Heilemedehin Abera Tagegn, 32, who has been held in custody in Switzerland since the incident, will therefore face no charges, says daily Le Matin.
On February 17th 2014 Tagegn was second in command on an early morning flight from Addis Ababa to Rome, with 202 passengers and crew on board, when he locked himself in the cockpit after the captain went to the toilet.
Telling air traffic control he was hijacking the plane, he then landed it safely at Geneva's Cointrin airport and claimed political asylum in Switzerland, saying he “felt threatened” in his home country.
On Thursday the Swiss public prosecutor said no charges would be brought against the man.
“Experts have unanimously decided that he was in a state of complete paranoia during the facts,” his lawyer Philippa Currat explained to Le Matin.
Considered “incapable of judgement”, the man cannot, therefore, be held responsible for his actions.
The decision confirms the statement given by the pilot's sister a day after the incident when she said her brother “believes that he has enemies that want to attack him. He thinks that his phone is tapped. He has installed a surveillance camera in his bedroom.”
The pilot will now go before a Swiss federal court which will order him to undergo “therapeutic measures” to treat his paranoia and delusions, most probably in a closed facility, said his lawyer.
Should he ever be sent home to Ethiopia, the man will face a jail sentence of 19 and a half years after a trial convicted him in absentia of aerial piracy in March this year.
In May Swiss authorities rejected an extradition request from Ethiopia.
The incident caused a major stir in Switzerland at the time, being the first time since 1987 that Geneva had dealt with a hijacking.
The airport was closed for more than an hour after the plane landed at 6.02am and many flights were diverted or cancelled.
It was also highly embarrassing for the Swiss air force, which was off-duty at the time, meaning Italian and French fighter jets had to be scrambled to accompany the plane to Geneva.
“Switzerland cannot intervene because its airbases are closed at night and on the weekend,” Swiss Air Force spokesman, Laurent Savary, told AFP at the time, blaming lack of budget and staffing.
Official office hours for the Swiss air force are from 8am to noon and 1.30pm to 5pm.