Sanusi: COVID-19 Presents Opportunity to Reset Nigeria’s Aviation Sector

0

Former CEO of Aero Contractors and designated Managing Director of NG Eagle, Captain Ado Sanusi, in this interview anticipates that the air travel industry in the country will record increase in capacity of existing airlines and entrance of new airlines as well as growth in passenger traffic. Chinedu Eze brings the excerpts:

We are now facing a low season in the aviation industry after the yuletide season where high demand was recorded. What is your appraisal of the aviation industry, looking at the effect of COVID-19?
Looking at aviation industry, especially after the lockdown and then of course, the high season travel during the Christmas and the New Year period and now, we are in the low season mid-January, the traffic is still there and my estimate of the aviation industry or outlook in the year 2021, is that it is going to be very good. We will see a lot of growth in the capacity of the airlines. That is because if you look at 2020, especially immediately after the lockdown, most airlines were a bit skeptical in bringing out capacity for the local market. Fortunately for the airlines, our prediction after the lockdown that people would be a bit scared to fly didn’t come through because people were very confident in flying despite the COVID-19.

So, the demand in seats was high and that actually cumulated in high prices of tickets, which I predicted in the beginning of 2020. Where tickets for Lagos-Abuja were being sold for at about 90,000 one-way for economy. So that shows that the demand for it was high. The passengers were willing to travel and the capacity was not there. So, based on that what I predicted for 2021 is that there will be growth of capacity, there will be new entrant into the market and then those airlines that are already in the market will try and increase their capacity.

There will be a decrease in the price of tickets, but it is not going to decrease to pre-COVID-19 era, it will still decrease, but not to pre-COVID-19 era. So, as far as the industry is concerned, we will see growth in capacity, there will be new entrant, and there might be some collaboration among airlines because I can see that domestic airlines are now comfortable with collaborating with one another to make sure that they protect their passengers and then increase their revenue. Also on the infrastructure, the federal government has paid a lot of attention on the airport infrastructure, which is very good. Most of the airports are being completed and that will also stimulate some growth in the aviation industry.

But the effect of COVId-19 on the aviation sector globally and Nigeria also will be with us for the next five to 10 years. This is because some airlines have already retired airplanes that cannot fly again. Now, some professionals also in the aviation industry have already left the aviation industry and they might never come back. So, it is like we have an opportunity to press the reset button, especially we in Nigeria where our aviation industry was already struggling. So, we can now press the reset button and take the advantage of a restart and move forward with the world, while the aviation industry is being brought back to its normal speed globally.

In Nigeria, of course, we are going to experience the shortage of capacity in the first quarter, but like I said, the capacity will be growing and the passenger traffic definitely increase, especially with the new vaccine that is coming in. Internationally, passengers will travel because I am very sure they will make vaccine available for travellers, just like what we have with the yellow fever vaccination, what they call the yellow card. I believe that is what is going to happen; probably the third or fourth quarter of the year, where they will say before you travel you must have your vaccine. So, that will also result to a lot of travel within the year. But it is looking very good with passenger growth especially domestically. And, of course, the federal government also giving the stimulus package for aviation is also a welcome development. It will assist the airlines to set their foot on the recovery part.

If you look at the exchange rate, don’t you think it will jolt the aviation industry?
Foreign exchange will remain a big problem for any airline in Nigeria because that single component can cause an airline to go under. We have discussed the issue of foreign exchange and availability and the rate. So, even if we have capacity, increase and everything; if the dollar keeps rising or if the airlines cannot access forex, it will hinder their growth. It will also increase the ticket price, it is very simple. There is nothing that we do in aviation that is not dollar-related. So, that means whenever there is a spike in the exchange rate, it will translate into a spike in either the spare parts we are buying or the consumables we are buying or whatever we are buying because the aviation industry is dollar-related. And if you don’t even have that, that means if you don’t have access to the dollar, it affects you, because if you are a person that has leased aircraft or leased engines or leased landing gears, you are paying definitely in dollars. And if you cannot get access to that dollar then it becomes a major challenge for the airlines to survive.

If Dangote’s new refinery begins production and begins to produce aviation fuel, do you think it will still be at that price airlines are getting it now or what do you think should be the benefit?
I predict that if the Dangote refinery comes up and it is producing Jet A1, that is DPK, I believe it will definitely reduce our operating cost. That is because we are going to have it in abundance and we are not importing it from outside the country, it is right here in Lagos. It will be surplus and I believe it will bring the price down and it will stabilise one of the key components of aviation cost because nearly 40 per cent of your cost goes to fuelling. I am sure they will bring the prices down and that main component of aviation cost will be readily available. Secondly, price will be quite predictable. And I think the most important thing actually is that the scarcity of Jet A1 will be a thing of the past because there will be constant supply of Jet A1 to the market. So, it will be a welcome development for the aviation industry when it comes, especially for the Nigerian aviation industry.

