Proffering Easy Way to Establish National Carrier

05 Apr 2013

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Stella Oduah, Aviation Minister

While many Nigerians are still yearning for details on how the federal government  intends to float a national carrier, industry experts, who have been sceptical about government’s plan to actualise this goal, have offered realistic ways a national airline can be established, without government losing money. Chinedu Eze writes

When the present administration initially declared its intention to float a national carrier, it hinted that it would build the proposed national airline on one or two domestic carriers. Many industry observers then recommended Arik Air and Air Nigeria that have now gone under. But suddenly government dropped the idea and started talking about acquiring aircraft for domestic operators and in the sequence of its programme; this would be followed by the establishment of a national carrier.

Recognising the fact that for many years no administration has made the kind of impact this government has made in the aviation sector, few cynics doubt the good intentions of the government, but many are confused about how it would acquire aircraft for domestic operators and also establish a national carrier in that trend.

But the good intention  of government and realistic ways of approaching these good plans are often mired in politics which bedevils the sector and ensures that successful achievements are not given the commendations they deserve; rather, they are sometimes drowned by unmerited opprobrium. It is always a game of who shouts the loudest.

Amidst such cacophony, many critics have wondered why government could go through the unprofessional method of acquiring aircraft for airlines and establishing a national carrier when a domestic carrier like Arik Air could be used to establish one. Others are vehemently opposed to the idea.

The airline has 23 new generation aircraft acquired directly from the manufacturers and it is expecting another two aircraft and Arik Air’s fleet ranges from large body aircraft like Airbus A340-500 to turboprops. It operates international destinations and currently it dominates West and Central African sub regions in addition to airlifting 12,000 passengers locally with 120 flights every day.

The Chairman of Airline Operators of Nigeria (AON), Dr Steve Mahonwu, recalled that at its peak Nigeria Airways Limited (NAL) had 19 aircraft. It leased six of these aircraft from Airtara of Dublin, Ireland and one Boeing B747 from SAS, a Scandinavian airline, which the one time Minister of Aviation, Air vice Marshal Anthony Okpere (rtd) christened, The Spirit of Courage.  Also at its peak NAL was airlifting less than 5,000 passengers per day.
It is generally believed that Nigerians and Nigerian government do not believe in Nigerian airlines. Travel expert, Ikechi Uko attributed this to the penchant of Nigerians to denounce what is theirs and their predilection for what is foreign.

“The Nigerian person does not believe in the next Nigerian to give him a better service than the foreigner; even when that fact is untrue, the Nigerian believes that the grass is greener on the other side; he believes that anything foreign is better than anything Nigerian. So that belief of the Nigerian creates the first huddle for any Nigerian product to thrive. You have a situation where a Nigerian carrier like Arik has the best aircraft flying out of Lagos, yet most Nigerians do not patronise them the way they should, despite their having the best equipment, A340-500. That is the best plane out of Lagos but it doesn’t get the kind of traction that it ought to. So the Nigerian lacks the belief in the ability of other Nigerians to do well," he said.

The international aviation expert and the CEO, African Aviation Services Limited, Nick Fadugba, who is also former Secretary General, African Airlines Association (AFRAA) is convinced that using existing airlines to establish a national carrier would be a more realistic project.
Reacting to the government’s plan, Fadugba said: "The Federal Government of Nigeria’s plan to order 30 modern aircraft on behalf of Nigerian airlines and to create a new national carrier need to be very carefully evaluated by experts before they are implemented to ensure the best use of public funds.”

He said that extra caution is also necessary in light of the unintended outcome of the government’s recent intervention fund for Nigerian airlines, noting that despite the government’s good intentions, the fund did not produce the desired results and the financial condition of the Nigerian airline beneficiaries has hardly improved.

“Until the full details are disclosed, the plan by the Nigerian government to order commercial aircraft for private airlines appears to be very strange. It is almost unheard of anywhere in the world for a government to order commercial aircraft directly from manufacturers on behalf of private airlines. The financial and asset risks are just too high. Most governments have no expertise in negotiating multimillion dollar deals with aircraft and engine manufacturers on behalf of third parties and they are unlikely to extract the best possible terms. At the most, a government might provide a payment guarantee to aircraft financiers on behalf of a national airline.

Fadugba also noted that aircraft fleet planning was a critically sensitive subject for airlines. The final decisions are based on the airline’s business plan, its route network, the payload-range capabilities of each aircraft type, and financial and other considerations.

