Ethiopian Airlines will have a 49% stake in the new airline, with the government making 31% available to Malawian investors and holding the remaining 20%, according to media reports.
Air Malawi halted its flights in February after entering voluntary liquidation last year.
The carrier flew to Dar es Salaam, Harare, Johannesburg OR Tambo, Lilongwe and Lusaka from a main base at Chileka International Airport (BLZ) at Blantyre.
In February, Ethiopian Airlines was declared the "preferred bidder" by Malawi’s Private Public Partnership Commission (PPPC) as a strategic equity partner for a restructured national airline.
At a press conference to announce the deal with Ethiopian Airlines, Jimmy Lipunga, CEO of the PPPC, reportedly said the government would invest $20m into the company.
Air Malawi’s fleet - a B737-300, a B737-500 and an ATR 42-300 - is now on the market to help clear the company debts, according to media reports.