Nigeria Air: Gearing for take off in stormy skies
With multiple debts in billions of naira, dwindled capacity and gross inefficiency, the Nigeria Airways fell from grace to grass and was consequently liquidated in 2004. From its ashes rose multiple private airlines that leveraged the deregulation policy for free entry and exit in the aviation sector. But from 2004 till date, the country has witnessed the highest mortality in the industry, with over 50 registered airlines closing shop as soon as they were launched. WOLE OYEBADE writes on whether the unfolding Nigeria Air will survive where others could not.
In the 1980s and the early 1990s – the heydays of defunct national carrier, the Nigeria Airways, the airline was a delight to behold and fly. Combining efficiency and profitability, its fleet of about 30 airplanes (of different ranges), covered major Nigerian, African and world cities.While its route efficiency and planning fully utilised available capacity, route viability was hardly the case within this period.
For example, the national carrier flew its Boeing 727 and Boeing 737 to Kano, where it positioned the Fokker F27 turboprop that would redistribute passengers to Sokoto, Kaduna and Jos twice daily, and also to Makurdi and Yola. While there were direct flights to Yola and Maiduguri from Lagos, once daily, a 50-seater F27 flight connects Lagos to Ibadan and Benin.For locations in South East and South South, including Enugu, Port Harcourt and Calabar, the Nigeria Airways serviced those areas with F28 crafts at least twice daily.
For destinations on its international menu, the Nigerian Airways had a number of craft in the West Coast, as well as, New York, London, Frankfurt, Amsterdam, Rome, Jedda, Nairobi, among others.Contrary to what obtains today with some contemporary airlines, the Nigerian Airway in the 1980s and 1990s, had most of its maintenance done locally.
A member of the engineering team, Ayuba Kyari, recalled that the Lagos hangar conducted C-checks on Boeing 737 aircraft type, and D-checks on Airbus A310.During his electioneering campaigns in 2015, President Muhammadu Buhari pledged to revive the national carrier, and in keeping with his pledge, the name and logo of the new carrier, the Nigeria Air, were unveiled at the Farnborough’s Air Show in London, ahead of its December 24, 2018 take-off.
While the issue is dominating discuss on the social and mainstream media, core stakeholders in the aviation industry are equally in the fray, dissecting the prospects and odds that await the new bride.
More Than A National Carrier
In 2016, the Federal Government launched the Aviation Roadmap – 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.Spearheading the campaign is Minister of State for Aviation, Hadi Sirika – a captain and technocrat, whom many expect to understand the sector and how to get along with stakeholders.
Sirika, who maintains that the government is out to put in place, a national carrier that would stand the test of time said: “We don’t want what happened to Nigeria Air to repeat itself, where someone woke up from the left side of his bed and decided to liquidate the Nigeria Airways, and set up Air Nigeria, which didn’t last. We want to build an airline that can challenge Ethiopian Airlines.
“We don’t want to rush into establishing a national carrier, because if we fail, it would be disastrous and nobody will believe us again. So, we need to tread cautiously. We will fast-track, and be quick so that we can produce something that would stand the test of time,” he said.
Nigeria Air Limited- Funding, Ownership, Management
It has taken two years for the emerging airline to come off the project development phase with an Outline Business Case (OBC). Contained therein, and subject to Federal Executive Council (FEC) approval, is a new airline via Public Private Partnership (PPP).Unlike the Nigeria Airways that was 100 per cent owned by the Federal Government, Nigeria Air is 95 per cent private and five per cent government-owned. And ditto for its funding and control too.
That is why Sirika explained that the government is not funding the entire project, but “we are just providing startup capital in the form of an upfront grant or viability gap funding.”He said once the strategic equity investor is in place, they would be expected to build on the initial investment made, adding that $8.8m represents startup capital for offices, among others, required for takeoff. But $300m is the entire airline cash flow funding requirements (aircraft, operations and working capital) for three years, that is, 2018, 2019 and 2020.
“This funding can be in the form of equity or debt. The financial model estimates cash flow requirements as follows: 2018 ($55m – $8m is included here), 2019 ($100m) and 2020 ($145m).“In order to ensure take-off of the airline in 2018, the government will provide $55m upfront grant or viability gap funding to finance startup capital and pay commitment fees for aircraft to be leased for initial operations and deposit for new aircraft, whose delivery will begin in 2021,” the minister explained, adding that the strategic investor will only become known after the public private partnership procurement process is completed.
