Why Government should Assist Nigerian Airlines

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By Amos Akpan

We must note that domestic airlines are privately owned businesses. They do not share their profits with Nigerian public. Yes! They employ Nigerians who work for their wages. On accountability, it is what they declare that stays as accountability records. As at today, there is no airline that is a public listed company. It is not easy for any government to explain giving the commonwealth of Nigerians to individual’s private concerns.

However, the growth and success of industries aggregate to economic development and national prosperity. This is the reason governments provide enabling environment for privately owned companies to prosper in their businesses. The aviation industry contributes to the GDP of Nigeria.

Like other countries have done, Nigerian government needs to bail out Nigerian airlines from the effects of COVID-19 and the #endsars protest. The effects of these events threw the economy into recession, which reduces the ability of air travelers to afford ticket prices. This results in low patronage, which turns into low income, nil profits and loss.

Government may not be expected to give cash to the airlines. These are the ways government can support the airlines: give guarantees on aircraft insurance premiums; use bonds to secure payments through Nigerian brokers; extend repayment period on existing loan facilities; restructure new loans to maximum five per cent interest; repayment period of seven to 10 years.

Other ways government can support the airlines include: exempt them from payment of VAT; unify and gazette the implementation of duty exemption on aircraft and aircraft spares; stop granting multiple entry points to foreign airlines and give diplomatic support to Nigerian airlines designated on international routes. Government has to be commended for activating the principle of reciprocity against those countries that introduced unfavourable policy on Nigerian carriers and Nigerian citizens. Government has to sustain this policy because it encourage equal playing field for local carriers.

Government should also instruct current operating airlines to send their payroll to banks; the federal government should pay their three months staff salaries through the bank. This can be repaid without interest in 12 months effective March 2021. Government can allocate forex at a special rate to domestic airlines so they can pay for spare parts, maintenance, and training.

Let us address those who criticise domestic airlines for always failing and then ask government to use public funds to bail them out. These people seem to anchor their criticism on outdated/unviable business plans by the promoters of domestic airlines. The people criticising airline operators’ business strategies seem to know so much about airline management. They even sound like they know what it takes to run an airline that will make profits and be sustained while remaining in competition with foreign counterparts. My problem is that these commentators criticise past and current operators as if they were dump and cheat businessmen. They seem to be saying the operators deliberately run their own businesses aground.

Who are these commentators? All of them are friends and associates in the aviation industry; some of them are stakeholders because they operate allied aviation businesses within the industry.

But none of these commentators have leased, purchased and operated an aircraft in history. Most of their businesses depend on patronage from government agencies, the Ministry of Aviation and the airlines. If their records are x-rayed, they do not pay accurate taxes, they do not pay multiple taxes like the airlines currently do. Their highest exposure in terms of financial loan is about N100 million.

The minimum share capital required to register an airline that will operate beyond Nigerian borders is N2 billion. Managing freight and forwarding company, a security company, a travel and tour company, or a public relations company is not the same as managing scheduled commercial airline operations.

These critics cannot determine the break-even payload of an aircraft type on a specific route. They cannot derive the revenue passenger per kilometer on a route from available statistics. They cannot factor how much is insurance per hour from the ACMI (Aircraft, Crew Maintenance and Insurance) cost analysis of an aircraft operations in a specific territory like Nigeria.

My point is that informed input is key to valuable criticism. When you say Nigerian airlines do not have viable business plans, you have to support it with acceptable data. When you say an airline should change from passenger services to cargo flight services, you support your statement with strategic depositions. Airline business modules require huge investment capital, long gestation tenure, and the operations are 100 per cent regulated.

Currently the airlines are facing very rough business terrain. Cost of funds from our banks is high. There has been extremely low inflow of foreign direct investment this year, almost zero in aviation. Very scarce foreign exchange, which means airlines, cannot get forex to pay for spare parts, maintenance and training. Fuel price, insurance premium, and cost of operations keep increasing. Ticket prices per seat and freight charge per kilogram is rising in response to increasing cost of operations. The problem is that purchasing power of potential air travelers has a ceiling based their economy and percentage of the population. Consequently, there is a limit to the increase on airfare and freight charges.

