The Chief Executive Officer of Aero Contractors, Captain Ado Sanusi, in this interview speaks about his expectation from the aviation sector in 2020 and stresses the need for the federal government to introduce measures that would help in protecting domestic airlines. Chinedu Eze provides the excerpts:
You said in an earlier interview that 2020 may not be better than 2019 because same number of aircraft will still be operating and some will go on maintenance. Do you still hold this notion?
What I explained in that interview was that if you look at what happened in 2019, it is not going to be totally different from what will happen in 2020, because we have not seen any huge order of aircraft for the commercial part of it. I mean scheduled operations. The number of passengers is steadily growing while the number of operating aircraft is steadily shrinking and my prediction is that because of that, there will be increase in fares. This has to do with demand and supply. When the demand is high and the supply is low, the prices of course will go up to cover the gap. The demand will keep increasing, but the capacity of the aircraft will not have significant increase in the year. This will mean the airline will just close the price range that is low and then the high price range will be open for passengers to see. This happened when Nigeria Airways was liquidated and when Kabo Air and Okada came in, because they couldn’t satisfy the market, people were on tarmacs struggling to board flights. There was a lot of racketing, touts were selling boarding passes and it was chaotic to board. That will not happen now because things have changed, infrastructure and technology have improved a bit and processes and procedures have changed. So, I don’t think you will see people struggling to enter airplanes, but the struggle will be done at the pricing level.
Prices will be high, so the highest bidder will be the ones to buy the tickets. This is what will happen as regards supply and demand. The supply is the number of aircraft and the demand is the passengers. You may try to increase the rotation of an aircraft and that will lead to delays and cancellations. For instance, if you have an aircraft and you intend to use it from Lagos to Abuja, there is a minimum time that you will use to turnaround that aircraft both in Abuja and Lagos and you have to have that time. There is a minimum time for turnaround. Efficient airlines use at least 20 minutes to turnaround a Boeing 737 with 140 passengers. So, you must put this into consideration if you want to do a lot of rotation for one aircraft. Nigerians also don’t like travelling at night. They prefer to travel between sunrise and sunset. So, it is going to be difficult for you to put in that rotation between sunrise and sunset even though the airport may accommodate you at night, but the passengers prefer to travel during the day.
Since 2014, after Air Peace came in, there has not been any new airline or scheduled operator that joined the market, while existing ones are shrinking. What do you think is responsible for this?
There are so many factors for airlines not springing up in the country and probably part of the reason is that investors are skeptical of investing in aviation industry, especially after what happened to Arik Air, Aero Contractors, Afrijet, Discovery and First Nation Airways, amongst others. Investors usually gravitate to where their investment returns are high; not where they have seen that the industry has result failures. They are skeptical to invest their money in the industry but I think with the right business model and the right attitude and good corporate governance, aviation is one of the best investment frontiers in Nigeria and in West Africa.
Do you think government needs to establish a special development bank for the sector or agree with existing financial institutions to create special funds for airlines?
There are so many things that we need to address to make sure that we make the aviation industry prosper. Airlines cannot have access to funds outside the country; airlines are finding it difficult to lease aircraft. Even if you form a leasing company or the Bank of Industry agrees to provide funds or buy the airplanes, they must see a way they can recoup their investment or retrieving their assets. First, let us make sure that we are truly compliant with Cape Town Convention (which enhances aircraft leasing). We must make sure that we as a nation, we have zero tolerance for any operator that is contravening the Cape Town convention, so that all international leasing companies will have confidence in our airlines that are operating in the country. With that, you don’t even need to form a leasing company because the international leasing companies are confident that immediately they tell the Nigeria Civil Aviation Authority, (NCAA) that there is a default or they tell the government parastatal that are responsible such as customs, immigration amongst others, they can all help you to retrieve your assets. So, we don’t need to form a leasing company because even if you form a leasing company and somebody defaults, I can go to court and obtain judgment that you shouldn’t touch the equipment for years, knowing fully well that aviation is totally different. If you put an aircraft on ground for 12 months without doing anything, there is deterioration and if it is not under storage, you probably will loss the entire asset. So, those are the things we should address as a nation and make sure we have zero tolerance as regard implementation of Cape Town convention. We need to make sure that all operators must sign to this. If I lease an aircraft, I’ll give you all access to return your aircraft when there is a default.
