post today was a shareholder circular from Atlas Africa Industries. Its’ been online (PDF) for a few weeks and outlines Atlas plan to dispose of an Ethiopian project to another shareholder.

Ethiopia Venture

  • In December 2005, Atlas announced the acquisition of  East Africa Packaging Holdings Limited and its Ethiopian subsidiary TEAP Glass PLC with plans to build a new stateoftheart glass bottle manufacturing facility, on a 5.5 acre site located in Chancho, 45km north of Addis Ababa, Ethiopia (the Chancho Project)
  • (But) the Company’s progress was terminally undermined and derailed by the actions of the Ethiopian Revenue and Customs Authority (“ERCA”).. (and) .. was subjected to a complete injustice, through the summary removal of approximately US$2.4 million from TEAP’s bank account with the Development Bank of Ethiopia by ERCA (the “TEAP Claim Amount”).
  • In April 2017 disposal of the Chancho will be effected by the sale to Innovative Africa Investments Limited (“IAIL”) and Eagle Investments Limited, being independent shareholders.. the losses attributable to the assets being disposed of pursuant to the Disposal during the last financial period (12 months ended December 2015) amount to US$254,216.

This Ethiopia disposal and the resignation of I&M Burbidge Capital who terminated their investment advisory contract is to be voted on at the Atlas Africa AGM which will be held on June 20, in Guernsey, where the company is incorporated. It seems that the I&M Burbidg notified Kenya authorities and as a result of this, the shares of Atlas that are listed at the Nairobi Securities Exchange were frozen on May 12 this year, just a few days before the Ethiopia disposal was then announced.

At another AGM this week of the Nairobi Securities Exchange, itself a listed company, some shareholders took the opportunity to vent about the dismal performance of Atlas Africa whose share price had plunged sharply since it was introduced, and which was now beyond reach of its Kenyan shareholders.

Farewell Atlas: The circular notes that  The board (has) taken the decision to undertake a managed and controlled winddown of the group, with a view to ensuring that liabilities are settled and assets are realised whilst cash outlay is reduced, with a view to returning any surplus to shareholders in due time. As part of this process, the board also believe that the Company is likely to delist from GEMS, and further announcements will be made with a proposal in this regard, in due course.

But is Atlas Africa a shell? This Global Witness article is about how directors, hiding behind anonymous firms registered in tax havens, carry off a multi-million-dollar heists by selling assets they already control to shareholders of their listed companies at inflated prices. They never declare their secret ownership – and ordinary investors had no way of knowing.

Reading the African Tea leaves at Global Airlines

From this recent article about Ethiopian Airlines, it was shocking to learn that African airlines now account for about 20% of air traffic to and from the continent, down from 60% three decades ago. This was according to Ethiopian Airlines Group CEO Tewolde Gebremariam.  According to the Wikipedia, which has a list of the largest airlines in Africa by passenger numbers (2013), the top African airlines are:

1 EgyptAir 11.8 million (M) passengers
2 South African Airways 9.5M
3 Royal Air Maroc 6.2M
4 Ethiopian Airlines 6M
5 Air Algérie (4.4M in 2012)
6 Tunisair (3.8M in 10212)
7 Kenya Airways 3.6M
8 Arik Air 2.8M
9 Air Mauritius 3M
10 Libyan Airlines 1.3M

But what does Africa mean to these and other airlines? How does Africa impact these airlines financially? For some it’s clear, but for others, it’s difficult to judge as  many carriers lump their (tiny) African operations with Middle East and South Asia. Also, many airlines are state-owned and do not disclose investor levels of information that is useful for comparison.

A recent Qatar Airways financial report notes that the aviation industry in Africa is still in its early stages of development meaning that the continent is poorly served by its own national airlines. But alongside traditional extraction of natural resources, manufacturing, tourism and infrastructure investments are rising, which bodes well for the future economic and political stability of the African continent. Increasing air-connectivity between Africa and the rest of the world will drive economic growth. Another one from Ethiopian notes that jet fuel is 21% more expensive in Africa compared to the rest of the world.

Here are extracts from the annual reports and official releases of the various airlines:

Air Algerie: Flew 5 million passengers on 56 aircraft.

British Airways: Flies to 16 destinations in Africa.

