Category: Aviation

Domestic carriers are groaning under the high cost of doing business. Many cannot break even. To ensure their survival, they are appealing to President Muhammadu Buhari to design policies for sustainable growth.  KELVIN OSA-OKUNBOR  reports. 

Aviation is in dire straits.  Domestic airline operators say if  the government does not move fast to address the operational challenges, their airlines may soon soon be grounded.

They lament that returns on their investments are falling.

Worried over this, operators have urged President Muhammadu Buhari to design policies that will accelerate the growth of airline business.

They said the government should divest from aviation, create the appropriate policies create and conducive environment for private sector investors to create jobs and develop the sector.

The operators said the president should, among others, consider aviation fuel hedging as an interim measure to help domestic carriers offset possible losses in the short term while efforts are on to fix the refineries.

Speaking in separate interviews, the Managing Director, Dana Air,  Mr Jackie Hatharamani, the Executive Chairman of Airline Operators of Nigeria (AON), Captain Nogie Meggison, and the country representative of Germania, an aviation logistic and consulting company, Mr Olarenwaju Bamgbose, said the president should call a meeting of airlines and stakeholders to establish a blueprint that would be the driver of aviation sector development.

Fuel hedging,  according to  experts,  is one of the risk mitigation strategies taken by airlines.

It involves exposure to risk relating to the volatility of fuel prices, currency fluctuations and interest rates widely hedged by airlines using different types of financial instruments.

The experts described fuel hedging as a contractual tool some large fuel consuming companies, such as airlines, use to reduce their exposure to volatile and potentially rising fuel costs.

The International Air Transport Association (IATA) expects airlines to post a collective global net profit of some $25 billion this year if they implement aviation fuel hedging.

They said the flunctuating price of aviation fuel is having huge impact on airlines’operating costs, insisting that unless something urgent was done, some carriers could go under.

They want the availability of aviation fuel which could be achieved through local refining and transportation through pipelines and fuel hydrants into the airport.

They said there was the urgent need for the government to stabilise the price of aviation fuel to reduce the cost burden on domestic carriers.

With aviation fuel constituting over 40 per cent of airlines’ operating costs, its hedging would mitigate losses.

Hatharamani said he had designed a blueprint to develop the sector through investment attraction and infrastructure development.

He  urged Buhari to appoint technocrats to run the various aspects of the economy, including the sector.

He maintained that the government should also consider aviation fuel hedging for the domestic airlines to help them offset any possible losses in the short term while efforts are on to revamp the refineries.

But, Meggison, Bamgbose and the Chairman, Air Peace, Mr Allen Onyema, disagreed with Hatharamani’s model  of fuel hedging, saying it is strange to Nigeria.

They said fixing the refineries and transporting aviation fuel through the pipelines and hydrants would eliminate the challenges in the supply chain of aviation fuel as well as stabilise the product price.

Specifically, Onyema said the government should give licences to domestic operators that have the capacity to import aviation fuel.

He urged President Buhari to review the multi-designations approved for foreign carriers as most of them operate without reciprocity to various cities and that instead, the government should encourage the international carriers to form alliances with the domestic operators to strengthen the sector.

He said  President  Buhari should fulfill his promise to appoint technocrats to run the various aspects of the economy, including aviation.

He  expressed optimism that the  administration would build on positive achievements of successive governments to deliver well-designed aviation network with potential huge benefits for users, as well as for growth and investment in the wider economy. Hathiramani further emphasised that the government need to urgently build an aerospace Maintenance, Repair & Overhaul (MRO) facility to safeguard capital flight.

Absence of a functional MRO facility, he said, is depleting the nation’s foreign exchange reserve given that airlines periodically take aircraft in their fleet to far flung countries for heavy maintenance.

While decrying the taxes paid on tickets, he called for provision of special intervention funds at single digit interest loans for airline operators.

The initiative, according to him, will aid availability of working capital for the airlines and improved liquidity.