Do airlines still pay in dollars for insurance; is there any way they can be paying for that in naira?
Well, insurance which we believe the local insurance market supposed to have developed to a certain level where they can at least cater for most of our insurance needs; I think we still need the foreign market. Now, I don’t think in the near future it will change and if we need the foreign market then we will still pay in dollars. And we will have to pay in dollars because if the capacity of the local insurance in Nigeria cannot do that then we must make sure that we have to go to the foreign market to get insurance. The only thing that I can see that can give relief to the airlines is when the federal government comes in to play a role, as far as insurance is concerned, in getting the foreign exchange that the airlines need to pay, or fix the rate that you are going to use for NAICOM (National Insurance Commisssion).

I think if we address that we can give relief to the airlines. For the rates, I don’t think anything can be done. Of course, they attribute it to country risk and everything, but again, what determines the premium is the stability of the market and the seriousness of the airlines and then the availability of forex and of course the aviation sector has been well regulated now. I think we are very safety conscious now, our rate of accidents have reduced drastically. I think that will also assist in the coming years to see that yes, Nigeria has come a long way with their regulations and safety oversight. That will also bring down the insurance rate and the company risk might be reduced.

Now, the country risk also affects aircraft leasing; would you say there is special decision taken about Nigeria by lessors?
Yes, we are still struggling as a country to convince the international community that we have totally domesticated the Cape Town Convention regarding leases. And it is very true that the international community or the leasing community internationally, is very skeptical because of the past experience. And we still have a long way to go; I mean we have achieved a lot but we still have a long way to go to ensure that the Cape Town Convention is well domesticated.

When you lease an asset and you have signed an irrevocable letter that says when I default you should take your asset, I don’t think you should go to court at that time. Now, if there is any commercial dispute between you and the leasing company, you can allow the leasing company to take their asset first, and then you can take them to court for the dispute of the commercial agreement that you have. But when you go to court and then you detain an asset for an international leasing company, you are not only dealing with the company but you are bringing down the entire country, the entire region, the entire continent; you are giving them that bad name.

But I believe that fair is fair, if the owner of the asset says he wants to take his assets you can allow him take his assets because it is his assets. But then if you have any commercial dispute, if you feel that he is supposed to give you money or he has taken money wrongly, you take him to court after he has taken his assets. But don’t detain his assets because we have a Cape Town Convention that says you should assist the person to get his assets. That is the only way we can give rest of mind to the leasing company. But in as much as airlines in the country will continue to go to court to detain aviation assets while we have signed and domesticated the Cape Town Convention, then the leasing companies will be sceptical to give us leases. Even if we open a leasing company in Nigeria, the company will go and lease right, so they will also be in the same condition.

Only if the company has so much money that they will go and pay up- front and take the airplanes, buy if you pay upfront and then come and lease it here, they will take it from a bigger leasing company and then sublet it to us Nigerians. But I think the main fact is no to even have a leasing company, the main thing is to address the fact that we cannot allow some bad eggs to spoil the entire country’s image regarding leasing. And I think we as a country, we should stand up for it and make sure that we join the league of nations that respect the rule of law. And since Nigeria has domesticated the Cape Town Convention, whenever leasing company comes and says, I want to take my airplane, we should do everything that we can to give him the airplane, or the engine, or the landing gear, whatever it is. And I pray that we will continue to make head way with the leasing company.

AJ Walters has signed agreement with federal government for maintenance facility, how far do you think it can go to save Nigerians money and what are the other benefits?
As I said, even when I was at Aero, MRO in West and Central Africa was the last frontier in aviation investment. So AJ Walters or any other company that has an opportunity to come in to do Maintenance Repair and Overhaul (MRO) is a gold mine. And I think it will go a long way, just look at what we did in Aero Contractor, we upgraded the maintenance facility. And I know how much we have saved a lot of airlines both in Nigeria and within the region. So for another company to come and set up an MRO, it will go a long way to save a lot of money for airlines that are here and then of course for the region. As I have said there is no formidable MRO in West and Central Africa, so it is a very good and welcome development to see that kind of investment come into the country. And what I will just say is that I am excited to see how it will go. But I believe they would have done their business and studies and everything.

But what will be Aero’s MRO marketing position now and do you think they can collaborate?
Maybe they can, but I think the market is still there; the clients are still there. When I left Aero, if you look at our tarmac we had lines of aircraft trying to come into our hangar and we were struggling to keep up with the demand. So, the market is there. I don’t think there will be any fear for saying that Aero is going to lose the market share because of a new MRO coming in. We need at least two to three MROs in the country and we need specialised MROs, we need paint shops for instance. So I believe MRO is one of the last frontiers for aviation investment in the country.

