A new national carrier in wrong time zone
The Federal Government recently hinted at the plan to float a new national carrier already christened Nigeria Air. But the controversial venture is coming at a time of lean resources, global downturn, and investors’ fatigue, amid an unfriendly local environment for airlines’ survival. WOLE OYEBADE writes.
After the 2018-botched take-off of the new national carrier, the Federal Government is having another go at the controversial project. The latest take-off date is now 2021.
Minister of Aviation, Hadi Sirika, during Tuesday’s budget defence, told the Senate Committee on Aviation that the Aviation Road Map agenda would be executed in 2021, with the national carrier component getting priority.
Indeed, the national carrier has been on the mind of the Buhari Administration since 2015, as a replacement and succour for the misfortunes of hurriedly liquidated Nigeria Airways.
But the worry for stakeholders is the timing of such a high-capital venture in a world worn-out by the COVID-19 pandemic and an industry riddled with uncertainties. There is a consensus that beyond just a new national carrier, a friendly business environment and good support for operators should take precedence if the government would not put the cart before the horse.
Much motion without movement
Recall that the Federal Government in 2016 launched the aviation road map – an ambitious plan to turnaround one of the most critical non-oil sectors of the economy. On the agenda were plans to set up a new national carrier, concession the airports for efficiency, set up Maintenance Repair and Overhaul (MRO) facility, and aircraft leasing company to avail capacity.
The FG in July 2018 unveiled the name and logo of the proposed carrier at the Farnborough International Public Air show in London, ahead of the initial take-off on December 24 of that year. Lack of budgetary provision and vicious criticism by the public forced Sirika to “temporarily” ditch the December roll-out plan.
The national carrier was intended to replace the defunct Nigeria Airways that ceased operations in 2003. The replacement was designed as a Public-Private Partnership (PPP) with the FG likely to own as much as 10 per cent stake.
The equity was backed by N47 billion in the 2019 budget to help the airline take-off after it reached the procurement stage just before the 2019 general elections. The national carrier also features in the N27 billion bailout fund earlier proposed for the aviation sector in the aftermath of the COVID-19 pandemic. In the 2021 budget, it will gulp a substantial part of the N78.96 billion lump sum for the aviation sector.
Sirika said: “We don’t want what happened to Air Nigeria to repeat itself because someone just woke up from the left side of the bed and decided to liquidate Nigerian Airways, and set up Air Nigeria, which didn’t last. We want to build an airline that can challenge Ethiopian Airlines.”
Amid the irresistible enticements of the local market and its potential, there is more to the survival of the air travel industry than throwing in the national carrier dice, and the former chairman of the Airlines Operators of Nigeria (AON), Nogie Meggison, said as much.
Meggison recently welcomed the idea of a new national carrier though doubts some of the problems it aims to solve. He observed that the problem of the sector was not essentially that of capacity, but of infrastructure deficit and a tough operating environment that should ordinarily be tackled head-on before other considerations.
He reckoned that the shrinking size of the domestic carriers and the sector at large was the reflection of the tough business environment that had continued to take its toll on investments.
Indeed, many private airlines had featured, though short-lived, since the demise of the Nigeria Airways in 2004. An NCAA estimate showed over 100 registered airlines with a lifespan of five years in an industry that is notable for free-entry and free-exit.
Meggison said what the industry needs the most is a clear economic policy for the survival of domestic airlines, with some certain issues placed at the fore.
They include the review of five per cent Ticket Sales Charge (TSC) to a flat rate in line with the global best practices and harmonisation of over 35 multiple charges, which add huge burdens on airlines.
Others are poor navigational and landing aids that limit operations to daylight operation for most airports; high cost and epileptic supply of JetA1; obsolete infrastructure that hampers the ease of doing business; and lack of consultations with airlines before the introduction of new charges and policies among others, which throw the feasibility studies of airlines out the window.
“The mortality rate of airlines in Nigeria within the last 11 years stands at 57 per cent. This is quite alarming. There is, therefore, an urgent need for a deliberate economic policy that will critically look into the support and the positive growth of the aviation sector and survival of domestic airlines in the country,” Meggison said.
