Why Aviation is Unprofitable


Recently investors and airline operators met in Lagos to brainstorm on factors inhibiting growth in the aviation industry and the poor yield on investment. Chinedu Eze who was in attendance, highlights the key issues and solutions proffered

One of the reasons why there is poor infrastructure in the aviation sector is because the private sector is not investing in the industry. The reason why 150 airlines had gone under within a relatively short space of time was because of unfavourable government policies.

Those were the views of industry stakeholders and government representatives at the Aviation Round Table forum held in Lagos last week.

Poor Airport Infrastructure
The stakeholders noted that government policies do not encourage private sector investment in the industry. They observed that in other parts of the world, most airport facilities are provided by the private sector and it is done in a way that there is return in investment whereas in Nigeria, government officials and government policies are a disincentive to investment in the sector.

Specifically, Chairman of the Resort Group and the operator of the Murtala Muhammed Airport domestic terminal (MMA2), Wale Babalakin (SAN), said that over the years, government and its officials have always been hostile to private sector investment in Nigeria. He traced efforts made by entrepreneurs in various sectors of the economy that were discouraged, sometimes to huge losses by the investors. Babalakin noted that government in Nigeria may not yet be disposed to providing the necessary incentives to encourage private sector investment and because it cannot provide the necessary essential infrastructure to drive the nation’s economy, that explains why Nigerians suffer so much due to poor infrastructure- road, airport facilities to inadequate electricity.

Babalakin said that aviation could be a catalyst for economic growth, “but I am not convinced on this happening; even if we are, I am not convinced that we have the skills to achieve that. I have seen so many airlines come and go and I have researched thoroughly the reason for their collapse.”

He recalled that in the past, the Military was accused of being responsible for the poor performance of the aviation industry and other sectors of the economy but noted that the military always had their civilian collaborators, including aviators who had put so many years in the industry.

“I used to hear the blanket response that it was the military that collapsed everything; that is, the military government. But the engine of the military is the civilians, including aviators who did not come to grow the industry. So the military, civilians and aviators destroyed the industry,” Babalakin said.

He expressed regret that the education system in Nigeria is deficient in the sense that it does not prepare the young to acquire the skills that could be used to effectively manage the economy. He also recalled that Volkswagen established a plant in Nigeria at the same time it did in Brail but while the Nigerian plant had gone into extinction, that of Brazil had grown and expanded.
According to him, Nigeria is 50 years behind Brazil in development, but the later was contemporaneous with the most populous country in Africa about 50 years ago.

“In the airline industry government promised to build maintenance hangar and other infrastructure but what we have is the carcass of what was promised. There is nothing in the aircraft that is manufactured locally; even the fuel we have in abundance is imported! This is the melancholic decadence of great intellect. This is the product of mediocre that does not have the intellect to know whether you are wrong or right. We have to start again. I look forward to the great aviation industry but I have not seen the template,” Babalakin said.

He remarked that since he came into the aviation industry he had witnessed 11 Ministers of Aviation with their policies swinging from left to right and expecting industry investors to swing along with them.

“We have run MMA2 for 10 years without blackout. But we have less than 5 percent of the revenues generated by the international terminal. I was told when that airport was built that it would be replicated around Nigeria. Big projects come from 75 percent thinking and 25 percent implementation. Before we built MMA2 we went round the whole world to get a suitable design.

“But we have a government that does not honour its own agreement. Such government cannot be taken seriously by outsiders. We have to find a way at the negotiating stage the best mind in government to preside over such agreements,” Babalakin stressed.

Stunted Airlines
In his opening remark, the President of ART, Gbenga Olowo noted that development is a serious issue but without sustained growth there cannot be development.

“We have about eight commercial airlines in Nigeria. We have a total number of 44 operating aircraft. This could be managed by one airline. Can the airlines come together as one airline to operate the aircraft without losing their identities? The answer is yes. This will kill local competition and the airline could operate a monopoly but then they could compete effectively with international airlines. This will make them profitable as they will review their tariff to reflect the actual operating cost, as competition drives down the fares,” Olowo said.