Secondly, people can’t go to international organisations to get fund because of the same reasons. People must have a way of getting their money back. So, we must ensure there is repayment protection where if airlines borrow money, the CBN makes sure the money is available to change into dollars as quickly as possible, so that the people involved can get their monies as quickly as possible. Aviation is an international business and we don’t have manufacturing plant in Nigeria to manufacture aircraft parts and sell to ourselves, we have to rely on companies outside the country to manufacture because we don’t have the capacity financially to buy 100 airplanes and lease.
So, we have to rely on international bodies to buy aircraft and lease to us, or rely on international financing companies to finance aircraft so that we can have it. In as much as we are going to rely on these international bodies, then we must conform to their regulations and we must make sure they are comfortable with the regulations and local laws of the country that they can access their equipment and they can access their money and get it when they want. These are the things we have to look at when it comes to leasing aircraft and getting funds.
Governments over the years have not made effort to create conducive environment for airlines. Why is this so?
I agree with you. I don’t think successive governments have shown deliberate efforts or strategic policies to see that they protect the airlines and ensure the industry grows stronger. I think that is what is lacking and that is why we have stunted growth in the aviation sector because it has not been nurtured. If you have something that you really cherish, you will have to nurture it, protect it and make sure it grows into maturity but that has not happened in the aviation industry. We have allowed it to continue to be controlled by external forces; we have allowed it to be affected by even internal forces that hinder the growth. I always keep referring to the analogy in the agricultural sector. When we say we will not import rice and farmers would farm the rice that we will eat. Today, we boast that we can even export rice. So, it is the same thing. What we did was that we would not allow people bring in rice. So, we closed the boarders, so as to protect the farmers, so that they can produce rice themselves. It is the same thing we should do with the aviation industry. We should protect the airlines that are there so that they could compete with other airlines outside the country. We are not saying that they should ban all international airlines from coming but they should protect local carriers, which means that if, for instance, BA or Lufthansa is requesting for second frequency, we need to ask them which of the airlines in Nigeria will they be willing to partner with in order to have the second frequency? Or if they want three frequencies such as two passengers and one cargo plane, we must insist they partner with domestic airline for cargo.
These are the things we need to do to protect the industry and grow it. If you give multiple frequencies, it will be good for the customers flying out of the country, but it is not good for the aviation sector. It is the same thing with the agricultural sector. The rice farming is going higher and in the next five years, we will specialise into different kinds of rice farming. So now you can see that we can now become proficient in this rice production. So, it is the same thing with aviation. If you tell international airlines seeking second frequency to partner with any local airline, you will now be creating more capacity for those airlines. You are giving them opportunity to grow. I think this is the way forward for the aviation industry. It must be protected and government must have a deliberate policy to protect it. Over the years we have had policies right from the 1990s and they have beautiful reports that have been written but implementation is zero. The International Civil Aviation Organisation (ICAO) gave us a road map to 2025 and nothing has been done to implement this roadmap. In other countries, you have a roadmap and you know where you want to be at a certain year. I remember when the military government was saying Vision 2020; but now we are in 2020, but the vision hasn’t come. Now it is Vision 2030 and 2030 will come, but if we don’t implement the plans now, 2030 will come and we won’t still achieve anything. Big countries now are talking about plans for next 25 years. Look at Senegal for instance, it has just ordered eight brand new aircraft. One Airbus A220 aircraft will be delivered this year. The last time Nigeria bought a new aircraft, commercially was over 10 years ago, which was for Arik Air. We pride ourselves as the giant of Africa but I still don’t understand how we are giants.
Let us look at the correlation between having more airports with airfield lightening and enhancing operations. How will it aid operations?
