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Battle for the souls of airlines in a toxic environment

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Local airlines need level-playing field, fair competition to survive. PHOTO:Google

The much-awaited new national carrier is expected to address the problems of capacity. But the proposed airline and equally important private operators cannot hope to survive, if fixing the unfriendly business environment and workable guidelines for fair competition are still afterthoughts. WOLE OYEBADE writes.

National carriers worldwide are symbols of national pride – a mobile-branded embassy in the air.

Countries that are fortunate to have sustained the ‘money-losing’ carrier still guard it jealously. Even those without are squeezing the reserves to have one in the air.

Nigeria, the most populous African nation and the largest economy on the continent is having another go at the high-capital intensive venture after the misfortunes of hurriedly liquidated Nigeria Airways.

But the worry for stakeholders, especially the local operators and investors, is the uncertainties of having government, the regulator, also become an operator in the same high-risk house of cards that is governed by mutual distrust and survival of the fittest rule.

More discerning parties are of the position that beyond just a new national carrier, a friendly business environment should take precedence if the government would not put the cart before the horse.

Of specific concern is the imperative of strategic policies to safeguard all investments, and create a win-win environment for all, at least to eliminate the urgency of tilting the balance mid-way.

Nigeria Air in the air
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.

Though none of the determined plans has been delivered to date, but fillers suggest that the new national carrier, Nigeria Air, is at an advanced stage.

The Minister of Aviation, Hadi Sirika, is upbeat that the government is building a national carrier that will stand the test of time.

“We don’t want what happened to Air Nigeria 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,” Sirika said recently.

Clearly, the Federal Government has an inclination for national prestige, strength and capacity for good competition in the global aviation community. Indeed, the country has over 100 Bilateral Air Service Agreements (BASAs) to reciprocate, coupled with the dense population of 200 million market that is already a goldmine for a new national carrier.

Pitfalls ahead
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 Chairman of the Airlines Operators of Nigeria (AON), Nogie Meggison, said as much.

Meggison welcomes the idea of a new national 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 tough operating environment that should ordinarily be tackled head-on before other considerations.

Meggison 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.

The causal factors of the high mortality apparently still threaten the eight surviving local airlines and as well await the coming national carrier.

High cost of operations
Top on the log, for instance, is the high cost of routine maintenance, which gulps about 40 per cent of the total operating cost of an airline. C-check, one of the major maintenance programmes, is done on aircraft overseas every 18 months at a cost in the neighbourhood of N350 million to N700 million.

Besides maintenance, another big challenge is aviation fuel, which costs another 40 per cent of total operating cost of an airline.

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 limits 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 introduction of new charges and policies among others, which throw the feasibility studies of airlines out the window.

Recall that at least two presidential committees in 2005 and 2017 had been assigned to investigate why airlines were dying. All of the issues raised above were listed in the white paper submitted by the 2005 Paul Dike Presidential Task Force with recommendations that have not been implemented to date.

According to Meggison, “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,” he said.

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 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, 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.

“Instead of a national carrier, it soon becomes a government-owned airline. In turn, the ‘spoilt child’ will start behaving like one, crashing ticket fares with predatory pricing just to run other airlines aground. That is why some operators are against the national carrier project, and it is justifiable. A new airline should never mean another obstacle or death knell of other airlines.

“Who says Air Peace, Arik or Dana 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 last week. 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 support 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.”

A win-win aviation policy, strategic plan
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 view, implication, routes and sustainability impact of the new national carrier before having the launch. 
 
“Imagine three Nigerian airlines competing against one another on the London route with B777 planes. How sustainable is that? Yes, we need strong airlines but the creation of a national carrier must not knock off private airlines,” Fadugba said. 

It was in line with this lurking danger that even the national carrier enthusiasts have insisted that the government must stick to a national carrier and not another government-owned airline.

Aviation Security consultant, Group Capt. John Ojikutu (rtd), said the plan to establish the airline must continue but it must be done with foreign technical investors holdings of not more than 40 per cent.

Ojikutu reckoned that Nigeria credible investors should own 20 per cent of investment; Nigerian IPOs 25 per cent; Federal government five per cent and state governments 10 per cent, to truly make it a national airline.

The point is that a national carrier is no longer fashionable in most countries. However, this does not foreclose another experiment, if the environment is right and can guarantee true national interest and transparency in the interest of existing businesses and the economy at large.


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