On his part, Chairman of Air Peace, Chief Allen Onyema, raised the alarm over the negative impact of various charges being levied on airlines by aviation agencies and urged the National Assembly to quickly intervene to save the sub – sector from total collapse.
Onyema said the charges were killing their operations, expressing sadness that the exorbitant charges were responsible for the killing of about 150 airlines in the past and also responsible for the short life span of airlines in the country.
He said due to harsh operating condition in the country, airlines are not making profit as the little gains go to agencies in the form of taxes.

“The major challenge Nigerian airlines have is double taxation. We pay VAT, Passenger Service Charge, parking charges, en-route charges and others, 37 in all. Government and aviation agencies policies are inimical to airline operations. Government was magnanimous enough to give us waivers on imported aircraft spares and even the equipment itself, but Nigerian Customs Service always find a way to make us pay some charges. For the waivers to be effective it has to be passed into law by the National Assembly so that it would not be subjected to government tenures; that when the government that introduced it goes, Customs will go back to collecting the tariffs. And government should urgently review these charges and taxes in order to ensure the sustainability of the airlines,” Onyema said.

He stressed that there is something fundamentally wrong with the system for 150 airlines to go under within a period of 30 years and attributed the collapse to harsh government policies.

Onyema lamented that Nigerian airlines fly only between 6:00 am to 7:00 pm instead of 18 to 22 hours a day due to poor airport infrastructure, noting that in most airports there is no airfield lighting coupled with lack of manpower, adding that airline business is unfortunately made to fail from the beginning as government does not provide any incentive to ensure the sustainability of airlines in Nigeria.

FAAN Reaffirms Commitment
But the Federal Airports Authority of Nigeria (FAAN) said it was poised to providing essential amenities like airfield lighting and other facilities at the airports to prepare them for certification by the International Civil Aviation Organisation (ICAO). The agency said it would certify the first five airports by November this year and these include the Port Harcourt International, the Nnamdi Azikiwe International Airport, Abuja, the Murtala Muhammed International Airport, Lagos the Mallam Aminu Kano International Airport, Kano and the Akanu Ibiam International Airport, Enugu.

The Minister of Information, Lai Mohammed said that there was the need for a legal framework in Private Public Partnership (PPP) policy and urged that government officials need to change their approach to agreements validly entered into with any private investor, irrespective of his or her ethnic background or religion, in order to attract the required private investments for the economy.

While describing MMA2 as a proof of what the private investors can do, the Minister said, “If MMA2 is an error, it is a good error and I want that kind of error replicated all over Nigeria”.

He lamented that the greatest challenge Nigeria has is institutional consistency, which he noted has retarded Nigeria’s developmental growth over the years.

“If you don’t obey your own agreements you will be sending wrong signal not only to your local community but also to the international community. People come here to invest with the hope of recouping their investment. So the first thing is to obey agreements,” Mohammed said.

Need for favourable Policies
The Chairman of Airline Operators of Nigeria (AON), Captain Nogie Meggison called for clear policy to grow the nation’s aviation industry with the aim of making it a hub in West and Central Africa. He lamented how Nigeria is sitting by and Ghana with less than 50 percent of Nigerian population is striving to be the hub of the sub region.

Meggison said that government could help the industry grow by reviewing downwards the charges leveled on airlines and observed that in Ghana, government assisted the industry by removing VAT and reducing the price of aviation fuel by 20 percent. He also noted that whereas Nigeria is still contemplating, South Africa Airways is setting Maintenance, Overhaul and Repair (MRO) facility in Ghana; even as 60percent of the international passengers that pass through Ghana come from Nigeria.

“Aviation can create 200,000 direct and indirect jobs and government can do this if it is committed to it because I remember when we were having series of accidents in Nigeria and government came up with deliberate policy to stop future accidents and shortly after, Nigeria secured the Category 1 safety status from the US Federal Aviation Administration (FAA) and now almost all the Nigeria airlines have IATA Operational Safety Audit (IOSA). When Nigeria also secured the Cape Town Convention, South Africa in which city the convention was signed was yet to obtain it. So government has the will to make things happen,” he said.

He also noted that “safety is not a standalone; other things have to be in place for high safety standard to be achieved, but in a situation where the airlines do not have operational funds, over time the safety standard might be compromised, so it is the responsibility of government to ensure that airlines have access to funding and government could make this possible trough favourable policies.”