Now, you know that Federal Airports Authority of Nigeria (FAAN) has increased passenger service charge, and Bi-Courtney just increased its own and it is now N5, 000 per passenger, what will be the effect on the ticket?
Of course when FAAN increased the passenger service charge, it is usually transferred to the passengers; of course, the airlines cannot absorb that. There was VAT in the ticket because they are government taxes, when you say a government tax that is where the VAT is, the five per cent ticket sales charge, and then the VAT and all that, are all put on government charges. So there was a VAT there but it was just lumped together with the rest of the taxes. So, yes, the ticket fares will increase by the same amount that FAAN has increased the passenger service charge and Bi-Courtney by same amount. But I think what we should be asking ourselves, rather than saying oh, the passenger, have we gotten better services for the money that we are paying as passengers? I think those are the questions that we should be asking and those are the things we should throw back at FAAN and Bi-Courtney.

Has my experience as a passenger changed when I entered the airport? Are the air conditioning systems working? Are the toilets not smelling? Are the places okay? If that is not the case then we should demand for better services because we are paying for more. For me as an airline I am just transferring that levy to the passenger, so I assume the passenger will now not complain as the airline, but complain to the service provider for the airport, that after paying such amount of money I expect basic service that is at least commensurate with what I paid. So, I think the question we should be asking or the passengers should be asking, after the increase, what has changed? What are the services? What are my experiences going through the airport? Has the experiences going through the airport, has it been commensurate with what I have paid or has it gone down. Those are the debates and the discussions that we are going to have in the coming months.

International operations by Nigerian airlines seem not to be a very success story. You see that Ghana-based African World Airlines (AWA) operates almost seven times in a day to Lagos from Accra, why is it that Nigerian airlines are finding it difficult to operate international destinations comfortably?
Well, internationally, the main problem that we find ourselves which I experienced when I was even in NAMA (the Nigerian Airspace Management Agency) I used to say that we must look at the charges that you give to a particular region. Nigeria is covered by ASECNA (airspace management company owned by French speaking West African nations) countries and the charges there are killing for flights across national boundaries. Because when you are flying from Lagos to Accra you are going through ASECNA countries until you land in Accra. And then all those countries you are going through you are paying navigational charges to ASECNA, which increases your cost. But I think that NAMA should engage ASECNA so that they can come up with something that is sustainable for the aviation sector.

Now, why would AWA be making so much money and they will like to have more frequencies to Lagos or into Abuja, and then our local airlines in Nigeria don’t have the same. I can only speculate, maybe AWA is enjoying some kind of relief from the Ghanaian government or from the authorities because they want to encourage them to connect to the neighbouring countries. Maybe they are enjoying that, I don’t know. But I can tell you one thing that the West Coast is a very good market if you have a very good business model that will fit into it and you can make money out of it. Yes, they are using the Embraer 145s and, of course, Air Peace has Embraer145s and it can actually compete with AWA and make money too. But again you have to look at what AWA enjoys from their home and what Air Peace is enjoying from its own home. And if they are both enjoying the same, then yes they can do it, but if Air Peace is not enjoying anything and other airlines are enjoying some kind of waivers then it becomes an uneven playing ground.

On passenger traffic, you know even with threats on the roads, one would expect that there will be increase in passenger traffic in air travel and many people will fly but there is nothing significant yet?
Well, IATA (the International Air Transport Association) has a projection of passenger growth within the region and I think we are keeping to that projection. Yes, there has not been any significant increase because of the insecurity and the bad roads that we have; that means people will fly more. Reason being that one, the ticket fare has also increased, the disposable income of the average Nigerian also decreased. So the economic power for him to buy ticket has been reduced. So that means we have not deliberately stimulated the market for passengers that would ordinarily go buy road to say oh, let me buy the ticket.
If they wanted to buy the ticket for instance at N25, 000 and all of a sudden they hear that the ticket has been changed to N50, 000 that is almost twice the amount they have budgeted for. So the disposable income that they have has been reduced drastically and, of course, the cost of the tickets also has gone up.

I think that is one of the reasons that have manifested and we have not seen any drastic increase in the passenger traffic, despite the fact that we have challenges on the roads and everything. Also, you have to take into consideration that the railways have been coming up, Ibadan-Lagos, Abuja-Kaduna and some other places. So, the rails have also contributed, because if I was flying let’s say Abuja-Ibadan, now the passenger will just come to Lagos and then go to Abuja.

Lack of airfield lighting is also something that affects some of the airports. You know not all the airports are within the town. And so if they are not within the town then it becomes a security challenge when you fly in the night. But places like Kano, places like Lagos, Benin and Asaba where the airports are quite close to the town, I think airlines in the coming months or maybe years to come will be doing late flights to these places.