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Before Another Plane Crash…

09 Nov 2012

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 Dana plane crash

By Leke Alder

A few weeks ago, one of the better-known airlines in the country turned back its passenger plane to take-off point because of a technical glitch in midair. It was travelling from Lagos to Abuja. The week before that incident, the same airline disembarked passengers after a 30minute delay on the tarmac. The engines failed. Yet this is one of the most professionally managed airlines in the country.

We all know that all is not well with our aviation industry. The pain from the last air crash lingers on cancerously in our collective memories. There have been 26 crashes in Nigeria’s aviation history. The total number of souls lost, minus ground casualties, is 1,438 with 661 casualties recorded in the last twelve years alone. The first air disaster was the Nigeria Airways BAC VC10 crash on November 20, 1969. It killed 87 people. The last recorded commercial crash was the June 3, 2012 Dana Airlines Flight 9J 992. It killed 153 people. We have a 43 year history with death in our aviation industry.

Perhaps the most traumatic crash was the demise of an entire generation of school children in the Sosoliso Airlines crash of October 29, 2006. Some parents past childbearing age lost all their kids. When death prematurely visits a home, it leaves indelible prints in the hearts of the bereaved.
But the nation also suffers patriotic bereavement when the circumstances of a crash are preventable. The citizens lose faith in government ability.

To be sure, we NEED airlines in the country for pragmatic, economic, political and sociological reasons.  Airlines facilitate the national vision. They aid the development and connectedness of communities. They open the disenfranchised to the marvels of the modern world and engender generational attainment. We need airlines because of the sheer impracticality of total reliance on road transport systems. Our airline industry must not collapse. It will be a tragedy of monumental proportions.

At this juncture, let me commend the efforts of the Ministry of Aviation in revamping the look and feel of some of our airports. Whatever our level of cynicism, it is a step in the right direction. We tend to underestimate the role of ambient aesthetics in our perspective on patriotism. How the average Emirati must feel about Dubai Airport! And surely the glowing, golden, scarlet and palm frond motifs on the tails of the forests of planes belonging to Emirates Airlines must inspire national pride. We need a national carrier, even if just for patriotic sentiments. The value of patriotism is unquantifiable.

Several suggestions have been put forward on how to improve the health of our aviation sector. I do not have a comprehensive grasp of all that has been suggested but one or two are clearly not feasible. A forced merger of airlines will not work. The idea of a forced merger is oft paralleled along the lines of the restructuring of the banking industry, but forced mergers have their problems. What you don’t want in an airline corporation are boardroom wrangles. When there is no corporate cohesion on the board of a bank money is lost, but in an airline lives will be lost. When capitalized egos clash in the boardroom, Nigerians will suffer.

The factors afflicting our aviation industry are myriad. They include lack of access to inexpensive capital, poor corporate structures, poor management systems, weak board oversight, poor local infrastructure, sky-high cost of fleet maintenance, poor IT infrastructure, dollarization of maintenance costs against local currency earnings, a dearth of highly skilled professionals across the service spectrum, high cost of aviation fuel, poor regulatory oversight, corruption, lack of standards, insensitive customer service culture, poor market accountability, limited competitiveness, pygmy national will, the missing national aviation vision, poor disaster response systems and our negative attitudinal disposition to maintenance culture. Regulatory oversight alone will not solve the problems of the aviation sector. Neither will the throwing of money at our airlines. Poor management will fritter such resources away. We need a more strategic approach. Policy makers must sit down with regulatory experts, finance professionals, airline infrastructure consultants, business consultants of different hues, IT professionals, security experts, civil society and consumer advocacy groups. Without an aggregation of brains and expertise we will never have an end-to-end solution. A holistic and all-encompassing blueprint must be developed and an execution framework mapped out. Aviation works for the good of a nation when the framework is end-to-end: from policy to infrastructure to financing to management to security to consumer experience.

A minimum level of capitalization must be required of airline corporations. The threshold must be high enough to prevent ego-driven charlatans, whilst the structure must prevent over-leveraged corporate promoters.

Ideas have been flown about the financing of younger fleet for our airlines.  Paying leasing corporations directly instead of giving cash directly to the airlines to purchase aircraft will address the issue of corporate malfeasance; it will not solve the problem of cost of capital. And we need to sort out the maths. Net taxes, operating costs, landing fees, personnel cost, cost of capital, maintenance, cost of fuel, do our airlines have enough income to operate? Can their cash flow profiles support loans for the acquisition of younger fleet? Our pricing regime convolutes issues.

Since it’s not market driven we have to be mindful of the consequences of such populism. One, our airlines can only be successful when they have a very significant number of planes. They must have economies of scale to succeed. Two, the market must be large enough to sustain such economies of scale. Three, all our airlines are effectively budget airlines. Four, the cost of operations must become lower and taxes reduced to create more margins.

The reality of our operating environment is that the benefit to the consumer can only be sustained through market forces. There must be a sizable number of serious players to create competition, or else we’re going to end up with an oligopoly. Because of the high cost of entry into the aviation market it’s going to be difficult to get that many players who are well resourced. As it is, only the Federal Government has the wherewithal to set up an airline with 70 planes or more. Therefore, we need a national carrier to create aviation markets, foster competiveness, close gaps of development, develop local economies and bring succor to the millions who are forced to use the road transport network with its over-burdensomeness and attendant carnage.

The primary purpose of a national carrier is not profitability (though it must be run efficiently and profitably). It serves strategic intents. But a national carrier will not succeed in Nigeria without a concrete wall of partition between management and government. Political interference kills business ventures.

The point being made is that we need to go further to develop our aviation industry. It’s not just the newness of fleet that will prevent disaster though it will certainly help, the quantity of planes and the quantity of effective competitors matter. So does the size of the market.

We are underinvested in aviation as a nation. We need maintenance hangars for at least mid-level servicing needs. The cost of maintenance is killing our airlines. Our training facilities tend to be focused on pilot and airspace management training. We need more than these though we need an upgrade of existing pilot training facilities. We also need a comprehensive School of Aviation Management.

As against throwing money at airlines why don’t we set up an Aviation Leasing Corporation to reduce the cost of capital for our airlines and serve as middleman between international finance and the airline industry? If we want to fix our aviation industry we must think about institutions and take a long term view.  Bulk buying of planes drives down unit cost. The cost of operations of this corporation must initially be guaranteed by the federal government in order to rescue our local airlines. As the corporation grows however the profit from its international operations can then be used to subsidize our local airline industry. The aviation leasing company can also cushion the attendant higher cost of accessing international finance occasioned by Nigeria’s image problem. This leasing company must be international in scope and professionally managed.

There is also the need to tackle corruption at various levels of our aviation industry but our biggest challenge remains the need to articulate an aeronautical vision that feeds into, and delivers on the national vision. It is not exactly clear what we want to be as a nation, or what interests our airlines should serve. Aviation is not an orphan industry. Neither is it ever just about transportation. We know what the airline industry means to the Kingdom of England.

Think BA. We see what role it plays in the overall economic and political strategy of the UAE. We see the Singaporean model. Airlines are inextricably linked to national vision. What do we want to be as a nation? What is the strategic hub of our economic vision? How can our aviation industry serve this vision? Without this I am afraid, we shall continue to lust after palliatives and resort to short-term measures.

Leke Alder is a brand strategy consultant. He served on the board of Nigeria Extractive Industries Transparency Initiative.

Tags: Business, Nigeria, Featured, PLANE CRASH

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