“The company’s shares will be sold through an initial public offering after, which the government will own five per cent equity. Government’s equity share held in trust for Nigerians will be devolved to Nigerians via an Initial Public Offer (IPO).“The government will retain only five per cent equity, the list of shareholders then will be available to Security and Exchange Commission (SEC), and the Nigerian Stock Exchange.
“The rest of the 95 per cent equity of Nigeria Air Limited will then be owned by the strategic equity investor and the general public. At that point, Nigeria Air Ltd becomes a public company subject to SEC, NSE and relevant CAMA rules for public companies.”
Ongoing BASL, FAAN/FG Tussle As Disincentive To PPP
In the light of dwindling revenue from oil and other sources, the choice of a PPP model for the new airline was a no-brainer. More so, as 100 per cent government-owned airlines are fast becoming unfashionable in the modern, high-capital, huge-risk and meagre turnover airline business.However, PPP rides on trust and sanctity of agreements among the parties. And going by the controversy that embroiled the first of such PPP arrangements in the aviation sector, the credibility of this government may be a hard sell to investors.
It would be recalled that the old domestic terminal, now the Murtala Muhammed Airport 2 (MMA2), used to be managed by the Federal Airport Authority of Nigeria (FAAN) until fire razed it May 2000. The government of the day considered the cost of replacing the facility too burdensome, and opted for private investors under a PPP arrangement.The plan completely transferred all development and operating risks to the private sector, specifically on a Build-Operate-Transfer (BOT) arrangement. The venture is the first of its kind in the country.
Bids were received and the lot eventually fell on Bi-Courtney Limited, a wholly indigenous conglomerate and the parent company of Bi-Courtney Aviation Services Limited (BASL). The contract was awarded in 2003, with a lot of details shrouded in secrecy.From equity of the owners/proprietor and loans from six banks, the terminal was completed and commenced operations on May 7, 2007.
While the domestic terminal seamlessly ran better than international airports in the country and remains a pride to both friends and foes, it has also been a subject of serious legal tussle between BASL and FAAN/FG almost since inception.And this battle, unfortunately still ongoing, has been described as a low point and a bad advertisement for the concession plan of the current administration. The tussle is for reasons not unconnected with monopoly of the Lagos domestic operations and years of concession on the agreement.
Part of the details, initially undisclosed, is that BASL will operate the facility, as the sole domestic terminal in Lagos for a period of 10 to 15 years; with addendum for extension to 36 years as is the case for most of such investments around the world, given the huge capital intensive nature of the venture.BASL later sort to explore the 36-year concession window, to help the investors recoup the heavy investment that was described as unprecedented since the venture was first of its kind. The Guardian gathered that though BASL had the sympathy and goodwill of the then governments (Obasanjo and later YarAdua-led era), but much to the displeasure of BASL’s landlord, FAAN.
For FAAN, BASL was riding on undue preferences, courtesy of friends within the government circle. While BASL maintains that the short-lived Yar Adua administration had approved the 36 years concession period, FAAN insisted that the initial 10 to 15 years agreement was sacrosanct.It was amidst the conflict that FAAN awarded the construction of General Aviation Terminal (GAT), Lagos, to rival operations of MMA2 and contravene part of the BASL/FAAN agreement, especially the monopoly clause.
When tested at an Arbitration Panel and law courts, up to the Court of Appeal, the rulings were in favour of BASL, including the allocation of the GAT to BASL and the endorsement of 36 years concession period.The Guardian learnt that there is a subsisting judgment of N132 billion in favour of Bi-Courtney, due to FAAN’s illegal operation of the GAT. This judgment was obtained in 2012 but still not obeyed till date.
Amidst the no love lost scenario between FAAN and BASL, concerned stakeholders have said that the Federal Government and Sirika should not pretend that the road leading to the MMA2 success story was not mucky, irrespective of who has the fault BASL or FAAN.Instead of brick-bat exchanges, stakeholders and lovers of concession have appealed for resolution of the BASL/FAAN disagreement, so as not to set a dangerous precedence that will scare potential investors to Nigeria Air and prospective concession of other airports.
