‘Ground handling business has a long gestation ROI many investors cannot endure’
Dr. Taiwo Afolabi is the Chairman of Skyway Aviation Handling Company (SAHCO) Plc and the Chief Executive Officer (CEO) of SIFAX Group. In this interview with WOLE OYEBADE, Afolabi reflects on 12 years of investments in Nigerian aviation, touching on its challenges and prospects that abound, among sundry issues.
The apex regulator of the aviation sector recently gave the industry a pass mark. As an operator in the ground-handling sector, do you agree with the good rating?
There has been a great deal of improvements and innovations in the sector. I will mention one, which is airport infrastructure. The Federal Government in the last few years has embarked on massive remodeling of various airport terminals across the country, especially in Lagos, Abuja and Port Harcourt.
As the gateway to the country, our airports tell a lot about who we are as a nation. The remodeling has really done the image of the country a lot of good. I give kudos to the Minister of Aviation, Hadi Sirika, a consummate professional, who has done so much to move the industry forward since his appointment in 2015, and I think the development in the industry during his tenure is primarily due to putting a square peg in a square hole. He has valuable experience and knowledge about the industry being an aircraft pilot. As a major shareholder in the Skyway Aviation Handling (SAHCO) Plc, I can tell you that the minister has actually motivated us to invest more in the sector, thereby contributing our own quota to the growth in the industry in the last few years.
The SIFAX Group acquired the Skypower Aviation Handling Company Limited (SAHCOL) some 12 years ago. What was the motivation?
We considered the aviation sector as big, given that Nigeria is a key market in Africa that almost every foreign airline wants to fly into. Before SIFAX Group acquired the company in 2009, the Nigerian Aviation Handling Company (NAHCO) Plc was the sole company that was really playing and investing massively in the ground-handling sub-sector of the industry. That was the motivation for coming into the industry.
We believe that one ground handling company cannot do justice to the expanding industry. We saw the opportunity to be part of making the sector great through the privatisation of SAHCOL. We saw the need to improve the practice of ground handling in the country through efficient and professional service delivery that match international standards.
Even though the experience has been interesting, it comes with its challenges. However, we have no regret about the decision 12 years down the road.
Did you ever consider divesting your shares in SAHCO in the face of challenges?
I will say yes and no. Yes, when we took over the company and were confronted with the magnitude of investment we needed to make to be competitive. We needed to build infrastructure and acquire modern ground handling equipment as well as motivate the staff for productivity. I then realised it would take more than the projected duration to recoup our investments. An average investor believes that return on investment should not be more than five years, but I must tell you, I have invested over N30 billion in SAHCO as of today and hardly have I got N2 billion back from it. An average Nigerian businessman will not usually venture into such an area.
Also, I will say ‘no’, because the acquisition of the company was a key part of the overall strategy of SIFAX Group to expand our investment and deepen involvement in various sectors of the Nigerian economy. As a businessman, I believe in the long-haul strategy and do not go into a business simply because of quick returns. There are other motivations that determine our investment portfolio. I personally believe that we need to invest for a longer period and in the process make an impact, contribute substantially to the development of the industry, before we start recouping your investment.
The reason the Nigerian economy is not vibrant as it ought to be is because someone wants to invest today and start making money almost immediately. Abroad, businesses invest for the future and return comes eventually. That is my philosophy and that has been our story at SAHCO. We are still investing and we believe the future will be kind to us so we could recoup our investment.
I will also want to let you know that whatever I put my hard-earned money into, I follow it up and I have never regretted it because I put all my efforts into it. I have seen the future and invested into it, but an average Nigerian investor will not do that. Everybody wants to recoup his or her money within five years, but I can assure you, we have not done that after 12 years. I have not made up to N2 billion from SAHCO, but what gives me joy is not really about the money. It is about creating wealth and jobs for Nigerians. That is what gives me joy and the motivation to continue.
One of the clogs in the wheel of ground handling business is the appropriate rate that is commensurate with services rendered. Are the operators ready for the new safety threshold handling rates?
Two key things are important in the aviation industry; safety and service delivery, and no ground handling company wants to compromise on these. To improve our service offering and not compromise on safety and remain in business, the ground handling companies formed an association – Aviation Ground Handling Association of Nigeria (AGHAN) – to address some of the lingering challenges that we all face.
On the handling rates, you will be surprised that the last time we reviewed them was over 30 years ago. Take for instance, aviation air tickets have increased severally over the years. Naira had also been devalued. But rates of the Ground Support Equipment (GSE) have also increased severally. The current rates are no longer sustainable as we find it very difficult to break even and acquire needed equipment to service our clients. When we took over 12 years ago, naira was about N120 to a dollar, but now, it is over N560 and our rates have not been reviewed in all these years.
