As Fuel Soars, Ethiopian Tightens Belt
Thursday, March 22, 2012
Management asks pilots to relinquish 10pc on salaries; threatens Fortune with legal actions should it report the story
Only a few months since declaring profits and making across-the-board salary increases of 20pc, Ethiopian Airlines finds itself taking drastic cost cutting measures to save up to one billion Birr, which management hopes will relieve the national carrier from an imminent difficulty in operation, sources disclosed.
Such measures include a series of meetings soliciting its 5,635 employees to come to its rescue, relinquishing part of their salaries, providing free services during leisure times and increased efficiency. The drastic cost cutting initiative aims at slashing operating costs short of the costs for fuel and oil, for the latter are beyond the sphere of influence of the company. The management plans to gain close to 303 million Br saved from efficiency in maintenance and repair costs.
Among the proposed methods of participation in the initiative, which may include security personnel giving up meals, are unpaid leisure time work, increasing the number of customers, avoiding material wastage, servicing foreign planes, negotiating to get reduction of lease of rented aircraft, reducing maintenance costs, and reducing overall operation costs, according to those who participated in the meetings.
In separate meetings held over successive days last week, with different categories of employees, the management of Ethiopian Airlines has admitted confronting trying days ahead, due to a sudden surge in the price of fuel globally, according to sources.
The rise in expenditures was attributed by the Airlines to the spiraling global prices of oil, which took up to 39pc (6.7 billion Br) of its total spending, according to Ethiopian’s nine-month report to Parliament’s Transport Affairs Standing Committee, on May 9, 2011. Traditionally, what Ethiopian Airlines spends on buying fuel constitutes half of its operating expenses, which stood at 15.4 billion Br during its operations in the year 2009/10, up by 37.3pc from the previous year.
Crude oil prices in the international market have gone through a volatile period over the past few weeks, for the first time since 2008, when the price of oil per barrel shot up to 149 dollars. It went down to 80 dollars in 2010, only to pass the 100-dollar threshold in January 2012. Although subsided marginally late last week, uncertainties over the West’s sanctions on Iran and Syria kept prices as high as 105 dollars per barrel, on Friday.
The expenditure on fuel had risen from last year’s same period by 67pc, contributing to the national carrier facing stiff competition from other airlines, particularly those from the Middle East, according to the report.
The senior management team, led by Tewolde Gebremariam, chief executive officer, began meeting with employees, starting with the pilots who gathered on Tuesday, March 13, 2012, at the Airline Pilots Association of Ethiopia (ALPA-E), near the airport. Ethiopian Airlines has close to a 350 pilots, comprising of six per cent of the national carrier’s work force. Tewolde urged close to 250 principal and co-pilots present at the meeting to take part in the cost saving initiative that his management has been running since September 2011. He proposed for them to relinquish 10pc of their salaries, which industry observers estimate will amount to three million Birr a month.
However, the pilots have felt discomfort, for the proposal came from the management, though willing to help their employer during their trying time.
“Most of us tacitly agreed for the contribution as proposed by the management without an outward discussion,” a pilot who participated in the meeting demanding anonymity told Fortune. “Had I been asked on an individual basis, I could not have consented.”
A subsequent meeting held the following day at the main cafeteria of Airlines was chaired by Mesfin Tassew, chief operating officer, and Zemene Nega, senior vice-president for maintenance, repair, and overhaul (MRO) departments. More than 800 members of the MRO department were in attendance and were urged to be cautious in their duties and watch their efficiency.
“The main agenda discussed was about the repeated accidents and incidents of oversight caused by negligence and fatigue, which resulted in damages and expenses of maintenance and repair,” a technician attended the meeting told Fortune.
More than 1.5 million dollars has been incurred by the company in the past few months due to the damages caused by incidents of accidents and oversight, managers of MRO Department claimed at the meeting, sources disclosed
In addition to urging the staff members to save costs and perform some of the maintenance and repairs that can be made domestically which were being done abroad before, they have decided to engage in maintenance of aircrafts of other African carriers which they ceased close to five years ago.
The management of the Airline declined to comment despite series of requests from Fortune. Instead a letter of "notice" signed by Rahel Zerihun, vice president for Legal Counsel & Corporate Secretariat, faxed a stern warning to Fortune to desist from reporting the nature of the meetings.
"Ethiopian Airlines hereby notifies Fortune newspaper to forwarn that the contents of the stories your newspaper is about to publish in respect of Ethiopian Airlines are distorted, misleading and constituting unfair and deceitful practice against the Ethiopian Airlines," says the letter dated March 17, 2012.
Accusing this newspaper of "repetitive practices" for not using information provided to it "for professional use in balancing" its reporting, Ethiopian Airlines demanded "the retraction of the proposed distorted news story from being published." It also warned that should the newspaper pursue the story and publishes it "Ethiopian Airlines will be taking appropriate legal action, including claiming compensation for damages."
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