AIRING OUT THE DETAILS: Being at the helm of the Airline for a year now, Tewolde Gebremariam, CEO of Ethiopian (ET), spoke with Hailu Teklehaimanot, Editor-in-Chief of Fortune, about ET 409’s accident investigation, the dispute between ET’s management and its labour union and the trials and tribulations of expansion.

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Fortune: You released a statement recently in response to an article in a newspaper in Lebanon in which an official there said that the accident report of ET 409 concludes the cause as pilot error. In it you have said that the Ethiopian investigative team that went there on August 19, 2011 returned because the American and French investigative team were not there. Have you found out why they were not there?

Tewolde: We do not know. First of all let me tell you I am in a confidential agreement and cannot release information on this. This is because it is the International Civil Aviation Organization (ICAO) standard that members of an investigation team are bound by a confidentiality agreement. Not me personally, but the Ethiopian Civil Aviation, the Lebanese Civil Aviation, the American National Transportation Safety Board (NTSB) and advisors from France. As you may recall, this kind of misunderstanding, difference of information and direction has been there since the accident. We have never been satisfied how that was going. We have been expressing our opinion whenever it was deemed necessary. The last press release was in line with this. According to our expectation, the technical review was to be conducted by all members of the investigation team. When our team travelled to Beirut that was not the case and we expressed our concern. The second stage was to be the analysis stage. But we read in the papers in Lebanon that the investigation report was to be released.

Q. It is my understanding that you have received the report now.

No.

Q. You haven’t received the report yet?

We have been told that the report is being finalized and that it will be communicated to the relevant authorities. We will not receive the report as Ethiopian. It is the civil aviation that will receive it.

Q. Do you have any idea if it has reached the civil aviation authority or not?

Not yet.

Q. It hasn’t reached them yet, or you don’t know if it has reached them yet?

I don’t know.

Q. In your recent press release, like previous releases in the past year, you said that you have repeatedly asked for documents, which have not been made available to you. What documents are you exactly to asking for that the Lebanese government provide you with?

I do not have the list of the documents we have asked for. People directly in the investigation team would know better but there are documents we have been asking for right from the beginning and we have not received them.

Q. Can you mention one or two?

For instance, we have asked for the x-ray of the baggage and some documents like that.

Q. Why the x-ray of the baggage?

Just to complete the investigation.

Q. Is it true that you have also asked for the passenger manifest?

As operator of the flight, we are the ones who have the passenger manifest, and we have produced that. I am not sure but I think we have asked for the profile of the passengers. The profile has much more detail information about the passengers than the manifest.

Q. If you have asked for the x-ray of the baggage, then you must have asked for security footage of passengers before the flight left.

Yes. We have asked for the x-ray and the security process. As I said I do not have the list.

Q. Is it a big list? I am trying to understand, since you keep saying that you have been refused the list of documents you have asked for, how big a list is it?

Big or small is relative. It could be five items or less than 10. I am not sure.

Q. Do they have a big relevance on the investigation?

That is the difference of opinion. We believe that it is relevant. Because an investigation of this nature needs to cover all perceived relevant points around the investigation.

Q. I am glad you mention that. The other thing you say in all your press releases is that you don’t discount any possibility as a cause of the accident “whether it is technical, weather, security or otherwise.” And this keeps coming up in all your statements. Do you have any reason for saying that? Have you been collecting documents or evidences on your own? Apparently you are not happy with the team that is investigating now.

As I said we have a difference of opinion as you must have seen from the press release and expression of opinions from both sides. But it is not an ICAO procedure to conduct a separate investigation by any party. The ICAO procedure says that the country where the accident occurred leads the investigation and the country of registry and country of manufacture be part of the investigation. We have to follow the procedure.

Q. It is my understanding that part of the ICAO procedure says that none of the members of the investigation team would release information before the investigation is done. Since you have been voicing your displeasure of the comments and information, what steps have you taken as a member?