You can then imagine the negative effect of this on our business and our ability to serve our clients efficiently.
The first thing AGHAN did was to take a second look at the rates. But, of course, that provoked a tug-of-war between the airlines and the ground handling companies. The airlines petitioned the National Assembly and we were wondering the rationale for that as we are a private business and need to keep our businesses afloat. They didn’t consider the huge investment we have made and the various micro-economic changes in the country that necessitated such review.
What I found ironic is that these airlines increase their tickets whenever they wish and nobody ever stopped them. Then, why should they stop us? Recently, the domestic operators increased their tickets again and attributed this to the influx of travellers that now travel by air. Most people don’t want to travel by road again because of insecurity on the highways.
However, we have to give kudos to the Minister of Aviation and the Director-General of the Nigerian Civil Aviation Authority (NCAA), Capt. Musa Nuhu and other stakeholders who rallied round us when the issue became turbulent. For over 35 years, no review of the rates ever took place. I remember telling the Chairman of NAHCO, Dr. Seinde Fadeni, that it seems they don’t even understand our importance in the sector, which we felt was necessary for us to tell the public. Then, at the end of the day, we decided we were going to embark on an indefinite strike, but the NCAA intervened and a resolution was reached.
A lot depends on cooperation among operators. What measures have been put in place to forestall sabotage?
We (operators) signed a joint agreement binding us to the rates agreed upon and on no condition should the rates be reduced without the approval of the NCAA and the application for such must be backed by cogent reasons. The document was then sent to ground handling companies for implementation. So, that was the first step we took.
Also, there are sanctions prescribed for any company that undercuts the new NCAA approved rates. If anyone compromises the new rates, it means you are sabotaging the government because the government gets five per cent on our gross yearly turnover. If you undercut the rates, it means you are a saboteur and we have sanctions in place, to check airlines from cutting down on the rates.
How far have you gone with your negotiation with the local airlines that seem to be kicking against the implementation of the new rates?
We have opened discussions with airlines and made them see why we have to review the rates. You can check what these international airlines pay for ground handling services in neighbouring countries like Ghana and Benin Republic.
It is far higher than the rates here. It is only in Nigeria that some of the operators, especially the international ones, believe they can take undue advantage of us. What they are paying in the neighbouring countries is what we request of them. However, the NCAA waded in that we should give a discount of 25 per cent, which we have obliged to make everybody happy. The ground handling companies by this discount have acted in good faith and I believe the airlines also need to reciprocate the gesture.
Personally, I don’t think there will be any issue on this anymore. We have been on it for almost a year now and finally, we jointly agreed the 25 per cent discount. By January 1, 2022, we will start its implementation with the international airlines, while the domestic airline will have their turn starting March 1, 2022. We have given our domestic operators an additional three months grace period, which is enough for them to adjust to the new rates. I think we have done well.
Is it possible for the ground handling companies in Nigeria to pull their resources together to save cost of operation?
We have been doing this indirectly. There is nothing bad in pulling our resources together, but sometimes we find it difficult to do it because of various issues and objectives. The cost of buying equipment is so alarming. The fact is that if we have been collaborating, we will be able to save costs. I can tell you that we started it many years ago. For instance in Abuja, when NAHCO wants to handle an aircraft and they don’t have a particular equipment, we avail them the equipment at a token, and vice versa.
However, it is very difficult to consistently do this because of the increasing number of flights handled by each company and there is a possibility of a schedule clash. For instance, if you have an Aircraft Cooling Unit (ACU) in a particular airport and you deploy it for use and NAHCO equally needs such equipment almost at the same time, it will be difficult for you to share such equipment at that point in time. So, that is why we tend to buy the equipment we need, but when you are short of these equipment, you can easily go to your counterpart and borrow, which I believe is a very healthy situation for all parties.
Your operation is dollar-dependent just like the airlines. How has the paucity of foreign exchange affected your operations?
The issue of forex scarcity affects every sector of the economy, but I believe certain critical industries like aviation, energy, among others, should enjoy some special treatment in the allocation of foreign exchange. We should be able to access foreign exchange easily and at the official rate because almost all our transactions are dollar-dependent. It is not sustainable to keep buying from the black market. Accessing forex will lead to enhanced productivity and our contributions to the economy will greatly improve.
Is SIFAX Group interested in taking over any of the four airports slated for concession by the Federal Government?
SIFAX Group is interested in deepening our investment in the aviation industry and that is why we have submitted a bid for the airport concession. Nigeria is our country and everything that will make it great and improve its economy and image is of utmost concern to us. We have submitted our bid and we are waiting for the government to announce successful bidders and we are optimistic we are going to be successful. The image of any country starts from its airport. So, we believe that we will be able to turn things around and put in all our efforts to do it the way it should be done.