Chinese Airlines: Have only recently started flights to Africa, and travel between Africa and China is mainly by African airlines and the gulf carriers. Of the six state-owned airlines, Air China flies to Ethiopia and South Africa, while China Southern flies to Kenya.

Egypt Air: Their report notes that African airlines not able to achieve adequate load factors except on a few routes and the airline operates in a territory that has lots of disruptions, cancellations, and flight & route changes due to security. The state airline comprises an international airline, a local airline, industrial training, ground handling, medical, in-flight catering, and other arms. It had 2015 revenue of 17.7 billion pounds (~$2.5) billion of which 7.5 billion pounds was from airline passenger flights in which they carried 7.4 million passengers (plus another 1.2 million in the sister domestic airline). 52% of their revenue is from the Middle East was 52%, followed by 21% from Europe. No number is given for ‘Africa’ but the report notes that African revenue declined 25% from 2014.

Emirates: Now flies to 154 cities in 83 countries. In 2016, revenue from Africa was 9 billion AED (~$2.5 billion), a 3% decrease from 2015. Africa accounts for 11% of Emirates overall revenue of their 84 billion revenue. 29% comes from Europe, 27% from East Asia, 14% from America, and they only get 10% from the gulf & Middle East – a truly international airline. Also, Dubai Tourism statistics show that only 5% of visitors to Dubai are from Africa, led by Egypt (239,000) and Nigeria (139,000). Emirates get 32% from travel services, 27% from UAE airport operations, 20% from international airport operations, and 18% from catering. 

Ethiopian Airlines: Flies to 49 destinations in Africa. It had 2015 revenue of 49 million birr (~ $2.1 billion) and 3.5 billion birr (~$160 million) profit, and is one of the few consistently profitable airlines on the continent. They have huge investments in Asky Airlines (ECOWAS airline based in Lome that flies 10 000 passengers a week to 22 destinations in 20 countries of West and Central Africa) and Malawi Airlines. Another post mentions that Ethiopian Airlines has proposed a joint pan-African airline for the  under-served Southern and Central Africa regions to the governments of Zambia, Zimbabwe, Uganda, Rwanda, Namibia, DRC and Botswana.

Etihad Airways: Own 40% of Air Seychelles and flies to 166 destinations using 120 aircraft (2014). Has 49 code-share partnerships including with Kenya Airways, South African, and Royal Air Maroc. Their 2014 revenue was $7.6 billion, with a profit of $73m profit (no further breakdown).

Kenya Airways: In 2015, 49% of its Kshs 110 billion ($1.2 billion) revenue was from the rest of Africa (down from 52%). 22% was from Europe, 19% from Asia and 10% from local flights in Kenya. So is KQ’s dependence on Africa is a drawback?

Lufthansa: Flies to 17 destinations in 14 countries in Africa. In 2015, it had 583 million euros (~$608 million) of revenue from Africa (unchanged from 2014), and this is about 2% of their overall revenue.

(Air) Mauritius: In 2015, had 490 million euros of revenue (about $600M) and a net profit of 16.5 million euro (compare to a loss of 24 million euros the year before) They carried 1.5 million passengers and flew to 23 destinations. Europe has been their main market (34% of revenue) followed by Asia 32% (they have the largest Asian network of any African airline). In Africa, they fly to 6 destinations, and 29% of their revenue is from a combined Africa/Middle East/Indian Ocean zone, earning 39.5 million euros ($49 million). The flew 247,000 passengers in Africa, a 10% increase.

Qatar Airways: Flies to 26 African destinations (our of 150 total) and plans to add more in Africa and India which they expect will be the largest growth markets in the near to medium term. In 2016, they carried 26.6 million passengers.

South African Airways: Generated 589 million rand (~$42 million) from its African routes and notes that Africa continues to have strong underlying growth. They had a fleet of 50 aircraft in 2016 and are trying to grow a hub in West Africa.

TunisAir:  Flew 2.7 million passengers in 2015, which was down from the average of 3.7 million they have carried in past years. Some of this can be attributed to curfew hours and increased security.

Turkish Airline: Got $826m from African sales in 2015 (a 9% decline from 2014). Africa accounts for 8% of revenue and passenger volumes and they fly to 48 destinations in 31 countries on the continent using a  narrow body i.e. 737 fleet of aircraft. Turkish Airlines sells 10,000 tickets per day in Africa.