" ITREALMS: A requiem for Nigeria Air - ITREALMS Online

Friday, July 27, 2018

A requiem for Nigeria Air - ITREALMS Online

For those eager to celebrate the launch of a national carrier, let me warn that the stunt pulled off last week by the federal government through its transportation minister responsible for aviation, Mr. Hadi Sirika, at the Farnborough Airshow in England, was nothing more than a statement of intent. It was a cleverly choreographed political sound bite, complete with photoshopped images of an aircraft depicting Nigerian livery. It was targeted at fooling the public into believing that the administration was sticking to its campaign promise to establish a carrier flying the Nigerian flag.

What was sorely missing from that presentation was the business case for the so-called airline to be named Nigeria Air, investors that had indicated interest in taking a stake in the airline, a lease/procurement plan with aircraft manufacturers and lessors for the acquisition of aircraft, management and technical services agreements with a prospective operator for the airline, a realisable blueprint for the actualisation of an airline hub possibly in Lagos, targeting first the West African sub-region, and a plan for the establishment of a maintenance, repair and overhaul (MRO) facility as an additional revenue stream for the proposed airline.

It must be mentioned that at the presentation at Farnborough, Sirika’s audience was made up solely of officials of his ministry and the regulatory agencies in the Nigerian aviation sector. Not a single prospective investor, aircraft leasing firm or manufacturer, or advisory firm was in sight. The sole foreigner at the Farnborough event was the cameraman hired by the transportation ministry.

At the very minimum, the so-called advisors led by Airline Management Group (AMG), which the federal government appointed a year ago at a princely fee of N1.5 million, should have been at the airshow to present their outline business cases for the airline, MRO, aerotropolis, and so on. AMG was named the lead in the advisory consortium after Lufthansa Consulting pulled out five months ago. Citing conflict of interest as one of the reasons for Lufthansa’s withdrawal, Sirika added last February that his ministry and the German firm were unable to agree on the contract terms for the advisory services, requiring an upfront payment of 75% of the contract fees that would have been payable in euros into an escrow account with a foreign bank. But I digress.

Sirika clearly went to the airshow unprepared. He also failed to address the challenging Nigerian aviation environment characterised by under-capitalised airlines, safety concerns, jet fuel shortages, an unattractive fiscal regime, the absence of world-class aviation infrastructure, and shoddy regulation. Even outside Nigeria, the minister was unmindful of the litany of unprofitable, struggling airlines on the African continent and beyond. Examples abound of defunct, bankrupt and unprofitable national and government-owned carriers ranging from Sabena, Swissair, Alitalia, Iberia, British Airways (pre-privatisation), Air Afrique, South African Airways, EgyptAir to Kenya Airways.

It would be futile using Ethiopian Airways and Emirates Airline as examples of state-owned airlines that have succeeded. They operate unique models that are difficult to replicate. Whereas Ethiopian Airways has a government-protected monopoly on its domestic routes, has benefitted from economic growth and stability averaging 10% over the past decade, provides a plethora of services including maintenance, catering and training to other airlines, boasts a young and modern fleet, purportedly pays zero landing fees at Ethiopian airports, and controls a large chunk of the air traffic in Africa; Emirates, supported by the government of Dubai’s investment arm, has been accused by its global competitors of benefitting from hidden state subsidies, maintaining a too cozy relationship with Dubai’s airport authority and its aviation regulator – both of which are state-owned entities – and benefitting from reduced borrowing costs by taking advantage of its government shareholder’s sovereign borrower status. But the allegations against Emirates have been debunked, with the airline pointing to the bailouts provided by the United States government to US-based airlines as a substantial form of state assistance.

What was more bemusing was Sirika’s declaration that Nigeria Air would fly on 162 routes! How was this predetermined without the input of investors? Shouldn’t that be the responsibility of the advisers and investors to determine the viability of routes? Rather than dissipate energy on the establishment of a new national carrier that will never see the light of day, Sirika should focus on the low hanging fruit right in front of him. For all intents and purposes, Arik Air, Aero Contractors and the remnants of the defunct Air Nigeria (successor of Virgin Nigeria) currently belong to the Nigerian government. With the still operational Arik and Aero Contractors under the control of the Asset Management Corporation of Nigeria (AMCON), the latter, with the assistance of reputable international consultants, should begin the process of underwriting the liabilities of both airlines, hiving off and disposing of their non-core assets, and merging the airlines into one entity. After the corporate restructuring process, which must include a share restructuring strategy that leaves the owners of the legacy airlines with some minority stake in the emerging entity, the new airline should be sold to a core strategic investor capable of injecting fresh capital into it and expanding its fleet and operations.

This avenue available to Sirika is a surer bet of getting an airline with a Nigerian identity off the ground. He needs to bury his ill-fated attempt to start an airline from scratch. The Nigerian government does not need a 5% stake in any airline, nor does it need to provide a take off grant of $300 million. Instead, more resources should be deployed in improving airport infrastructure and the concession of Nigeria’s viable airports to the private sector. As it stands, the Federal Airports Authority of Nigeria (FAAN) has proven to be a basket case. Like the phantom Nigeria Air, it needs to be buried and confined to the dustbins of history.

*Ijeoma Nwogwugwu/GEE

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