Domestic operators, he said, have consistently called on the government  to create business-friendly aviation industry as high cost of aviation fuel, increasing interest rate, high cost of aircraft lease, high insurance cost and imposition Value Added Tax (VAT) on air transport  is making the industry less attractive and lucrative.

Bamgbose said: “As good as hedging could help in protecting the airlines from the volatility of oil prices and also help deliver lower fares which will excite the travelling public, we cannot dissociate the practicability of hedging from the state of petroleum sector. Until the government can adequately or substantially address the system collapse in the sector, we may not be in a position to see hedging work in Nigeria.

“For instance, with the oil prices at the lowest in the recent history, how has that reflected on the prices of petroleum products in Nigeria?

“Furthermore, how many of these airlines have the balance sheet that can sustain hedging?

“As much as I believe hedging can work, the fundamental issues of the petroleum sector and the capacity of the airlines that  sustain that remains will matter.

“My other worry with this is also the very famous subsidy matter being introduced into this supposed deregulated sector under the guise of government creating a framework for fuel hedging.

“I will recommend Buhari administration meeting the airlines industry and establish a blue print mutually agreed to be the driver of enabling environment for aviation development,  because government has no business in fuel hedging but the users and suppliers of course with other risk management elements that goes with it.

He said he would not subscribe to  government getting involved fuel hedging but rather address the capacity in the petroleum sector through wholesome deregulation and support for local capacity building. He said the airlines will deal with the situation based on their respective capacity given that hedging is risk management.”

Meggison said: “For me, the proposal for aviation fuel hedging is personal as canvassed by the Dana Air managing director.

“It is based on your priority and analysis of the market. Hedging is optional, depending on the way you look at the market. As an airline it is based on your analysis of the market.

“I am convinced that what many operators want is for government to make the price of aviation fuel possible.

“The major problem operators are going through is the high cost of aviation fuel. Government should assist operators to make up for the margin in any price increase. That is my idea of hedging. Government should assist by making the price of aviation fuel stable by taking a position on the  matter.’’

Onyema said: “Fuel hedging cannot work in Nigeria. What I think government should do is to allow airline express permit to import their own aviation fuel  if need be.

“Any airline that could afford to import their aviation fuel should be given the license to go ahead. Such airline could import directly to resolve the supply chain challenges  that has capacity to rock the operations of airlines.”

 

To aviation experts a master plan is what the industry requires to grow. Such a master plan, they argue, will drive policies, attract investments and create robust carriers, KELVIN OSA OKUNBOR, reports.

IN the last few years, aviation has come under criticism – scandals and controversies over uncompleted airport projects. This is an indication that managers of the sector have been acting without a clear master plan.

Former Minister of Aviation Chief Osita Chidoka last week observed that the growth of the aviation sector is stunted due absence of a robust master plan.

Chidoka said putting in place such plan would form the architecture on which aviation policies would be driven for industry development.

The former minister stated this while giving a scorecard of his tenure.

He challenged industry players and operators to push for a road map that would give an indication of what to expect in the sector in terms of planning and investments in the short, medium and long terms.

Chidoka’s observation has attracted comments from some industry players. Experts say a master plan is long overdue for aviation.

The necessity of such plan it was learnt encouraged the former minister a few months ago to organize a forum tagged Aviation Business Forum in Lagos.

Stakeholders utilized the forum to examine ways and means of moving the industry forward by recommending policies that would attract investments into the sector.

The absence of such a master plan, some experts including, Mr Olu Ohunayo, head of strategy Zenith Travels and Sheri Kyari executive director Centre for Aviation Research and Safety argue, is responsible for the inconsistency in policy direction on some projects that have been designed for implementation since 1999 till date.

The experts aligned their thoughts with Chidoka who said government should work hard to ensure such a working document is put in place.

Other experts, including Captain Edward Boyo, managing director Landover Aviation Company and former Nigeria Airways spokesman, Mr. Chris Aligbe say the absence of a solid aviation master plan has impacted negatively on the growth of the aviation sector especially the airline sub sector.