The ICAO has stipulated rules and procedures. But it is a situation where all the parties have to work together.

Q. There is a Wikileaks document that was released a couple of weeks ago which has the US Ambassador in Lebanon reporting to the state department about the accident. It said that the NTSB investigative team which was at the scene first had said that the report would likely say that the cause was human error. And a year after the accident, there is a report some Lebanese authorities claim indicates pilot error. What is your feeling about that? Are you taking a position on it?

It is difficult for me to comment on the contents of the Wikileaks document. But right from the beginning we have been saying that there are also other factors, which need to be seen thoroughly with all the relevant documents, evidence, facts and data. The investigation process has to be completed entirely with all the stages we have agreed on. And then, and only then, a joint conclusion can be made.

Q. How do you think that the NTSB, which has a very long experience investigating crashes like this, said that this was likely caused by pilot error?

To me this is speculation.

Q. You don’t think this is based on some facts?

How can it be based on anything? It was right after the accident happened. One would take some time to collect data, information, evidences and then review them technically and then analyse them and reach a conclusion. That was not done. In the absence of that due process, it is speculative to me.

Q. Are you going to respond to it the same way you did as reports and claims coming out of Lebanon?

It may not be appropriate to respond to this. It is from a third party and a case of “he said”, “she said.”

Q. Are you questioning the validity of this document?

We don’t think this is relevant. We can only respond to official statements.

Q. There have been documentaries done about Boeing’s 737 based on whistleblowers from the company that claimed that this type of aircraft has problems. You have ordered more aircraft of this series. Considering that ETs accident happened on a 737, are you concerned at all?

No. Those people you called whistle blowers are entitled to their own opinion. The 737 is one of the largest populations of fleet in the world. There are more than 5,000 737s around the world doing millions of flights. We have no problem with the 737.

Q. On another note, it has been almost year now since you have taken over the CEO position. It seems like a year filled with a lot of dispute between the management of the airline and employees, whether it is over pay, overtime or whatnot. Why do you think that is?

It may look like that, but when you go to the fact and the issues and how they arose and what the reality is on the ground, it is different. Unfortunately it has been three and a half years since the previous collective agreement expired. It was supposed to be renewed. Both sides were engaged to renew the agreement, but after going a certain length, the labour union changed leadership as their term expired.

The new leadership needed time to understand and form an opinion on how to go about it. In the meantime, on the pilot’s side, there was pay and working conditions which have been a subject of discussion for quite some time. There was a bigger picture, an understanding and agreement at that time between the management and the association. It was to benchmark the pay and working conditions on a regional level and international level so we can come up with suitable package amicably.

Again, this was started but it couldn’t go as far as it was expected. It took a long time. Some of the pilots expressed that it was not going fast enough. Sometime last September, following the general consensus of the pilot body, we came up with a package increasing their salary substantially and improving their working conditions. It was received very well among the pilots.

Following that, we had to make a similar package arrangement with cabin crews because they fly together. In November, we made a change in the working conditions and pay of cabin crews. At the same time we made increases to other employees. This has resulted in some questions and discussions. The labour union then asked if it was right for the company to unilaterally decide on working conditions and pay when the collective agreement was not renewed and pending.

We responded that there was the legal framework under the labour proclamation to do that. But leaving that aside, we needed to complete the labour agreement and started the negotiation last January. Around May, the labour union was not happy with the speed of the negotiation and took the case to the labour board, which is a reconciliatory. Since then we have been working to iron out the differences. Now I am happy to tell you that it is almost finalized. The differences have been narrowed down and I think we reached an agreement last week.

Q. It is my understanding that technicians and cabin crew members are still not happy with the salary increments. Cabin crew members especially were not happy with the changes of working time, duty time, off duty time, etc. They have actually written a letter to Addisu Legesse, board chairman of ET, complaining about these specific issues. If, like you said you reached an agreement, what has changed now?