“These decisions need to be taken by professional airline management rather than by politicians. Choosing the wrong aircraft type can prove very costly. Hence the need for caution before the Nigerian government proceeds with its order for 30 aircraft.”
He said that what was certain was that Nigeria urgently needs a safe, strong, reliable and affordable airline industry to facilitate trade, tourism and economic development.

“Currently, over 95 per cent of international air traffic to and from Nigeria is carried on non-Nigerian airlines resulting in huge capital flight annually, funds which ideally should have been retained in Nigeria. In addition, most Nigerian-owned carriers face serious financial, operational and managerial challenges which have eroded their ability to provide efficient services to the travelling public and potentially could jeopardise safety.

“In 2004, the Federal Government of Nigeria chose to shut down Nigeria Airways, the former loss-making national carrier, rather than privatise it. Nine years later, no privately-owned airline in Nigeria has been able to adequately fill the vacuum created by the demise of Nigeria Airways. The largest private airline to emerge has been Arik Air, which has the biggest aircraft fleet, route network and revenues but still faces many challenges, including being too highly leveraged.”

Fadugba observed that the federal government is now talking about launching a new national carrier, “although few details have been publicly disclosed. For such a project to succeed, it is important that the government should widely consult with the Nigerian aviation industry, it is necessary to examine why the previous national carrier failed and what lessons can be learned. In addition to its huge debts, Nigeria Airways suffered from political interference and mismanagement.”

“What will be different if a new national carrier is launched today? Are we sure we shall not see a repeat performance of the political interference and mismanagement? We need to ask ourselves tough questions and be strong enough to accept truthful answers before a new national carrier is created, so as to avoid the costly mistakes of the past.”

Fadugba identified a possible method of creating a new national carrier. He proffered that the Asset Management Corporation of Nigeria (AMCON), headed by CEO, Mustapha Chike-Obi, could establish a legal vehicle or Special Purpose Company called ‘New Company’ (Newco),
He suggested that in respect of those Nigerian airlines which are heavily indebted and are unlikely to be able to repay the intervention funds they received from the government, AMCON could convert the debt to equity as it has done with Aerocontractors.

“AMCON would thus effectively take control of several Nigerian airlines which could be bundled into the Newco to form the nucleus of a new national carrier, with AMCON holding shares on behalf of the federal government. The previous airline owners would be given shares in Newco and preferably would not be involved in the day-to-day management of Newco.

“AMCON could then look for core investors from Nigeria and abroad to properly capitalise Newco, procure a professional management team and allow the airline to be run professionally and free from government interference.  Newco would be renamed.  AMCON could arrange an Initial Public Offering (IPO) of shares in Newco after three years of operation.

“Leveraging Nigeria’s strategic location in Africa and the underlying strength of its air transport market, membership of a global airline alliance should be a target for Newco from day one, but the final decision would only be taken after careful evaluation of each global alliance once the new national carrier was well established.”

He said that ideally, to create the best working environment and to have everybody on board and fully-committed, this strategy for creating a new national carrier should be achieved through consensus between AMCON and the privately-owned airlines in Nigeria, including Arik Air, rather than by dictate or executive fiat.

Out of the existing airlines in Nigeria, Arik Air is most prepared to take advantage of this offer, but many Nigerians said that the airline is heavily indebted and is poorly managed. At its sixth anniversary, the Chairman of Arik Air, Joseph Arumemi-Ikhide said that few Nigerians give the airline chance to survive and also spoke about the debts.

“Some people are still saying we go with heavy debts. Is there any airline that buys planes without borrowing? I am wondering why do we like pulling our own houses down? If you tell somebody Arik Air owes N84 billion and they see the aircraft, the age of the aircraft, they laugh at you because that is under borrowing. Each of those aircraft that you see, the Boeing B737-800, some of them, the way we configured them eat up $96 million apiece,” Arumemi-Ikhide said.

But Fadugba recently emphasised that it was given that airlines owe debts but viable airlines must service those debts. Arik said that it had been servicing its debts. This was confirmed by the Managing Director of the Federal Airports Authority of Nigeria (FAAN), George Uriesi, on Monday last week when the members of House Committee on Aviation visited. Uriesi said that Arik had started paying its debts to FAAN. AMCON also confirmed Arik was servicing its debt, which it inherited from Union Bank Nigeria Plc.

But just as many people would want the federal government to take easy way out by establishing a national carrier with Nigeria’s foremost airline, many other Nigerians will never want to hear that. It boils down to what Uko observed earlier, “The Nigerian person does not believe in the next Nigerian to give him a better service than the foreigner.”

Tags: Business, Easy Way, Featured, National Carrier, Nigeria

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