feature

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AV I AT I O N

Photo: Marcos Pereira

AV I AT I O N

ANGOLA

Angling for
investment
Emirates decision to enter into a management
contract with Angolas national airline is about
much more than just access to the southern African
countrys limited aviation market
by Martin Rivers
thegulf@tradearabia.net

IR Tim Clark, the president of

Emirates Airline, Dubais flag
carrier, has often spoken critically about the kind of equity
investments and deep-rooted
partnerships that Abu Dhabis Etihad
Airways favours.
Whereas Etihad holds stakes in eight
overseas airlines, Emirates largely
stands alone in the global marketplace. It can afford to do so: in just
three decades, it has become the
largest carrier in the world by passenger capacity. Alliance membership,
codeshare agreements and equity deals
simply dont have the same charm for
Sir Tim as for other, less exalted airline
bosses.
His scepticism has also been shaped
by personal experience. In 1998,
Emirates acquired 43.6 per cent of
SriLankan Airlines under a 10-year
management contract. The partnership
delivered few strategic benefits, instead
becoming a huge drain on resources. Despite parachuting Peter Hill,
another of Emirates founders, into Sri
Lanka, Sir Tim would later complain
of being forced to visit Colombo every
few weeks to intervene in domestic
affairs. Relations deteriorated rapidly
and, by the end of his tenure, Hill was
managing the airline remotely from
Dubai, having had his work permit

revoked. The partnership was not

renewed and Emirates sold its shares
back to the Sri Lankan government.
Such acrimony is bound to leave a
bitter taste, but Sir Tim has always
insisted that each proposal Emirates
receives - of which there are many,
from all corners of the globe - will be
evaluated on merit. Thus in September
2012, a far-reaching partnership with
Qantas, Australias flag-carrier, was
unveiled. And now, two years on,
a second deal has been struck with
TAAG Linhas Aereas de Angola (TAAG
Angola Airlines), the flag-carrier of the
southern African nation of Angola.
Africas vast economic potential is
often talked about in business circles,
but does Angolas aviation sector have
unique strategic appeal to Emirates? Or
is this yet another example of political
expedience pushing commercial scrutiny out the door?
The new 10-year management deal,
which was announced jointly by
Shaikh Ahmed bin Saeed al Maktoum,
chairman and chief executive of
Emirates, and Augusto da Silva Tomas,
Angolas transport minister, is smaller
in scale than the Qantas deal. Just 1.3
million passengers were transported
by airlines registered in Angola last
year, according to the International
Civil Aviation Organisation, the UNs
aviation body, compared with 71
million in Australia.
But what the deal lacks in size, it

One of Emirates first tasks in Luanda will be to conduct a review of TAAGs fleet and route network strategies

Jumping into bed with

Angolas government
has therefore succeeded
in opening up a
closely guarded, highyielding market
more than makes up for in depth.
Whereas Sir Tims tie-up with Qantas
was effectively a revenue-sharing and
joint marketing initiative, his foray
into Angola involves directly taking
the reins at TAAG. Emirates will
select a new chief executive, replacing incumbent Joaquim Teixeira da
Cunha, before transferring four of its
own managers to Luanda. It will also
conduct a full review of TAAGs fleet
and route network strategies, working
with Angolas government to develop a
new business plan for the loss-making
flag-carrier. Codeshare agreements,

frequent flyer-programme collaboration and training will further unite the

two airlines.
Through this partnership, Emirates
aims to provide deeper reach and
better connectivity for our passengers
in central and south Africa, Shaikh
Ahmed said at the signing ceremony in
September. At the same time, we see
an opportunity for TAAG Linhas Aereas
de Angola passengers to benefit from
Emirates global network.
We see huge potential in Africa, and
are keen to continue playing an active
role in contributing to its economies.
Emirates will continue growing our
presence in Africa by opening new
routes, increasing flight frequencies,
and upgrading aircraft to meet the
increasing demand. Exploring mutually
beneficial agreements with established
carriers such as TAAG Linhas Aereas
de Angola is another key strategy. We
believe this new partnership will build
on the success that we have seen
on our Dubai-Luanda service, and

also deliver operational and business

synergies for both airlines.
That route between the two hubs has
indeed grown in recent times, though
its success has more to do with political
acquiescence than commercial achievement. Angola remains one of the most
bilaterally restricted aviation markets
in Africa, limiting most European
carriers to two or three flight frequencies per week. TAP Portugal has greater
access - 10 weekly services - thanks to
its colonial ties with the country, but
elsewhere state-owned TAAG benefits
from protectionist, closed-skies policies.
It was no accident that the signing of
a precursor agreement with Emirates
in December 2013 coincided with the
Dubai flag carriers designation rising
to daily flights. Further frequency hikes
are now possible.
Jumping into bed with Angolas
government has therefore succeeded in opening up a closely guarded,
high-yielding market. Moreover, as
with the Qantas deal, Sir Tim managed