In terms of pay, it is human nature to ask for more.

Q. But they were complaining that despite the 15pc increase their pay was altered by the changes in working hours.

That is not factually correct.

Q. Are you saying that the new arrangement is better?

It is significantly better. We had a calculation and brought it to the attention of the crew members in various meetings. I met with the cabin crew two to three times in the year. If a cabin crew was taking x amount before, now taking the hours as their pay is calculated based on hours worked, we have shown that it is significantly better.

Q. Then how do you explain the letter of complaint written to the board chairman listing the work hours and such? From the letter, they are clearly not happy.

Who do “they” mean?

Q. It is the association. Is it not a representative of all the cabin crew?

Well it is. But when we talk to the cabin crew at large, 200 or 300 people, that is not the case.

Q. One of the letters written to the board is that punishments levied upon them are severe and undeserved.

We cannot discuss specific punishments. It individually depends on performance and their supervisors.

Q. Would you agree that cabin crew members might not voice their discontent openly and publicly to you for fear of repercussions and might go to their association?

No. If you attended one of our meetings you would have seen them openly express their concern. For instance the duty hour you mentioned was 13 hours before and was changed to 14; It only one hour difference. But it didn’t come out of the blue. It was in the previous collective agreement. Not the one which expired three and half years ago, but the one before it.

Q. Isn’t the latest the governing agreement?

No. In the previous one it was 14 and in the ninth collective agreement it was 13 because the company did not want it. When the company wants it now, it can negotiate to bring it back. It was there any way for a number of years.

Q. Do you feel that all employees of Ethiopian are properly compensated compared to other airlines?

That is a big question. It also includes me. We are an Ethiopian company and at the same time we are also a global company. When we take the competitiveness of our compensation package, we have to consider the national reality here as well as international reality and balance both. One, there is the cost of living index. The cost of living in Ethiopia and the Gulf or even neighbouring country Kenya is not the same. Dollar to dollar my salary cannot be equal with a salary in the Gulf. Second, the company’s means and ways of paying are also a factor. The market value of a job has also to be factored into the package. There numerous factors affecting and determining compensation packages. When you ask a general question whether ETs compensation package is competitive or not, the answer is if you take the international standard, not yet. If you take the national standard, we are way above.

Q. Considering all the factors you have mentioned, with ET being an international company which is on its way to become a holding group, do you think the compensation of employees including yourself is adequate?

No. We have to go a long way to reach that stage.

Q. How long would you say? What is stopping you from getting there now?

The company is growing. It has lot of investments. Most of the investments are on loan capital which we have to pay interest and principal. Growth always stretches your resources and financial means. We have to pass this stage. We should be able to generate enough profit so that our balance sheet is sound and strong for our creditors to be willing to loan us money. These are the issues we have to consider going down the road. You have to understand that the company is trying its best to improve the compensation package. Every year we are making increases, sometimes up to 40pc. But inflation is also not in our favour. But it is a work in progress and it will continue.

Q. In terms of profits, the company has been doing very well in the past couple of years. But you have said in a couple of meetings in the past year that oil prices are having a big impact on the company. As we have yet to hear the final performance report of this year, tell us how well the company is doing with international oil prices being as they have been?

This is the first time oil prices have gone up and stayed there almost nine months. In previous years sometimes it goes up but comes down as well. That is a big challenge.

Q. How big of challenge is it in terms of profit?

I consider it the single greatest challenge. We are still profitable. The growth is very significant in terms of operational revenue. But the profit, because of oil prices, has come down from last year. But I don’t have the exact figures.

Q. What is the percentage increase in profit? Is it better than before, where it increased by 20pc from 2008/09 to 2009/10?

Operational revenue increased, I think, by around 40pc. The revenue has grown, the operation has grown and the company has grown in terms of the available seat kilometres and number of airplanes. We phased in 11 new airplanes in one year which needs investment. That is additional cost that is coupled with oil prices; we paid five billion Br more for oil than the previous year. Considering all that, profit has come down.

