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Why Running an Airline is Expensive in Nigeria
Lack of indigenous expertise, offshore training and aircraft maintenance, experts say, are the major reasons the airline business doesnâ€™t thrive in Nigeria, writes Chinedu Eze
During the International Air Transport Association (IATA) conference held in Abuja last year, it was established by industry experts that the reason why airfares are costly in Africa is because most governments in Africa still see air transport as luxury rather than a catalyst for economic development.
Presenters at the two-day conference talked about heavy taxes government levelled on airlines, the tax on aviation fuel and other types of charges, which invariably are passed to the passengers.
Nevertheless air transport contributes significantly to the economic development of every country. The decision makers, the business moguls, entrepreneurs, government officials need to move fast in their diurnal activities and they need to travel by air. In fact, it has become obvious that without air travel the economy of most countries would ground to a halt.
The conclusion of the IATA meeting was that governments in Africa should cut down on charges and see air travel as a necessity and make it as affordable as road transport so that more people would travel by air because if they do, the aviation sector would galvanise the economy, create thousands of jobs, boost tourism and contribute significantly to each countryâ€™s GDP.
But beyond the high taxation and governmentâ€™s perception of air travel as luxury, aviation is underdeveloped in most parts of Africa. In Nigeria, there is high potential that air transport could multiply the number of people currently engaged directly and indirectly in the aviation sector and also the resources generated therein but government need to provide fillip for this potential to be realised.
In a speech he delivered on Monday at a seminar titled the Nigerian Aviation Education Infrastructure- Challenges and Potential, organised by Springfountain and Boeing, the Minister of State, Aviation, Senator Hadi Sirika said the seminar wanted to know what the Nigeriaâ€™s aviation education policy is, the experts and the approved training organisations (ATO), the current situation in the aviation education infrastructure and the quality of students, staff and graduates from the Nigerian approved ATO, polytechnics, universities and others.
Sirika noted that these questions were pertinent because their answers would enable government to enact the best public policy and strategy that would evolve a viable aviation industry and produce for the local and global aviation industry highly skilled and capable Nigerian pilots, engineers, technicians, ICT experts, etc.
â€œI believe these questions are asked within the context of the role that Nigeria and Nigerians seek to play within the global aviation industry, an industry that is worth more than $5.2 trillion dollars. It should be noted that airlines alone have consistently generated a turnover in excess of $700 billion per annum over the last five years, and reported profit over $30 billion per annum on the average over the last five years,â€ he said.
Sirika noted that in the aviation industry the airline and aircraft Maintenance Repairs and Overhaul (MRO) organisation are expected to generate in excess of $1.8 trillion dollars over the next 20 years, this turnover excludes upgrade services, adding that other service providers in the aviation and aerospace industry such as Boeing, Airbus, General Electric, Pratt and Whitney, Honeywell, etc would generate far in excess of these in their capacity as aerospace and aircraft original equipment manufacturers.
He also noted that the aviation industry globally, expects between 5.8 billion and 7.2 billion passengers to travel yearly by the year 2035, a near doubling of the 3.8 billion air travelers in 2016 (source: International Air Transport Association (IATA)).
â€œThe above predicted growth has implications for aviation education and education infrastructure and Nigeria and indeed Africa needs to be properly positioned to be beneficiaries of the growth potentials. For this to happen, Nigerian colleges, universities and other approved aviation training institutions will need to define the policy and strategy that will enable them train and graduate students who will join the global industry to move this quantity of passengers in a safe, secure and satisfactory manner; after all, it is reported that the top ten fastest-growing markets in percentage terms will be in Africa: Sierra Leone, Guinea, Central African Republic, Benin, Mali, Rwanda, Togo, Uganda, Zambia and Madagascar. Each of these markets is expected to grow by more than eight percent each year on average over the next 20 years, doubling in size each decade,â€ Sirika said.
The minister said he was convinced that Nigeria, as the giant of Africa could do better than the predictions for the above countries â€œif we pay due attention to germane issues bothering the industry such as the issue of aviation education and aviation education infrastructure. If we properly address these issues I believe that we would have better safety, security, operation, customer service, consumer protection, regulation, economic and social benefits.â€
Because Nigeria lacks these highly skilled technical personnel in aviation industry, the airlines have to pay for expatriates and they pay more than twice what they would pay indigenous alternatives. They also get half of the service the indigenous personnel would offer because most of the expatriate pilots and engineers would work six months for Nigerian airlines and enjoy six months holiday, while the airlines pay first class ticket for their movements.
