Aviation sector needs reform, not bailout fund
The Federal Government the other day pledged to support the aviation sector with bailout funds to cushion the devastating effects of the coronavirus pandemic. The move is consistent with global practice and so it is laudable to save the critical sector from imminent collapse. But even with the palliative rescue mission, the industry would continue to be dependent and redundant if a proper reform bridge is still too far.
Indeed, the COVID-19 pandemic is an ill wind that blows no nation or business any good. One of the worst hit by the rampaging damage of incalculable proportion is the global air travel industry. Its huge capital outlay exposes it to enormous risk and free-fall in a time of crisis. Aviation is an unusual type of business that has everything looking dandy, glamorous and larger-than-life on the outside. Behind the scene are tonnes of credit bills, huge liabilities, safety critical obligations, anxieties and daily battles for survival. A day without scheduled operation or a bird strike is enough to put the entire operation in dire straits. The point is no airline is too big to fail.
It, therefore, explains why many big brands in global aviation started gasping for breath within days of the coronavirus lockdown. The International Air Transport Association (IATA) estimated that the cumulative loss to global airlines is in excess of $400 billion and still counting. Many airlines, including Richard Branson’s Virgin Australia, Flybe and South African national carrier, have bitten the dust. And more are already in intensive care units. The truth is that no airline can survive without some measures of financial support.
Nigerian airlines are not an exception. The industry’s losses may be as much as N180 billion should the lockdown extend till June. Apparently to save the sector from bankruptcy, the Minister of Aviation, Hadi Sirika, recently hinted that the government was considering a windfall for the local airlines and other service providers in the beleaguered sector.
After all, aviation sector is a very important means of transportation and a potential mainstay of the economy. It accounts for about 91,000 direct jobs and some two million indirect employments – all of which are already at risk due to the current lockdown. Despite the shutdown of operations and zero revenue inflow, the aircraft and sundry infrastructure are still running and observing mandatory routine maintenance at heavy cost on already distressed operators. It is therefore a no brainer that their survival depends on government’s support.
However, there is an extent to which a government can continue to channel scarce public funds into private businesses – especially one that is perpetually at its infancy, lacking corporate governance and accountability. About a decade ago, the Federal Government was in a similar fashion compelled to support airlines with N120 billion intervention fund. In connivance with the banks, some portfolio CEOs got the money and diverted it into ventures other than aviation. Nothing has been heard of the fund till the present. We can excuse the malady as more of a systemic problem than of the intervention fund on aviation industry.
But it is also imperative to note that many beneficiaries of bailouts, in other climes, are more of national airlines than private concerns. Either way, the beneficiary airlines have massive contributions to the economy in taxes and value-added to the Gross Domestic Product (GDP). Allowing them to go into extinction will leave a massive gash in the national revenue wallet. Many airlines in Nigeria do not meet these criteria. The aviation industry itself contributes an average of 0.5 per cent to the GDP. Worse still, though for reasons not unconnected with perpetual financial distress and toxic operating environment, the local airlines are always indebted to service providers. An agency like the Nigerian Airspace Management Agency (NAMA) could tell that more than 80 per cent of its revenue comes from foreign airlines. The other 20 per cent is always in the debt book of local carriers.
At the moment, Nigeria has no national carrier in operation, yet it is incumbent on the country to keep the private airlines in operation despite not leaving up to their billing. There must be a balance somewhere – reform. First, the entire system needs an overhaul to be business-friendly and cost effective for operators. The Federal Government once admitted that about 37 multiple taxes and charges in aviation are inconsistent with the ease of doing business agenda. It is obnoxious that nothing has been done by way of harmonisation to ease a lot of burden on airfares and the airlines. Second, the government has shown to be resource-poor yet bad manager of aviation critical infrastructure like the airports. Hence, the 22 Federal Government-owned airports should be concessioned to private investors for effective and efficient services, while the government retains control over aeronautical and general regulatory functions.
Third, the aviation system should be growth-oriented to promote the development of indigenous airlines and the industry at large. It is sufficient to note that every transaction in aviation is dollar denominated. At about N400 to $1 no airline can survive for long. The government’s palliative can, therefore, come in as cheaper exchange rate window, tax rebates and loans at low interest rate. Similarly, the Nigerian Civil Aviation Authority (NCAA) cannot continue to call local airlines weak, just to give preference to dominant foreign airlines. In fact, allotting four to five destinations to Ethiopian Airlines under the guise of Fifth Freedom Right and revenue earnings is injurious to indigenous airlines and their growth. All foreign airlines should be restricted to one or two destinations to create local markets for indigenous airlines as it is done globally.
In addition, the NCAA should review its conditions for local airlines’ operations. It must bring an end to a system that encourages scheduled carrier with one or two aircraft fleet-size, yet presided over by men of larger ego, huge sense of entitlement, bitter rivalry and destructive predatory price war. Such an era should be over. It is quite untidy that the Nigerian airlines’ registry has over 150 registered airlines that did not operate beyond five years. The current system encourages one-too-many journeymen because of the free-entry and free-exit policy of the NCAA.
Going forward, a local airline that cannot acquire six to ten 50-seater airplanes over a period of operation is not in good business. It should rather quit operation or merge into another. It is not out of place for our local airlines to form alliances and codeshare as many airlines are doing globally. This is only sensible given the enormous risk involved. If legacy carriers like Air France-KLM could widen alliances with competitors like Delta and Virgin Atlantic on the Atlantic route that has Lagos as one of its target markets, how much more local airlines that are still finding their feet? Indeed, if our local airlines and their operators cannot find carriers of shared values to merge or form alliances with – to emerge stronger and efficient, then what they need is not more public funds but the exit door.
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