Q. Speaking of air planes, have you received any consideration in terms of price from Boeing due to the delay of the Dreamliner?

Pricing is agreed in the contract but we received some kind of compensation for the delay.

Q. What kind of compensation?

This is a confidential matter between Ethiopian and Boeing. I cannot release it.

Q. Is it significant?

It is reasonable.

Q. You had plans to construct a perishable cargo storage for which I know the design is finished. Why isn’t it being built?

Initially, the plan was to expand only the perishable storage part. That thinking went for a certain period of time. Later on we realized it is not only the perishable part but the whole cargo ware house that has to expand due to the significant amount of cargo coming in, going out and transiting. In the last six months, we have been studying what the cargo business of Ethiopian would look like in the coming five, ten and fifteen years. Having some kind of forecast for the perishable and dry cargo in mind, we are reconsidering the initial plan we had for the perishable cargo and reconsidering the expansion for both. We are also reconsidering the size. Now we are thinking about a huge cargo terminal. The airport was planning about building cargo terminal as well. Now we have put our plans together and are going to come up with a much bigger cargo terminal expansion.

Q. How soon is that going to happen?

In the coming few months; it’s very urgent.

Q. It is becoming clear that with the expansion of ET, the Addis Abeba airport has become too small for you. Has there been discussion with the Ethiopian Airport Authority on expansion?

I agree that expansion has been very fast, perhaps faster than the facility. It is a concern for us and the Airport Enterprise. Sometime last year we came up with a plan together for the enterprise to come up with expansion program. It has three phases. The first phase is expanding the ramp. There is a big construction going on that can park an additional 11 airplanes. It will be completed in about a month’s time, once the rains stop. It would have been completed had it not been for the summer. That will give us some space for the congestion we have now. The second phase is also expansion of the ramp, which will give us additional space for 19 airplanes. Construction will start once the first phase is completed. Along with the second phase, there is renovation of the taxi way. The third phase is a long term plan to expand the passenger terminal itself. With this expansion plan, we will be all right.

Q. It is my understanding that in the long term there is a plan to have another airport where ET can operate out of, somewhere south along Debre Zeit road.

That is the thinking but it is not yet validated. What is validated right now is that maybe after 10 or 15 years, we need to either expand here or move somewhere else. These are options still being validated. Both are options still being considered.

Q. Do you think that there is enough space at the airport now for more expansion?

There is a team from Ethiopian, Airport Enterprise and Civil Aviation which is studying this.

Q. How long have they been studying it?

A few months now.

Q. Are you expecting a report anytime soon?

Maybe in the next few months. But this is complex.

Q. Being at the helm of the Airline for a year now, and starting off the Vision 2025, how do you see the progress so far?

Actually I am very much encouraged by the progress. This being the first year in a 15-year long journey, you can imagine the first year will tough because that is a year you lay the foundation for takeoff if I may use the airline jargon. We had to make significant investment in fleet. Because we are not only bringing in new airplanes but we are also renewing the fleet, rationalizing the fleet mix. In vision 2025, we said for short range, narrow body, it will be the 737s. For mid range, we still have the 757 and the 767, but in the long term it will be the 787. For the long range, wide body, it will be the 777 and the A350.

In line with this, we had to phase in 11 new airplanes. By the way this is a big jump, not only by our imagination but by similar situations around the region. I think Emirates phased in six airplanes in the financial year. Quatar’s was 12. These are carriers considered among the fastest growing in the world. Our growth is in fact bigger than theirs. That has been a challenge. But what encouraged me more was the number of traffic and passenger load, despite our increase in capacity, which is 43pc than last years. The rule of thumb in the airline industry is that when you increase capacity, the yield comes down and the load factor comes down. Fortunately for the airline load factor has also grown up, the yield has also improved slightly and the number of passengers is also increasing. That has been very encouraging and rewarding.

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