Although Ethiopia has a long history in aviation going back to the founding of Ethiopian Airlines eight decades ago, the country’s private aviation industry has never managed to get off the ground.
Today, there are around a dozen private operators jostling for limited space in the industry. These companies continue to struggle with access to finance and foreign currency as well as regulatory restrictions they argue are stifling growth.
Economic disruptions and conflict have also been a major stumbling block for the likes of Northern Star Aviation Group, whose efforts to join the industry were cut short by the COVID-19 pandemic and then the two-year northern Ethiopia war.
The company, based in Mekelle, Tigray, was forced to suspend all operations as the world wrestled with the pandemic in 2020, but the conflict that broke out later that year meant it would not attempt to get back into business for over two years. It only recently managed to regain its trade license and other operation permits, but the economic shifts of the last few months pose a new range of challenges for the young firm.
Mekonen Beyene is a co-founder of Northern Star Aviation and has been serving as its deputy board chairperson since its inception four years ago. The Reporter’s Nardos Yoseph sat down with him to get an inside look at the country’s private aviation industry, the prospects for firms like Northern Star, the effects of currency devaluation and market liberalization, the need for better regulation, and the reasons behind bank reluctance to fund ventures in aviation. EXCERPTS:
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The Reporter: Northern Star Aviation Group has been in the pipeline for quite a period of time but it began operations just a few months ago, why the delay?
Mekonen Beyene: We had such high hopes when we began the work leading into its establishment. For the first time in the country’s aviation history, we opted to set our hub outside of Addis Ababa and in three selected major cities: Dire Dawa, Bahir Dar and Mekelle, with plans to set the last one as our headquarters. By February 2020 we had completed the selection of our board members and officially announced our establishment. But we only had 20 good work days before all our operations were cut short by the COVID-19 pandemic. Then the massive locust invasion happened, followed by the northern war. For three-and-a-half years, up until the Pretoria Agreement was signed, we ceased any and all work. In August 2023 we were able to access our finances and managed to renew our business license. We have since held a general assembly and decided that our board members would resume their duties for an additional year.
How was the process of getting back into business after being out of the loop for so long?
When we got back on track, our money had devalued by more than 80 percent. The exchange rate was 23 birr to a [US] dollar when we stopped pre-COVID. It had dropped when we returned after the Pretoria Agreement. That was one of our headaches. The other thing is that people are exhausted now; many are unemployed and the cost of living has skyrocketed. It was only a few months ago that people started to receive backlogged salaries. All these things impacted our business. We put a lot of thought in the decision to make Mekelle our hub and assumed that people in Tigray Regional State would be interested in becoming our shareholders. We considered several criteria. Tigray is a gateway to Ethiopia. It’s an entry and exit point that is not overcrowded. The current aviation hub, Addis Ababa, is overcrowded and the cost of business is much higher than in Mekelle. It gives us a much more open space for our operations. In making Northern Star a share company, the idea was to sell as many shares as possible by floating equity constantly and keeping our access to finance stable. People in Tigray have shown huge interest in getting a hold of these shares so we opened offices and hired some more employees over the last year. Two months ago, we were hit again. The country’s foreign exchange market opened up and our money has since devalued by another 120 percent. This is not a joke; it is a lot of money.
Have you secured your business license and aviation permits?
The Ethiopian Civil Aviation Authority [ECAA] has certified us as an airline. We are in the process of obtaining our air operations certificate [AOC], which is essential as we cannot fly without it even if we could acquire the finance we desperately need. We have applied for the AOC. We have followed a selective bidding process, chosen three companies and retained a company named Aerotech as our consultant. Aerotech has provided us with manuals that could get us the certificate within the next three to five months. The Authority has set the time limit at six months and we are still in the aircraft selection process. The same goes for the approved training organization [ATO] certificate. We have signed a memorandum of understanding with Mekelle University to provide us with a facility for an aviation school. We are one phase away from completing both certification processes.