The government has to address the causes of rising cost of operations. The airline management has to inculcate financial discipline and acceptable corporate governance.

The airlines will not survive the current trend because fewer people can sustain buying tickets at the current prices from January 2021. This means patronage will be low, income will dwindle, and this means loss of jobs and business bankruptcy.

What the airlines are asking government to do is not an aberration. That is what other governments even in Africa have done for their airlines, which are also privately owned. The reason for their support is because those governments know that air transport is catalyst to any economy. They know that airlines employ a lot of people. They know that besides direct employment by airlines, there are thousands of other people that are indirectly employed by airlines either they are working for catering service companies, fuel marketers, handling companies, freighting and forwarding companies and many others. The economy of any nation is sustained by air travel because that is the fastest way of taking people from place to place.

Nigerian government and institutions have to decide and determine to create environment that supports domestic airlines to operate safe and profitably. There is need to avoid the current spate of trading blames. We must note that private investors who could have invested in quicker returns yielding ventures chose to invest in our domestic air transport services. Have we considered where we would have been had these entrepreneurs not stepped into this high risk investment portfolios when Nigerian Airways went into comatose and eventually died?

It is not wise to lure investors to establish domestic airlines; yet we retain an environment set up for the business to be unprofitable.

No business will survive if it produces a can of juice for N5, 000 and sells it at N5,000 or it produces a hotel room per night at N10,000 and sells it for N10,000.

For domestic airlines currently the cost of producing a seat per one hour’s flight is above N35, 000; yet there is a limit the domestic airlines can raise the price of seat per flight because the national economic indices determines the purchasing power of the potential air traveler. We need to eliminate unnecessary cost carried by the airline because of the environment.

Urgent impediments government has to address to induce the survival of airlines include high cost of aviation fuel; cost of Forex; high Insurance Premium – same as active war zones- Afghan, Syria, Somalia; high cost of funds – Double digit interest rates on short tenor loans; multiple taxation; high cost of maintenance, as Nigeria has not Maintenance, Repair and Overhaul (MRO) with sufficient capacity. Government has to also address the unfair advantage given to foreign airlines in Nigeria.
The efforts of the Hon. Minister of Aviation to establish a national carrier is laudable. It is wise if the government can address the critical success factors in the current operating environment so that the national carrier will survive.

Domestic airlines contribute to Nigeria’s GDP. Airlines employ approximately 12,000 Nigerians not to mention auxiliary services and its multiplier effects. Every other service provider in the aviation sector survives because the airlines pull in the air traveler.

If government does not give bail out to Nigeria Airlines urgently, it will take a longer period for our domestic aviation to recover. The foreign airlines have received first, and some second, tranches of bailouts from their home governments.

We must not forget that the economic downturn faced by airlines is not peculiar to Nigeria. It is a global problem, and as stated earlier, many governments have assisted their airlines. Some have sustained the airlines so that they will not sack their workers. Retaining the workers and not allowing them to go into the labour market is a huge contribution by airlines worldwide.

That is why the International Air Transport Association has renewed calls for governments to extend financial support to airlines to help them overcome the coronavirus-induced financial crisis.

IATA Secretary General, Alexandre de Juniac correctly noted recently that airlines continue to burn through cash and it is expected to persist into next year. He therefore urged countries that had already given their airlines palliatives to continue with the second tranche of that support. But in Nigeria, airlines are requesting for bailout of any kind.

The calls for increased support for airlines is global because airlines have continued to suffer due to travel restrictions imposed by the governments to contain the spread of the coronavirus pandemic and in Nigeria, the recession will have devastating effect on airlines because passenger traffic will certainly deplete after the high season.

Globally, many airlines have either furloughed their workers or cut jobs to deal with the pandemic. Some have received billions in state aid but are increasingly facing operational challenges due to a weak travel outlook amid the coronavirus pandemic.

But our government is yet to give support of any kind to our airlines; yet, labour and government frown at the lay off of workers. I think government should be concerned when workers are relieved of their jobs because there are millions of young men and women who are already in the job market. I think government should do everything possible to ensure that airlines retain their workers; hence this bailout for airlines is very critical.

Akpan is the Managing Director for Flight and Logistics Solutions Limited based in Lagos