The worry among stakeholders is the new venture’s ability to attract 90 per cent of investment from both local and foreign investors, coupled with a credible technical partner to drive its operations. The worry is not out of place, especially when benchmarked against over $314 billion, which global airlines have lost to COVID-19 – according to the International Air Transport Association’s (IATA) estimates.
Similarly, a lot of potential credible partners are struggling to remain in business; managing to hang on by shedding some liabilities and injecting the government’s bailout funds.
For instance, British Airways, as of April disclosed plans to retire all 747 four-engine airplanes over the high cost of maintenance. Delta Air Lines earlier estimated the loss of $534 million for Q1 2020.
Emirates Airline’s president, Tim Clark, recently said “probably up to 15 per cent” of the carrier’s workforce would be cut as a result of the coronavirus crisis. That equates to around 9,000 jobs out of the 60,000 Emirates had going into the pandemic. Fellow Middle Eastern operator Qatar Airways also announced job cuts affecting up to 9,000 positions out of 45,000 employees in May.
In Africa, South African Airways has filed for bankruptcy. Kenya Airways is in the process of being nationalised. Ethiopian Airways, the biggest on the continent, has already flagged a loss of $550 million as of April.
President Hage Geingob of Namibia recently told the parliament that Air Namibia, a national carrier, might be liquidated over a series of losses despite bailouts. According to the International Civil Aviation Association (ICAO), African airlines are at risk of losing $6 billion in revenue compared to 2019 and three million jobs.
Aviation commentator, Simon Tumba, said the country was not in any position to woo the right investment to such high-risk megaprojects.
He said the country lacks financial discipline, especially with the government’s hands in business ventures.
“Our government policy is so inconsistent that the next government can change everything overnight. Investors don’t like that. We need a long-term plan and strategy with the buy-in of all critical stakeholders and our policymakers to make progress. I would even suggest that the project is put into law, if possible.
“It is not rocket science that airline investment post-COVID-19 is now a dangerous gamble, especially for startups. Who will risk it? Even the mega Middle East airlines, which have ‘money to burn’ are being careful now. The market is so uncertain and is a massive risk to invest in a startup now. Investors don’t like uncertainty. If you have the money will you invest in Nigeria Air?” Tumba asked.
Charity should start from home
Chief Operating Officer of one of the airlines affirmed that it would be hard for any airline to survive in this clime, and “those of us that have come this far deserve some credits.”
“I can bet that even the new national carrier will find it hard to survive in this environment without the government helping them to cut corners. I thought the most logical thing to do is making the industry better by removing booby-traps for all investments to thrive.
“What we have often seen, and the reason we are worried is that once the government carrier comes on board and settled into the grim realities, the government would do everything to ensure that it does not fail too quickly thereby cut-off its charges, offer subsidised fuel, and other privileges, forgetting that it is a competitive market. And we are already seeing that from the government’s dealings with private airlines, doing almost everything to stall our growth.
“Who says Air Peace or Arik cannot be a formidable flag carrier of reference if given the right support? Air Peace just played the role of a national carrier in South Africa, evacuation of Nigerians, and medical equipment during the pandemic. That airline has three Boeing777 airliners already, with pending orders enough to cover major cities in the world. So, you can’t keep talking about poor capacity when you have not supported airlines with tax holidays and other concessions. If support is given to the right people and investors, the existing business concerns will blossom and the economy will grow,” he said.
In other climes where the mixed economy had worked, a particular factor of reference is the clear-cut policy that fairly represents the interest of all parties in a liberal environment.
Chief Executive Officer of African Aviation Services Limited, Nick Fadugba, said despite how beautiful the Nigeria Air plan seems, “it is still clouded in a lot of uncertainties” around here.
Fadugba observed that with Nigeria Air coming on board while Arik Air and Aero Contractors are already under the control of the Asset Management Corporation of Nigeria (AMCON), “it means the government shall own three airlines and I don’t know any country in the world where that is done.”
He wished that the government had first sat with the airlines’ operators to have a macro managed to view, implication, routes, and sustainability impact of the new national carrier before having the launch.