They said if a solid master plan is in place, issues affecting criteria for robust domestic carriers that could compete with foreign carriers and retain huge capital flight at home could easily be sorted out.

With the high turnover of Aviation Ministers, in the last 16 years, they are worried that if there existed a sector master plan properly articulated, it would have driven the development of the industry.

According to the national president of National Association of Aircraft Pilots and Engineers (NAAPE), Isaac Balami until a solid master plan is put in place the anticipated development and growth of the aviation sector may not be achieved.

Balami said such a master plan will bring about policies that will drive the growth and sustenance of domestic carriers.

Also speaking an airline operator said the aviation industry would have recorded more achievement if there is a master plan that would draw up on how to attract investment in the sector in a manner that would drive job creation.

He cited absence of a master plan that guides how the airport authority for instance encourage domestic carriers secure land leases around airports nationwide to set up aircraft maintenance hangars.

Such high turnover he said has occasioned inconsistency in policy and its implementation.

Since 1999 till date, no fewer than 10 persons have been appointed as Aviation Ministers.

This high turnover in the strategic sector, experts say, is the reason for its stunted growth.

Speaking last week in Lagos while giving his scorecard, former Minister of Aviation Chief Osita Chidoka agreed with the experts affirming that  the slow development of aviation is due largely to  lack of a vibrant master plan and absence of institutional memory.

He said the sector is beset with a myriad of challenges, including absence of a master plan which ought to provide a template upon which all issues bordering on airport development should revolve.

Chidoka said the absence of a working document has brought about frequent changes and transfer of personnel, thus rendering the relevant units of the ministry ineffective.

As an intervention, Chidoka said a procurement process for the development of a master plan for Nigerian airports has commenced.

He said: “The ministry has moved from its policy and supervisory role to an implementing agency under the guise of airport remodelling,” adding that the staff pooling system of the Federal Civil Service, limits the ministry ‘s ability to build and maintain a group of  technical experts to manage the affairs of the civil aviation industry.

Chidoka said the pooling system should be modified to accommodate technical expertise in critical areas, pointing out that the ministry’s staff strength Is skewed towards service areas as against technical aviation related areas.

He said staffing needs to be readjusted to enable the ministry beef up the staff numbers in the technical aviation areas, stating that it is the organisation’s core focus.

Chidoka said government should conclude on-going procurement of consultants for the master plan to address weak policy leadership.

“‘Government should divest the ministry of all airport projects and return same to the implementing agencies.”

 

Aviation Business  Forum

 

Only a few months ago, the ministry organized a forum where top executives of aviation and allied services organizations met in Lagos to design industry led initiatives to stimulate sustainable growth for the sector.

Experts at the forum observed that beyond world class airline operations and infrastructure, Nigeria needs to play a leading role in the West African economic integration that aims to remove the barriers to the movement of traffic, such as visa requirements and the rigorous Customs clearance.

The forum according to Chidoka also resolved that: “Government should not run a national flag carrier airline and that private owned airlines should not run as a national flag carrier airline. The objective is to ensure that ownership structure that engenders corporate governance; accountability and transparency are adhered to.

That a diversified ownership that reflects a combination of institutional investors, public investors and private ownership that has an interest in going public is a major requirement in becoming a national flag carrier.

That there can be as many national flag carriers that meet the set criteria.

That the national flag carrier will espouse certain inherent national values that align with the Nigerian brand. That national flag carrier must operate an effective model.

That an economic stimulus for aviation will involve a package of financial incentives and support across the value chain.

It will involve having a robust national aviation industry strategy framework that will impact on key areas.”

The former minister said if the sector must move forward, there is need to implement the strategic master plan that will address issues bordering on aerodrome infrastructure and operation, airline operations and safety, airspace management as well as manpower development.

 

Policy interventions

 

Chidoka lamented the failure by previous ministers to address the recommendations of the 2006 Air Marshal Paul Dike’s Report, which highlighted the challenges of the aviation industry.

