Chinedu Eze reexamines issues around the federal government’s plan to float a national airline
This is not a great time for the air transport industry globally. The aviation industry is one of the economic sectors devastated by the COVID-19 pandemic, which effect is still being felt as some countries of the world walk reluctantly into the second phase of the pandemic.
COVID-19 has not only devastated the aviation industry, but it has also redefined it and has made it compulsory for total overhaul of the sector because of its impact, which has led to loss of billions of dollars and millions of jobs.
Countries all over the world are making attempts to save their airlines; airlines themselves are restructuring decisively, trimming down their workforce and resting their airplanes which operational cost could dig big holes in their finances.
That is why Qantas, Australian carrier, decided to rest its Airbus 380 and other airlines have also decided to retire their Boeing 747 and A380 because of their high operational costs. Lufthansa announced in April that it was grounding five of its 32 B747s and 14 A380s, saying the move was related to their higher environmental and economic footprint.
The Economic Times Magazine has reported that airlines have started retiring their Boeing 747s and Airbus A380s, noting that British Airways had retired its B747, “as the coronavirus pandemic forces it to cut back operations and cut costs.”
“BA’s announcement follows moves by a number of other airlines that have retired their B747s and their Airbus A380, another jumbo-sized four-engine jet made by Boeing’s European rival. The fact the planes have four engines means they consume more fuel, which means they can cost more to operate and cause more pollution if not full,” the magazine reported.
BBC reported on Sunday that US airlines have laid off thousands of workers despite the support funds given to them by their government.
“US airlines have begun laying off thousands of workers after the efforts to negotiate a new economic relief plan in Congress stalled. American Airlines says it shedding 19,000 workers and United Airlines 13,000.
“The carriers – badly hit by the coronavirus pandemic – say they are ready to reverse the decisions if more financing is found. The airlines have received billions of dollars from the federal government,” BBC News reported.
It is in the face of above realities that the federal government insisted that it is floating a national carrier from its obviously lean resources and at a time the aviation industry is struggling to survive and most airlines are floundering.
Domestic airlines are in urgent need for bailout to survive, aviation agencies are struggling to sustain their services under severe financial situation and needed support from government.
But on Monday the Minister of Aviation, Senator Hadi Sirika announced that government had given the airlines N4 billion and other aviation businesses N1 billion palliative. Many industry observers commended government for this but some others said that the intervention is too little too late. The federal government has disclosed it planned to float Nigeria Air, among other aviation critical projects by 2021. The projects got N78b in 2021 budget.
Growth and High Cost of Operation
Some industry stakeholders said Nigeria, like many African countries are floating a national carrier in order to take advantage of the growing passenger traffic in the continent. The International Air Transport Association (IATA) estimates that the continent will see 274 million air passengers by 2036. So the region needs more airports and viable airlines.
But according to the popular German medium DW news, establishing a national carrier in Africa faces large hurdles, because the fact is that national carriers in Africa are costly to run.
“According to IATA projections, African airlines will lose $100 million this year and most state-owned flag carriers in the region are losing money. Ethiopian Airlines is sub-Saharan Africa’s only profitable large state-owned airline. Carrying 11 million passengers in 2017, it serves over a hundred destinations on all five continents. South African Airways, one of the continent’s biggest airlines, has been making massive losses since 2011 and has only survived thanks to huge government bailouts,” DW News reported.
Many industry stakeholders are of the view that the federal government should not embark on establishing a national carrier now, considering government’s lean resources. Many say that national carrier must be efficiently managed to be successful and there is no indication that that could be achieved knowing the level of corruption in Nigeria and how government businesses are managed in the country.
Some also consider national carrier project as outmoded and not in tandem with modern realities, noting also that in all national carrier projects in Africa, none is profitable except Ethiopia Airlines and those still sustaining their operation, like Egypt Air, Air Maroc, Kenya Airways are buoyed by tourism, which is not well developed in Nigeria yet.
Defenceweb, Africa’s leading defence news portal analysed the African market and noted that South Africa and Nigeria have robust domestic air transport market. In Nigeria the domestic market needs government support to strengthen the airlines, not to establish a national carrier.
Defenceweb reported that on 21 October, The International Road Federation in support of the Southern African Transport Conference hosted its fourth and final webinar for 2020 on the impact COVID-19 has had on African aviation, aviation technology developments and the evolving state of the Africa’s flight industry.
The Managing Director of ZA Logics, an aviation logistics company based in Africa, Ogaga Udjo, presented a paper on the evolving state of African aviation.
