Emirates is facing significant financial roadblocks with operations in Angola and is cutting back operations to reduce further risk. Emirates premiously operated five weekly flights to Luanda; that is being reduced to three effective immediately. The airline is also cutting its ties to the Angolan national airline TAAG, cutting short a planned 10-year partnership. This is the latest in an inevitable sequence of collapsing deals based on national governments blocking the repatriation of funds to companies outside their borders.
In the case of Angola the problem is “only” a couple hundred million dollars, depending on which IATA estimate is used. In June 2016 the number was $237mm while in December it may have been down to $190mm. The continued low oil prices are straining the country’s national reserves and airlines are one of the few businesses that have a lot of hard cash involved in transactions. Air Namibia was similarly struggling for much of 2016 but reported getting some money out in early 2017. Emirates is apparently less successful on that front.
All of these numbers are significantly better than the situation in Venezuela, the largest offender on this front. With nearly $4bn locked up and virtually no chance to ever get any of it back airlines are finally pulling out and walking away from that market as well. The political climate in Angola is not as hot as in Venezuela but it is still a touchy situation. KLM pulled out of Cairo for similar reasons at the beginning of 2017.
Read More: A security tech stop
The TAAG/Emirates partnership was particularly interesting when launched in 2014. Emirates took over management of TAAG, bringing in a new executive team and working to rebuild the route network; Houston-Luanda was rumored for a while in early 2016. That particular route never launched but the two airlines managed to initially stem severe losses and appeared set to succeed. Alas, the economy decided that was not to be. Angola is heavily dependent on oil exports for revenue (50% of GDP, 70% of government revenue according to the CIA Fact Book) and requires significant hard currency outlay to import food from abroad. And that comes after a long civil war and near financial collapse last decade.
The partnership with TAAG was not an equity stake, just a management agreement (and “a satisfactory” financial deal for Emirates as well). This differs from the many investments made by Etihad in other airlines around the globe that have yielded varying success and mostly abject failure in Europe. So while Emirates does not necessarily stand to lose significant capital by walking away from the arrangement it likely was informed that TAAG would no longer be paying for its services. Emirates has historically had a bit of money available to play with but profits aren’t as strong as they once were. Facing increased challenges on many fronts – aviation, political and otherwise – the company is now choosing to cut its losses rather than take on additional risk.
Header image: A TAAG 777-300ER sits in Brazil, awaiting its trip back to Angola. TAAG dominates the market between the two countries and was working to expand onward connections in Africa before the most recent economic slump.
Never miss another post: Sign up for email alerts and get only the content you want direct to your inbox.