Every airport is supposed to be built based on commercial viability. Every landing instrument or lighting system in the airport must be based on commercial viability. If commercial airplanes don’t land at night in the airports, why will you go and invest between $2 million and $3 million instrument, which you will not use? So everything has to be commercially driven. We have about 26 airports in the country. Do we need these instruments in all the 22 airports? No; because some of them are not commercially viable. Do we need to have the entire lighting systems for the airport? No because some of them are not going to be used for night operations but the ones that need to have lighting, then the lights must work and it must be 24 hours. The airport traffic system must sustain the lighting systems. You can’t have an international airport with one of the runways not having lights. You can’t have two runways and you have an international airport where you have said it is 24hours operations without lighting systems. If in a year you are going to have one week or month where you will need CAT III system, then you will go back and look at your traffic and see how many flights in that one whole month are coming and how many flights will be affected if they don’t have that CAT III system.
If the economics suggests that you need to make the investment, then you make the investment. If your airport does not have weather for the CAT III, then you don’t need the CAT III. If it is for two days in a whole year that you have weather phenomena, you probably will not need that because it doesn’t show the commercial sense. So, it is all commercially driven. Coming back to Lagos airport, is it commercially viable to have CAT III landing facility? You have to do the numbers but I think that we can have the CAT III and operate it when it is necessary and downgrade it when it is not necessary to operate it.
You can have CAT III and downgrade it to CAT I and when the time comes; you upgrade it to CAT III because it is very expensive to operate a CAT III permanently. This is what most airports do. You are doing that because of the international flight because I’m not sure any of the domestic operators, apart from Arik Air have the equipment that corresponds with CAT III. We must also understand that there is lot of things that needs to be done to maintain a CAT III. The pilots, the aircraft must be checked at regular times, the airports must be certified to do low visibility operations amongst others. So, there are so many things evolving around CAT III operations. So, as an industry, we should say we want CAT III operations because we have harmattan phenomenon at a particularly time of the year, which is about a month or less. So, it does not require us to operate CAT III for the entire year but we have the capacity to do it for those three weeks and we demonstrate to the world that we will operate it for this period of time. So many things are involved in this, some of which include power, the lights, and operations of taxi; because there are ways you taxi the airplanes under that condition. So, it is something I think we need to develop. In London, for a whole year, you could have such weather requiring CAT III for three to four months. In their country, they have realised that they don’t have sunshine throughout the year. There are times they need that system and they use it. The good thing about Nigeria is that we are blessed with very good weather but there are times when the weather is bad and it is at such times that we can operate it. It is the same thing they do in Ghana and Cotonou. They operate the CAT III system when the weather is bad and the international airlines trust them because they have shown that they have a CAT III system but when the weather drops, they activate a low visibility operation.
Considering the maintenance checks that you do at Aero, are there any incentive the government is giving you. Secondly, has the removal of VAT on importation of spare parts been implemented?
For government incentives, we are not really getting any incentive from government but they have encouraged us because if they have not encouraged us, we will not be here. The Asset Management Corporation of Nigeria, (AMCON) is very proud about what we are doing. In terms of real incentives, like giving us tax breaks and waivers, we haven’t received any. However, we still believe that the government will give us some incentives and this will encourage our Maintenance Repair Overhaul, (MRO). The removal of VAT on transportation system is a welcome development and I hope they implement it all the way to airlines.
You don’t pay VAT when you enter taxies and buses but it is only when you pay for air ticket that you pay VAT. So, the removal of VAT from transportation system completely including aviation is a welcome development because it will help the airlines have disposable revenues that will bring down the price of ticket. Because we buy the spare parts for aircraft outside the country, it is usually tax free because we are not using it there, so they don’t charge us tax.
The only time we pay tax is when we bring it in and the customs decides to put the tariff. If the zero duty for aircraft spares is extended, that will go a long way to promote safety, protect the growing aviation industry and assist the airlines, but the problem we have seen several times is the implementation of zero tariff on aircraft parts and aircraft itself. The implementation is not total and that is a big problem that we face. I believe the way forward is for customs to work closely with the airlines and the manufacturing organisations outside the country to know that these are spare parts.
