National Carrier as a One Chance Bus

– Feyi Fawehinmi

A few weeks ago, there were reports in the papers about N47bn being set aside for Nigeria Air. Having wasted so much money already on a logo and branding, it seems that this doomed project has simply refused to die and Nigeria is determined to set scarce resources on fire.

National Carrier is a one chance bus

The very first point here is this — no matter what they tell you a national carrier will cost, it will end up costing more in reality. That is to say, if you want to do it and make a success of it, you need to approach it with an open cheque. Nigeria Air supposedly has a price tag of $300m. That’s fine but once that first plane takes off, you can kiss that price tag goodbye. It will cost far more. It is one of the best examples of a sunk cost and how people get into the trap of chasing their losses by spending more money.

It is one thing to start an airline with $300m it is a completely different thing to keep it running. And that cost of keeping it running cannot be known in advance. You will always be buying planes, you will always be developing new routes at a loss, you will always be needing a new terminal. The further along you go, the harder it is to turn back. This is before adding the extra Nigerian madness like unions who will refuse reforms or political interference from politicians who insist their family members ought to fly free.

Consider Etihad Airways. If anyone should have an idea how to run a state backed airline, it should be them. Afterall they have the example of Emirates right next door to them and should at least be able to copy. But what has happened in reality? Etihad has racked up losses of  $1.52bn for 2017 and $1.95bn in 2016. It is only now trying to get a grip on its costs by removing its former CEO and sacking 4,000 workers a year ago.

I’m sure the initial cost of the airline was also $300m and was to be private sector led. You cannot know what the national carrier will cost but once you enter the ‘one chance bus’, you will spend and spend until you can no longer continue. Then when you close it down, you will still be left with the mess to deal with.

Airline profit is like smoke

Do state backed airlines really make profits? The moment this debate comes up, the first thing people shout is Ethiopian Airlines. Yes that airline makes a ‘profit’ but is it really that simple? Yes, Ethiopian Airlines made a profit of $148m in 2015 but the only person who has seen its accounts is Audit Services Corporation of Ethiopia. That is, a 100% government owned airline is audited by a government audit agency. The same government also does not demand dividends and subsidises the airline in various other ways. The only thing you can conclude here is that it is a well run airline — this explains why it was able to launch its ASKY subsidiary effectively. Whether it actually makes any profit is highly debatable. I would personally doubt it but then I have no evidence.

Even funnier – while Nigeria was ‘talking’ to Ethiopian Airlines as one of the ‘investors’ for Nigeria Air, Ethiopia was itself looking for buyers for some of its stake in Ethiopian Airlines due to the country’s severe foreign exchange shortage.

If one of your reasons for supporting the national carrier is that it will make ‘profits’ for government, you should look for another reason. If you are lucky, after many many years, the airline will be able to stand on its own two feet. You are free to check out how much profit Turkish Airlines, Qatar Airways or the others actually make for the governments who own them.

Warning Signs and Options

If someone is vehemently opposed to the national carrier, does that mean the person does not want Nigeria to make progress? That is one of the ridiculous arguments you hear when this debate comes up. Somehow, the government has succeeded in making the idea of a national carrier an emotional issue.

Money is fungible. If you don’t spend it on a national carrier, you can spend it on roads or ports or even airports. But if you spend it on a national carrier you cannot spend the same money on other things. And at this point in time when resources are so scarce and Nigeria already locked into so much wasteful spending, how exactly is embarking on a national carrier a solution to anything?

The warning signs are already there. It is clear that the minister was incredibly ‘excited’ about the project. He powered ahead with the plan like it was the most important thing in the world.

Without investors or a broader strategic plan that might even justify a national carrier as a kind of ‘loss leader’, he went ahead and started speaking to plane manufacturers and even designed a logo. The airline was to be launched in December with a plan for the government to own 5% of it. It is good to understand the idea of only 5% government ownership as another pipe dream. It will be a government owned airline until it can somehow make a profit and only then will the government be able to sell down its stake to such a level. At best, it might be private sector run but government owned. And when you own an airline, you will be responsible for all those costs.

You know your country

You know your country. You know your government. You know your people. You understand how the Nigerian middle class behave when it comes to cornering resources for themselves (remember how complaints about forex policy disappeared as soon as Emefiele made PTA available to the middle class?) You know how your government officials behave when they see something like this — they aggressively take advantage. You can already see how your government behaved with the logo launch and even forgot to buy the domain name for the airline. You saw how the minister was excited at the opportunity to buy a plane. You know how your country went against all recommendations and built a steel plant far away from the raw materials and the port.

You know all these things and still support this financial misadventure in the making? Then that is a failure of imagination. I urge you to close your eyes and imagine you have $300m to spend on improving the Nigerian economy. Think of what you’ll spend it on to improve the country that is NOT a national carrier and then see what you come up with. The government might be suffering from a lack of imagination but there is no reason why you should join them in that affliction.

– Feyi Fawehinmi is an accountant and social commentator.

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