The minister said if the Buhari administration implements the recommendations of the Dike Report, the aviation sector will be on the path to recovery.

He listed other interventions: “There is need for broader policy intervention that should bring about the setting up of aviation corporate governance and enterprise risk framework to reduce the likelihood of aviation corporate failures arising from moral hazard.

Additionally, Chidoka called for the creation of a more robust and conventional national/ flag carrier policy framework to develop a national aviation fleet that can rival the huge consolidated global players, as well a review of current intervention models and facilitate a more robust aviation financing framework.

He urged the creation of a robust regional hub/ aviation city model that drives commercialization, stimulate volume of funding required to leapfrog the aviation industry into the future.

 

Revenue Automation                  Project

 

As a way of enhancing the revenue streams of aviation agencies and blocking leakages, a committee was set up by the ministry to monitor, data capturing, invoicing, payment settlement and reporting of all agencies.

The aviation revenue automation project has been implemented in many airports including Lagos, Abuja, Port Harcourt, Kano , Enugu and Calabar.

Benin, Owerri, Kaduna, Maiduguri, Jos, Sokoto, Ilorin, Minna , Akure , Katsina, Ibadan airports are scheduled for the next phase of the project roll out.

He said issues around project scope, fees and compliance were variously reviewed and mutually agreed among relevant stakeholders .”

 

 ICAO Audit / Security

 

Though Nigeria has come under intense global scrutiny on account of the recurring incidents of stowaways at major airports efforts the former minister said are ongoing to improve on airport safety and security.

He said preparations for the ICAO a Nigerian Aviation Security audit have witnessed remarkable improvements.

He said:” We have identified gaps from the United States Transportation Safety Administration (TSA) and ICAO Needs Assessment Reviews were constituted into a gap analysis checklist and sent to the NCAA in April 2015.

The tracking team has completed its first gap closure assessment visit to NCAA and FAAN over a month ago.

After the assessment, 68 per cent of the identified gaps were closed.

However, in the gaps closure review last month remarkable improvement was indicated, which might drive the gaps closure assessment percentage to over 90 per cent.”

 

Customer Service

Enhancement

 

In the last few months several initiatives were executed to enhance passengers’ experience in the sector. Towards this end, aviation. Passengers’ service portal was deployed this year to provide prospective users with up to date information on flights operated within the Nigerian airspace.

Only last week, Glo telecommunications installed wifi services at the Abuja and Lagos airports.

Other airports are billed for installation with wifi in the next few months.

 

FAAN

 

The minister also spared a thought for failings by the Federal Airports Authority of Nigeria ( FAAN), which currently manages 21 out of the 25 airports in the country with a lopsided personnel of over 21 per cent technical staff as opposed to 78 per cent non technical personnel .

Such lopsidedness he said is skewed against the mandate of the authority in providing adequate facilities and personnel for effective security at all airports.

Chidoka said some interventions were put in place to whip the airport authority in line through the introduction of performance management, posting of airport managers, tracking of staff on customer service as well as refocusing of the Aerotropolis project by injecting greater transparency.

Chidoka said: “Some steps have been taken to redress the situation through review of airport remodelling projects by independent quantity surveyors, provision of navigation and air field lighting facilities as well as setting up a committee on airport charges to align charges with competition.”

On the key issues confronting FAAN, Chidoka said the authority has over N30 billion pension liability which is unfunded.

 

 

This he said arose on account of switch over to the new contributory pension scheme.

He said the indebtedness of airlines to FAAN has impacted negatively on its finances thereby limiting its capacity to be self sustaining.

 

 

 

 

Chidoka said: “There are staffing inefficiencies in Nigerian airports when compared with other airports of similar size around the world. There are ageing staff with very little competitive drive. There is no evidence of systematic personnel evaluation and absence of ling term staff planning at FAAN due to absence of a long term business plan.”

He said FAAN should be corporatized into airport management companies in clusters of airports with a view to privatizing the companies.