Ethiopian Airlines forecasts 'five years of losses' for Namibia Air

Ethiopian Airlines projects that Namibia’s proposed new national airline could operate at a loss for its first five years and has declined to commit to an equity investment until it is satisfied that the airline would be commercially viable.

The projection forms part of a counter-proposal presented during meetings between Ethiopian Airlines and a Namibian government delegation in Addis Ababa on 21 and 22 August.

An internal ministry memorandum addressed to works and transport minister Veikko Nekundi says the delegation was led by ministry executive director Jonas Sheelongo, who chairs the technical committee established to develop Namibia Air.

The delegation met Ethiopian Airlines chief executive Mesfin Tasew Bekele and other senior managers to discuss possible cooperation in establishing the carrier, provisionally named Namibia Air.

According to the memorandum, after reviewing Namibia’s proposed airline documents, Ethiopian Airlines forecast losses during the airline’s first five years.

“Ethiopian reviewed Namibia’s market study and tabled a counter-proposal centred on ATR 72-600 aircraft, training and MRO [maintenance, repair and overhaul] support but projected five years of losses as per attached financial projections,” the document states.

The document does not disclose the projected losses or indicate how much money government would have to provide before the carrier reaches break-even.

Namibia raised concerns about the five-year period and whether the aircraft proposed by Ethiopian Airlines would be compatible with Namibian airports.

Sturdy support offered

According to the documents, Ethiopian Airlines told the delegation it “is not ready to commit to equity partnership at this stage” because it required more time to make an informed investment decision.

The airline, which reportedly has three existing partnerships elsewhere in Africa, said any equity investment would require a commercially feasible business plan.

The document further stated that “for equity partnership, Ethiopian stated the business plan must be commercially feasible, and it would require management control including CEO, CFO and maintenance positions”.

Namibia proposed an equity or other form of partnership and said it was open to discussing joint management arrangements.

Although Ethiopian Airlines did not commit to investing, it agreed to explore operating Namibia Air under a management contract and is expected to provide a draft agreement.

“The parties agreed to explore cooperation under a management contract with Ethiopian. Ethiopian indicated it could immediately assign personnel to assist in refining the Namibia Air business plan and setting up the airline,” the minister was informed.

Ethiopian also committed to provide technical support, “even in the absence of a management agreement”.

Preparations are expected to begin on the documentation required to obtain certification from the Namibia Civil Aviation Authority.

Ethiopian Airlines could also assist Namibia Air with aircraft sourcing through its relationships with aircraft owners and leasing companies, Nekundi was told.

Other potential support includes employee training, maintenance, repair and overhaul services, operational manuals, access to Ethiopian Airlines’ finance and information technology systems, and preferential aircraft-leasing rates.

Aircraft disagreement

Ethiopian Airlines proposed that Namibia Air start with three ATR 72-600 turboprop aircraft during its first three years of operation before introducing a Boeing 767.

Namibia, however, proposed using Embraer 145 or 175 regional jets based on its market size and intended regional connections.

The parties agreed to assess the suitability of Embraer aircraft for domestic operations and conduct a joint assessment of aircraft and maintenance requirements.

Ethiopian Airlines advised Namibia to lease rather than purchase aircraft, arguing that leasing would reduce the financial exposure faced by a start-up carrier.

It also recommended beginning with three aircraft and operating one daily flight to Johannesburg before increasing frequencies as demand develops.

The two sides did not agree on which routes Namibia Air should begin operating.

Ethiopian Airlines proposed removing the Windhoek–Johannesburg, Windhoek–Cape Town and Windhoek–Luanda routes from the initial network.

Namibia rejected that approach, maintaining that the three routes would be central to the new airline’s commercial success.

The memorandum contains an apparent contradiction, stating that Ethiopian Airlines proposed removing Johannesburg from the initial network while also recommending that Namibia Air begin with one daily flight to Johannesburg.

The document does not explain how to reconcile the two proposals.

December target in place

Namibia reiterated that its engagement with Ethiopian Airlines followed a presidential directive to pursue African aviation cooperation under the Single African Air Transport Market and the African Union’s Agenda 2063.

Both parties reportedly reaffirmed their commitment to greater integration of African aviation.

The ministry’s technical committee has recommended proceeding with technical cooperation and negotiations over a management contract while Ethiopian Airlines considers whether it is willing to invest in Namibia Air.

It also recommended prioritising certification support and completing the business plan with Ethiopian Airlines’ technical team to meet a target of commencing operations by December.

However, the memorandum shows that major issues remain unresolved, including the airline’s ownership, financing, aircraft, initial route network and management structure.

It also does not disclose the estimated start-up capital, the cost of the proposed management contract, or the projected losses over the first five years.

Spokesperson for the ministry, Tangi Shivute, said the document was an internal memorandum that had been leaked and that the ministry’s office was not aware of how it became public.

She said the document must first be discussed internally within the ministry before any information is made public and could therefore not comment on the document's content.