Sirika said that apart from adequately meeting the human resource requirement in the Nigerian aviation industry, Nigeria and Nigerians could become expatriates in the world aviation industry and also further fulfill the yearnings of the Yamoussoukro Declaration (YD) and African Union Agenda 2063 (AU 2063), which canvass open sky for African airlines in the continent.
â€œIn doing this, Nigeria and Nigerian aviation professionals working in Africa, Asia, Middle East, Europe, America will join the world in earning huge foreign exchange and making Diaspora remittances,â€ Sirika added.
He noted that employment in the aviation industry is expected to remain stable over the next 20 years and beyond, describing aviation as an enabler and an economic multiplier.
â€œPeople want to fly in a safe and secure environment, this allows people and nations to trade, explore, and share the benefits of economic prosperity. The Banjul accord, YD NDP and African union Agenda 2063 underscores and promotes the need to make Africa and the world a better place. Nigerians who are well educated and well trained can be better positioned to join the world in the world global Aviation market place to offer quality services and thus contribute to Nigeriaâ€™s GNP and GDP.
â€œThe ability of Nigeria to play this role will largely come from the quality of aviation education policy and the faithful implementation of such policy. This will be complemented by the positive enabling environment and the good quality modern aviation infrastructure that the students, teachers, instructors and professors have access to in their training institutions and ATOs.â€
Another factor that makes running airline business very expensive in Nigeria is the fact that airlines ferry their aircraft overseas for maintenance. Ferrying the aircraft overseas costs huge money because the airline would pay for fuel, landing charges, parking charges; it would pay the pilots and engineers that would ferry the aircraft and then it would pay the inspectors from the Nigerian Civil Aviation Authority (NCAA) that would inspect the aircraft at the maintenance facility overseas. This is in addition to paying the cost of the maintenance, which could cost from $500,000 to $2 million. These cost the airlines hugely, but if the Maintenance, Repair and Overhaul (MRO) facility is located in Nigeria, it would at least save the airlines about 50 percent of these expenses.
The Chairman and CEO of Air Peace, Chief Allen Onyema said the huge capital flight to other countries as a result of non-availability of critical infrastructure such as MRO, leasing companies and others have impacted negatively on the aviation sector, adding that Nigerian airlines would save hugely if the country could establish maintenance facility locally.
As corollary to aircraft maintenance is aircraft leasing and insurance. Because Nigeria lacks technical know-how and it is believed that the operational environment is harsh, it costs Nigerian airlines more to lease aircraft and also the insurance premium for aircraft that operates in Nigeria is relatively very high.
Onyema observed that the stringent conditions given to Nigeria airlines whenever they plan to lease aircraft is exorbitant and that is why many operators consider outright purchase of aircraft instead of leasing at such outrageous costs.
â€œI can confess to you that it has been difficult leasing aircraft to airlines in this part of the world, the conditions given to Nigerian airlines is killing, they tell us we are unsafe, government is not supportive, their planes can be endangered, the condition are outrageous, so we make do with what we have but it is capital flight and there is nothing we can do.
â€œBut we will be happy if we can have our own GECAS (aircraft leasing company) in Nigeria, this country will be saving over $500 million every year, if we have our own MRO, because we spend millions on aircraft maintenance I am truly in support of the plan to have a leasing company in Nigeria. This is what we have been yearning for, if this can happen, all the challenges will become a thing of the past. This is a great idea that will create jobs for Nigeriansâ€, he said.
Sirika disclosed that over the next 20 years, aircraft manufacturer, according to prediction by Boeing would manufacture over 39,600 airplanes valued at more than $5.9 trillion because the total number of aircraft in 2015 would increase from 22,510 units to 45,240 aircrafts by the year 2035. This will come from the manufacture of 39,620 new units of various types of aircraft worth $5,930 billion. It is predicted that Africa would require 1,150 units valued at $ 170 billion.
So he said that the engineers, ICT experts, pilots, etc that would join and participate in the design, manufacturing, operations and maintenance of these aircrafts would be in excess of one million people, adding that there would also be additional need for additional aviation infrastructure to service the increasing fleet of aircraft.
â€œThe challenge is how many of these aviation experts and professionals will be Nigerians and how can we implement and benefit from setting up the various infrastructure required? Is the current Nigerian university system or technical education system able to train, educate and produce experts and professionals that will participate in this $5.9 trillion dollar marketplace?â€ he rhetorically asked.