Whatever twists and

turns the partnership
takes, rapid growth
is unlikely to be on
the agenda. Though
Angola would love to
spread its flag-carriers
wings across Africa,
neither domestic traffic
flows nor geographical
positioning are
in its favour
to avoid splashing out on equity. But
is greater access to Angolan skies the
end-game for Emirates? A cursory
review of TAAGs operations suggests
not, with the immediate commercial
spoils seeming lacklustre.
As evidenced by the countrys
low passenger count, Angola is not
a large aviation market by global or
even African standards. South Africa,
the continents most mature market,
handles 13 times as many travelers
each year. Ethiopia and Kenya, two
other sub-Saharan stalwarts, are about
four times larger than Angola. This
relatively modest scale is reflected
in TAAG's fleet: it deploys just 13
aircraft (six widebody Boeing 777s and
seven narrowbody 737s, including one
freighter).
Commentators might interject that
African business opportunities must
be viewed through the prism of future
potential, not present-day activity. But,
focusing solely on the aviation sector,
Angola is by no means an obvious
springboard for African connectivity.
The countrys geographical location
makes it all but redundant as a
connecting hub for the sub-region,
requiring most Dubai-origin passengers
to double back on themselves after
landing in Luanda. Likewise, African
travelers bound for Europe are unlikely
to view a circuitous stopover in Dubai
as attractive when compared to the
(frequency-restricted, but nonetheless

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the gulf | November 2014

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feature

AV I AT I O N

UNDER THE PATRONAGE OF

HIS ROYAL HIGHNESS

PRINCE KHALIFA BIN SALMAN AL KHALIFA

8 available) direct routes flown by TAP,

British Airways, Lufthansa and others.
So whats in it for Emirates? Putting
aside the overarching political considerations, it is true that Luanda has
the potential to become a convenient
stopover en route to South America.
TAAG already flies to Sao Paolo and
Rio de Janeiro in Brazil - services that
Emirates customers could easily hop
onto, pending the appropriate flight
schedules. Alternatively, Emirates
might request fifth-freedom rights
to operate onward services to South
America with its own metal. Turning
eastward, TAAGs existing Dubai route
could connect with Emirates-operated
flights to China (the largest importer of
crude oil from Angola).
Any such arrangements would likely
utilise the same metal-neutral, revenuesharing structures that were instrumental in scaling up Dubai-Australia
traffic under the Qantas partnership.
The terms of these deals, though, will
probably remain secret. Grilled on the
commercial particulars of the TAAG
contract by Gulf News, Sir Tim simply
remarked: Obviously we are not
doing it for nothing. Its a satisfactory
arrangement for us.
Within
TAAGs
boardroom,
meanwhile, the advantages of the
partnership hardly need explaining. Its operating efficiencies and
brand awareness will instantly draw
succour from Dubai. Pre-existing plans
to launch London and Paris flights
will probably be expedited, while its
two ageing 737-200s (an older variant
of the narrowbody type) will almost
certainly be removed from service.
That should in turn pave the way for
TAAGs removal from the European
Unions aviation blacklist - a stain on
its reputation which has only partly
been rubbed out by the modernisation of its widebody fleet. Following
Emirates
management
shake-up,
TAAG may further resume evaluating
smaller regional planes.
Whatever twists and turns the partnership takes, rapid growth is unlikely
to be on the agenda. Though Angola
would love to spread its flag-carriers
wings across Africa, neither domestic
traffic flows nor geographical positioning are in its favour. Setting its sights
26

PRIME MINISTER OF THE KINGDOM OF BAHRAIN

Sir Tim Clark: Its a satisfactory arrangement for us

After emerging from

a 27-year civil war,
Angola relied heavily
on support from China,
Brazil and Europe to
re-build its national
infrastructure. Those
partners are now
benefiting from Angolas
economic recovery,
and Dubai wants a
piece of the action
on more modest aspirations - ending
the EU ban; optimising flight times
and frequencies for business travellers;
and lifting product quality to Emirates
exacting standards - may therefore be
prudent.
None of which gives us a satisfying
answer as to what exactly Sir Tim gains
from the partnership. This answer
is elusive for good reason. In truth,
Emirates shareholder - the government
of Dubai - stands to benefit far more
than the airline itself.
Angola may not be a particularly
enticing African aviation growth market
compared with the likes of Ghana,
Nigeria or even the Democratic Republic
of Congo, but its broader economy
certainly punches above its weight. As

a member of the Organisation of the

Petroleum Exporting Countries (OPEC)
Angola has an assigned production
quota of 1.65 million barrels of oil a
day, indirectly contributing about 85
per cent of its GDP. It is the second
largest oil producer in Africa. After
emerging from a 27-year civil war, the
country relied heavily on support from
China, Brazil and Europe to re-build its
national infrastructure. Those partners
are now benefiting from Angolas
economic recovery, and Dubai wants a
piece of the action.
Thus in September 2013, shortly
before the preliminary agreement with
Emirates was signed, Abdul Rahman
Saif al Ghurair, chairman of the Dubai
Chamber of Commerce and Industry,
urged Emirati businesses to ramp
up trade with Africa in general, and
commodity-rich Angola specifically.
Construction, infrastructure, transport,
agriculture and tourism were identified as attractive sectors. His message
was reiterated last month, when Dubai
hosted the Africa Global Business
Forum in a bid to spur further investment.
For the governments of Dubai and
Angola, teaming Emirates with TAAG
may seem like a win-win scenario.
But political and commercial priorities rarely overlap. Dubai should be
mindful of its flag-carriers own painful
experiences in Sri Lanka. It should
also keep a watchful eye over its Gulf
competitors, which may be holding
out for more lucrative deals in larger
African aviation markets. <

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