Private aviation companies are often heard stating that ECAA restricts the kind of aircraft they can bring into the country, limiting their operational capacity. Do you face a similar challenge? Will you be operating chartered or scheduled flights?
The Authority has given us the go ahead to use our preferred aircraft, including jets. The initial plan was to enter the cargo market. Back in February 2023, when we got back to the country, we had almost finalized deals and made payments to bring in a Boeing 737-200 with us. However, it turned out that our destinations in Dubai and Saudi Arabia could not accept the airworthiness of the aircraft. As a result of this and other matters, we were forced to withdraw from the agreement. Our flights will be scheduled.
How is the aircraft selection process going? Are you planning to buy planes or lease them?
We have almost halted our endeavors in aircraft selection. We have found the kind we want and are trying to conclude a deal to acquire what we want domestically through a strategic partnership with Ethiopian Airlines. The deal we are trying to strike would enable us to lease out to Bombardier Q-400 aircraft from the carrier. Searching for aircraft abroad requires a huge amount of resources. Payments have to be made on all fronts, including those required by the country’s civil aviation authority. This makes attaining a local option more viable. Within the next few weeks, we are hoping to finalize a partnership agreement where ET supplies us with aircraft and maintenance, repair and overhaul works. The foreign option we had was a lease to purchase deal, but with ET, we are having to acquire the airplanes on a loan.
What is Northern Star’s shareholder structure like? How much capital has the company raised?
Locally, we have close to 1,000 shareholders, and about 400 abroad. We have not changed our initial share selling price as our plans were to raise three billion birr but we have only managed to raise a fraction of that. People are struggling financially now and we are trying to achieve our target by selling a 49 percent stake in our sister company based in the US—Northern Star Business Group. The company is acquiring its Ethiopian investment license right now. The African Airlines Association has managed to connect us with the African Development Bank as well as African EXIM Bank. We have held initial discussions for loans and grants to fund the aviation school. ECAA is aiding our efforts to access finance from local banks but mere support will not get us far. The private aviation industry needs material backing, such as setting us up with a guarantee we can show to the banks. The enthusiasm for our loan applications is lacking. Banks extend loans for car purchases all the time, but they are not all too eager when it comes to airlines. I believe they should consider the fact that the air transport industry is highly regulated and more reliable than any other form of transportation. Banks need to understand that.
Why are banks so reluctant to set a greater portion of their annual loan budgets for the aviation industry? Why is the sector not prioritized?
I think this requires the industry to educate the financial sector. The financial institutions’ misunderstanding of the aviation industry was one of the points of discussion in a recent aviation stakeholders summit arranged by the Ministry of Transport and Logistics and ECAA. Not only should there be an awareness creation campaign, but the government should devise a policy regarding the subject matter. Ethiopian Airlines has garnered close to seven billion dollars in the past year alone. The benefits of the government in supporting the industry are pretty obvious. If the request from private aviation groups to get into scheduled international flights gets approved, the access to finance demand would go up even higher. But that requires a lot of work.
The answer to the question of how do we push the country into becoming the aviation hub of the continent is pouring huge investments into it. Morocco is one of the biggest aviation centers of Africa. They invested in billions, now it is paying them back in kind.
We need to consider many fronts, like that of the maintenance, repair and overhaul (MRO) facet of the industry. The sectoral estimation is that Africa’s MRO market could reap up to six billion dollars by the end of 2025. Ethiopia, South Africa and Kenya retain the lion share of this market.
The geographical settlement of these countries says a lot about the market share. South Africa is all the way down south, and most of Africa’s aviation resources and the majority of aircraft are located in the northern part of the continent, which is a great opening for the Ethiopian aviation industry. It might take up to three hours for an aircraft needing MRO work from Egypt or Dubai to get to Addis Ababa, but only two hours to Mekelle. We could capture the market.