He noted that before COVID-19, “The global airline industry enjoyed 11 years of consecutive profits, strongly driven by performance in North America”.
He stated that African aviation had an expected available seat kilometre (ASK) growth of 3.8 per cent, revenue passenger kilometres (RPK) growth of 4.9 per cent and profitability of a $200 million loss for 2020, similar to 2019. COVID-19 obviously changed these forecasts.
Udjo added that the African aviation industry supports $56 billion per annum in economic activity and 6.2 million jobs.
“In 2019, 35 per cent of passengers who touched down in Africa were on international travel, 25 per cent intra-Africa and 40 per cent domestic.
“These percentages vary: Morocco had 77 percent intercontinental, Angola 38 per cent, and Kenya 25 per cent with South Africa and Nigeria at 17 per cent and 18 per cent. Domestic travel for South Africa and Nigeria is much higher at 70 per cent, as well as Kenya at 46 per cent. This is due to the maturity of their aviation industry,” Udjo observed.
Reviewing Decision on National Carrier
Udjo’s observation indicates that despite the challenges faced by Nigerian domestic carriers, they have maintained robust service and sustained domestic air travel over the years. So what many in the industry argue is that government should support these airlines instead of floating a national carrier with precarious future clouded in uncertainty.
The CEO of Top Brass Aviation Limited, Captain Roland Iyayi said he is not against the decision of the federal government to float a national carrier and cannot comment on it because the structure of the planned carrier is not known and expressed the hope that government should establish a carrier that would be different from what is currently obtained. In other words, the new airline should have a different template from the current domestic carriers and will also not operate like domestic airlines.
“The structure of the new planned airline is not yet known, but it will not make sense if it will operate like domestic airlines. We don’t have all the facts so I won’t comment on it.
“But to me, the issue of a national carrier is archaic idea because a lot of countries have outgrown that. The United States never had a national carrier. British Airways was privatised by former Prime Minister, Margret Thatcher and it is owned by various interests and groups,” Iyayi said.
He advocated that the Nigerian Civil Aviation Authority (NCAA) should introduce a new licencing regime for airlines where there should be three levels of licencing determined by the kind of operation an airline wishes to embark on.
For example, an airline that wants to operate turboprops to secondary airports would have category 3 licence and the one that wants to operate international destinations would have category 1 licence.
“NCAA has a role to play in this. If you licence airlines at different levels they will know what to do and this can change the dynamics. This is not rocket science but I don’t think it is good idea to establish a national carrier.
“The industry should take a new dimension to take cognizance of new realities. So my view is to empower domestic airlines that have capacity and make them flag carriers. So government should empower domestic airlines and restructure the airline licensing process,” Iyayi added.
Support for Domestic Airlines
During the public hearing on the review of Civil Aviation Act by the Senate in Abuja on Monday, there were various views expressed by industry stakeholders over the operations of domestic airlines. Some harped on the debts owed by the operators, while others insisted that the airlines needed more support from government in order to survive.
There was emphasis on supporting existing carriers to make them strong airlines and with such strong airlines; Nigeria may not need a national carrier.
Chairman of the Senate Committee on Aviation, Senator Smart Adeyemi during the hearing canvassed for bailout fund for the airlines; otherwise they would go under.
Adeyemi also excoriated the decision by the federal government to give the airlines N4 billion and N1 billion to other businesses in the aviation industry, as disclosed by Sirika, stressing that it was too little to do anything for the operators, adding that the fortunes of airlines globally have degenerated because of the COVID-19 pandemic and the Nigerian carriers are not left out.
He noted that other countries have paid huge bailout funds to their airlines in other to sustain their operations and retain their manpower.
Adeyemi warned that if the challenges of the indigenous airlines were not urgently addressed by the government, most of the carriers may close shop very soon and called on Sirika, to use his good offices to ensure improved approval of palliative funds to the carriers.
“Let’s look at the cost of spare parts for the airlines and duties that they perform. Though, we might argue that the business is a private one, but it is centred on safety. The N4 billion approved for the airlines by the federal government is too little to make any impact on the operations of the airlines.
“If you want to keep the airlines in business and you don’t want them to start cutting corners, there is need to look at the airlines with a view to giving them substantive supports. If they start cutting corners, that will be worse for the industry. We may not be professionals in the sector, but we know how some of the airlines outside the country operate,” Senator Adeyemi said.
National carrier may not be the priority now for the federal government, knowing the perlous state the aviation industry is globally. Government should strengthen the airlines in order for them to retain their workforce and also carry out their critical responsibility of taking people from place to place.