Industry consultant and the Chief Executive Officer (CEO) of Belujane Konsult, Chris Aligbe, said the government must first put administrative and legal frameworks in place before embarking on another concession exercise.
Unpaid Nigeria Airways Workers As Albatross
ANOTHER low point in the whole arrangement is the albatross presented by the inability to settle the entitlements of workers of the defunct national carrier.The Olusegun Obasanjo administration (1999-2007) liquidated the former national carrier, but without plans to compensate the workers. While the Act establishing the failed outfit has still not been repealed, the severance packages and gratuities of its 6, 000 workers are still unpaid till date, contrary to the provisions of labour laws.
Chairman of the Nigerian Union of Pensioners, Nigerian Airways Branch, Sam Nzene, lamented that they were labeled “corrupt and inefficient and therefore undeserving of any compensation until the Umaru Yar’Adua administration gave us a listening ear.” The result of that intervention was a five-year pension pay, which some of the workers received in 2008.Yar’Adua’s successor in office, Dr. Goodluck Jonathan allegedly had very little to offer the retirees until the twilight of his six-year administration.
One of the retirees, Abraham Olajide, observed that it was one of those years that they were utterly jinxed, as aviation ministers one after another, kept turning a deaf ear to their cries.“They did not even want to hear us at all; they did not care while we cry, wail and die. But these are our entitlements. Why? You will not believe that the only time the government listened to us was towards the last general election, and this is because they needed our votes. It was like saying ‘vote for us and get all your pensions.’ This is the height of wickedness,” Olajide said.
The current administration last year reassured the ex-workers of their benefits and also approved a lump sum of N45b for their benefits. Till date, the money has not been released.Henry Iwelunmo, a former worker of the airline said it really made no sense to float a new airline without first sorting the murky remains of the Nigeria Airways, including, factors that killed the airline, emoluments of its workers and the whereabouts of its assets.Iwelunmo said: “I really don’t see a right thinking government or organisation that will embark on an important venture like a national carrier without diligent effort to look and learn from the past.
“The Nigeria Airways had assets all over Lagos, in Nigeria and the world over. Where are they and others that are still unsold? The hanger at the Murtala Muhammed Airport still has a lot of equipment that are not being put to use. Same for the seasoned hands and some of the best around the world that Nigeria Airways paraded at that time. If they are well catered for, they could still be useful to the new airline. That is why we all are saying that the ex-workers should first be settled and other right things done, before the idea of a new carrier.”
AON Frets As Uncertainty Looms
Airlines operators also welcomed the unveiling of the new national carrier but with mixed feelings. They were quick to cite concerns over the fate of local carriers once the new airline begins operations later this year.Chairman of the Airlines Operators of Nigeria (AON), Nogie Meggison, said that the problem of the sector is not essentially that of capacity, but that of infrastructure deficit and tough operating environment that should ordinarily be tackled head-on.Meggison said the high mortality of domestic carriers and the lull in the sector was a reflection of the tough business environment that has continued to take its toll on investments.
Indeed, in 91 years of its existence, the aviation sector in Nigeria, perhaps, has one of the highest mortality of registered domestic airlines in the world. It is also known for parading airlines with the shortest lifespan of 10 years.According to the Nigerian Civil Aviation Authority (NCAA), no fewer than 150 airlines were registered by 2000. Among them are: Nigeria Airways; Aero Contractors; Arik Air; Allied Air; Associated Aviation; Hak Air; Kabo Air; TAT Nigeria; Bellview; Sossoliso: Chanchangi; Skyworld Express; EAS; Max Air; Air Peace; Med-View and Dana Air.
Others are First Nation; Overland Airways; Azman Air; Virgin Nigeria; Air Nigeria; Aviation Development Corporation (ADC) Airlines, Concord Airlines; IRS; Albarka Air; Odengene and Okada Air.Among those in operation are: Air Peace, Med-View, Dana Air, Overland Airways and Azman Air. Arik Air and Aero Contractors have been taken over by the Federal Government’s debt recovery vehicle called Asset Management Corporation of Nigeria (AMCON). This was in lieu of the airlines’ financial distress, indebtedness to banks and inability to meet critical financial obligations.