If the fundamental move is to make Ethiopia an aviation center, the government needs to change and make it a priority. Why should a person from Sudan that would want to travel to Axum or Al Nejash be obligated to make a roundabout flight going through Addis Ababa while they can just catch a direct flight? The possibilities are many for us all to take a fair share of the market. For the government to realize its plan to grow the industry, It must first introduce an encouraging mindful policy and then open the market. It should also encourage Ethiopian aviation groups to construct their hubs in different parts of the country. We are in the north, and somebody could do the same in all other directions. We are a country of more than 120 million people, but we do not have more than 200 aircraft. Kenya, which is a much smaller country, has two airports in Nairobi alone and its total fleet consists of around 5,000 aircraft. Think about it. Among the 200 we have, almost all the bigger planes belong to the flag carrier. The private airlines have smaller ones. The government should help the private industry stride towards growth, expressly the access to finance issues. It could help the industry by issuing us a guarantee of some kind which could allow us to access loans abroad.
If the government opens the market and allows foreign investors and airlines to enter, do you think the private sector possesses the capacity to compete and survive?
If foreign aviation groups enter the Ethiopian market under the current industry conditions, no. But being a share company is advantageous when it comes to these kinds of possibilities. It allows us to always be able to collect more funding. If we could show at least two aircraft, I believe the market would come to us. But, other private aviation groups are mostly self-funded, raising their capital from their own pockets and savings. Here is where the government assistance should first come in. Otherwise, the private groups would be unable to compete. The second important thing is offering subsidies to the industry and exempting it from certain kinds of taxation such as duties on spare parts and fuel. Such burdens should be lifted, or at least improved. In the event of bigger and stronger firms entering the market, local private operators could merge and propagate their capacity for sustainability within the industry. The government has already ratified a law allowing foreign investors into the country and into sectors that have been closed off for so long. As far as I know, no one is trying to get into the market now. However, imagine what would happen if, let’s say, Ethiopian Airlines were about to sell some of its shares. Every major player would flood the market, and the market change would be exponential. All private operators should prepare themselves for all possibilities. We can make alliances and mergers happen. I am not saying the government should give us money, just facilitated access to both local and international banks. The country has a lot of manpower that could be ushered into the industry with simple training. We should capitalize on that.
It was only in the last three months that ECAA greenlit domestic scheduled flights for private operators. Industry insiders argue the permission is of no use to them unless it includes international flights. What is your view on this?
They are right. In domestic scheduled flights, the revenue we get to collect would be in birr and 90 percent of our expenses, from spare parts and maintenance to insurance and many others, must be paid in foreign currency. This is what makes carrying out domestic scheduled flights very difficult. A request for the Prime Minister to review the issue and grant the international flight permit is making its way up. The only thing we need for these international flights is customs and immigration. This is what the US does for all startup airlines, airports, and centers. What must be done to open an international airport anywhere in the country is clear; we just need to repeat what has been done in Addis Ababa. Erecting airports in a more open market space is much better than having one in a crowded city. The government can also provide us with land both for the construction of airports and bases for MRO operations, enabling us to provide more efficient international transportation. The MRO part must be held in the highest regard, as all the income would be in foreign currency. My biggest interest in the aviation industry is in MRO. It is a huge sector. The six billion revenue I mentioned earlier is only in the African market. If an airline gets hold of better certification, the market share could grow to include the Middle East market and even further than that. It could be a seven-hour flight to take an Egyptian aircraft to South Africa for maintenance, but only three hours if it were to come to us. Airlines value time because it matters in the lifespan of their aircraft and in transportation costs. That is an opening Ethiopia can exploit. Unless international scheduled flights are allowed, it is a headache for the private sector. Ethiopian Airlines’ goal is to take a 20 percent share of the six billion dollar; that would be about 600 million dollars. If the rest of us [the private sector] manage to do some work and get at least 100 million, that would be a huge gain for the country’s foreign currency needs.