Every time we are bringing spare parts into the country and it is not recorded in any the book or manual of the customs, it becomes difficult for us to explain to them that this is part of the aircraft. If you say you are bringing engine today, you will have to explain to them that the engine is part of the aircraft, and part of those to have zero duty. I think we need an aviation department in customs that is specialised in all aircraft and that have access. Such that if the airline says this is the part number, the customs can go into the system and put in the part number and see what it is.
The airline shouldn’t be the ones explaining to them. Even though the government has good intention for the zero duty to take effect, implementation is difficult. Sometimes I am told I can’t bring aircraft wheels, sometimes wheels are worked on and brought back as new ones, but customs will say we are importing second hand tyres, which is not the case. We need a desk that deals with aviation in Customs, the same way we need to have that at CBN and in most government parastatals so they understand that this is a specialised industry. These are part of the things that will protect the aviation industry and make it grow because some government policies that are done with good intention in other sectors may be counterproductive in aviation.
Stamp duty for instance is good but if I pay stamp duty on my aircraft that I’m bringing in, it will cost a lot of money. One aircraft is between $50 to $60 million. So, the policies that have been made with good intentions in other sectors must be looked at for a specialised sector like aviation. We must have people that look at the effect of a policy on the growth of aviation sector. I advise government that because of the peculiarity of aviation sector, we must soft-pedal on implementing it in aviation or totally remove it from aviation.
I see that you are increasing your frequencies and expanding your routes and for an airline to do this, it means you are bringing in aircraft. So how are you able to do this?
We just finished the first D-check in Nigeria. We did the first C-check about two years ago and since then we have done many C-checks in the country. We have done for our own aircraft and for third party. Now, we have just done the first D-check in the country in the Boeing 737-500 and that is why you are seeing us increasing our fleet. So, what it means is that we can fly all our aircraft for as long as we want because we can do the highest check on the aircraft, which is the D-check.
So, we have done one and that is why you are seeing us increasing our frequency. We are also doing something that has not been done in the country. We are looking at airlines that are undergoing restructuring like Med-View and the rest and we tell them that if they have capacity, we can lease the aircraft from them and utilise them rather than them parking the aircraft and the aircraft deteriorating. We have leased one aircraft from Med-View and we will work with him. We have leased engines from Chachangi because its aircraft is on ground. We are also introducing other things that have not been seen in the aviation industry in Nigeria but it is what is obtainable outside the country. We now have five airplanes flying and hopefully, we are going to increase it to six.
For you to have more planes flying, it means you are employing more people. From those that you sacked when you were restructuring, how many have you been able to call back?
We have paid redundancy for over 120 people. When I came in, we sacked about 70 percent of the workforce and it was really tough for us. Those that we put on redundancy, we started paying them gradually. We have paid over 120 of them. We have recalled a lot of people. We have called back another 100 on contract basis because of the MRO. So, what we do is that we call them for six months when we have a lot of jobs on aircraft maintenance and they are very happy about that. Our projection is to call back as many as 250 of the over 700 that were affected by the restructuring.
When you started the C-check, some airlines were reluctant to patronise you. What has been the level of acceptance?
When we started, there was a lot of skepticism. People thought that we couldn’t do C-checks; some thought it was not possible, some weren’t sure on what we were doing. So, what we have done is to make sure that we earn the confidence of the people. So, all the airlines that are operating in the country and outside the country have seen that we can do it. And we can do it better than what is obtainable outside the country. So, some that brought in their airplanes when it was dark have now agreed to even go on television to say that Aero Contractors MRO is maintaining their airplanes. This is because we have proved that we can do better than what they can obtain outside the country
What is your plan to get a bigger hangar to take in more aircraft?
Expansion of the hangar is our next project. We will expand the hangar because what we have now was done on a temporary basis but it is almost permanent now. So, we are going to extend the hangar so it can take a 757. We will ask the Federal Airports Authority of Nigeria, (FAAN) to see if they can give us a space. If you look at the Ikeja Shopping Mall, did you ever think that we could have that structure there? But when the government decided that they were going to build a mall there, space was provided. If FAAN wants us to expand, we can do that. It is just a matter of commitment and political will but I think what we have here, we will expand it and it will take a 757 aircraft or a bigger airplane.