Maintenance is the soul of aircraft globally and not less than 40 per cent of the total operating cost of an airline goes to routine maintenance, that is – A to D checks. C-check, one of the major maintenance programmes, is done on aircraft overseas every 18 months at a cost in the neighbourhood of $1m to $3m.Besides maintenance, another big challenge is aviation fuel, which gulps another 40 per cent of total operating cost of an airline. Jet-A1, as aviation fuel is also called, is 100 per cent imported into the country. Daily supply requirement is in the neighbourhood of three million litres and cost N660m at N220 per litre.
Meggison said what the industry needs the most is a clear economic policy for the survival of domestic airlines.“Safety and financial economic policy must go hand-in-hand; as airline investors are in the business of aviation for the profit and can’t make profit without safety, or have a safe airline without profit.He identified some of the major issues that need to be addressed to grow the sector to include a review of the five per cent Ticket Sales Charge (TSC) to a flat rate (in line with the global best practices); harmonisation of over 35 multiple charges, which add huge burden 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 hamper 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 of the window.
“These are some of the main reasons for the short life span of Nigerian airlines averaging about eight years. The mortality rate of airlines in the country within the last 11 years stands at 57 per cent. This is quite alarming because it means that virtually half of the airlines that existed within the period under review have all gone out of business, and two of the major airlines existing today are in receivership.
“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 the survival of domestic airlines in the country.”On his part, Chairman of Air Peace, Allen Onyema, congratulated the Federal Government on the move to revive the national carrier, describing it as an avenue to create jobs for Nigerians and to improve the capacity of air travel in the country.Onyema, however, said the new carrier has to operate transparently with regulators ensuring a level playing field for all operators in a fair competition.He said: “If the airline will be used to frustrate the hard-earned successes of existing airlines, then we all will be against it. As at now, Air Peace has acquired four B777, Med-View just got one and maybe Azman soon, does it mean that we would be restricted from those 91 routes that Nigeria Air will be flying? I hope not.
“We trust Buhari to be a nationalist and he will not allow us to be forced out of business. That is why the new airline has to be transparent. Government has said that it is going to be a private business. It has to operate side-by-side with other airlines. So, if the new airline goes to London, no local airlines should be stopped from the route, once it has the capacity,” Onyema said.
For Chief Executive Officer of African Aviation Services Limited, Nick Fadugba, the beautiful picture that the new airline is trying to paint notwithstanding, Nigeria Air “is still clouded in a lot of uncertainties.”Fadugba observed that with Nigeria Air coming on board while Arik Air and Aero Contractors are already under the control of AMCON, “it means the government owns three airlines and I don’t know any country in the world where that is done.”He wished the government had first frankly interacted with airlines operators in order to have a macro 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 cautioned.Former Managing Director of the Nigerian Airspace Management Agency (NAMA), Capt. Roland Iyayi, added that Nigeria Air is bound to get rare operational privileges that private carriers don’t get overseas because the Federal Government would do anything and everything to ensure the national carrier succeeds, but to the detriment of local carriers.
Iyayi said what is prevalent in the sector is not strategic but destructive competition and policies. “Now, we have put the cart before the horse; setting up a national carrier before addressing the destructive existential policies that are killing the airlines in the first place”.However, an aviation consultant, Chris Aligbe, is of the view that the government should be given the benefit of the doubt, especially in view of the approach adopted by the Minister and his team, which is “unusual to the Nigerian system.”He said: “We have had such promises from previous administrations. Now, this administration has followed the path of transparency in their processes. They started by telling us about it; they did not put it under the table. They appointed transaction advisers that have pedigree and shown them to the stakeholders to see. By the time their report was ready in June or July, it still went to the stakeholders to decide.
“However, all of these do not mean success. There is usually a T-junction where people get to and take a wrong route. I’m waiting for them to get there and see the direction they will take – either the right or the wrong one.“Even Obasanjo took the wrong route in liquidating the national carrier. The act that established Nigerian Airways has still not been repealed. Now, this administration is doing all the right things. Never has such plan been taken to the Federal Executive Council (FEC) for approval. Look at the recent committee set up to fast-track the new carrier, they are all professionals and way ahead of those we had in the past. So, we really have to give it to them,” Aligbe said.
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