That the nation’s aviation industry is in turmoil is an understatement–no thanks to the harsh operating environment. While aircraft fleet is on a downward stream, some other operators are facing the cronic challenge of debts overhang. AMCON’s takeover of some of the airlines has brought with it the erosion of confidence among operators. In this interview, The President, Aviation Safety Round Table Initiative and Managing Director, Sabre Travels, Mr. Gabriel Olowo, expressed regret that an industry that started with great hopes has been virtually grounded by government policies and an unstable economy, including the negative impact of scarce foreign exchange. He spoke with a group of journalists in Lagos. SIMEON EBULU was there.
What’s responsible for the high rate of domestic airline’s failure in Nigeria?
Thirty per cent of airlines’ failures are due to mismanagement by the owners, while 70 per cent are caused by the government, including the harsh economic environment. In my 44 years in the aviation industry, I have seen airlines failing within a space of 10 years after starting operations. That means there is a common factor.
The business of Nigeria Airways was government business. The problem of corporate governance has always been there. The Nigeria Airways was supposed to be repackaged and become a new carrier, but the then President said the government was not buying into the repackaging.
The second generation airlines such as Okada Air, Oriental Airlines, Triax and Kabo among others all meant well. Okada said it wanted to prove to the government that it could do the business and it brought a Boeing B747, but that aircraft never flew and was left to rot. The investment was wasted. Its owner got a promise from the then second in command during the military regime, but we were looking at the airplane everyday as it was parked at the airport. It was initially planned to do Lagos-London-Lagos route. That was on the side of the government and this was the same situation for Kabo Air.
Recently, the Nigerian Communication Commission (NCC) and the Minister of Communication intervened to prevent a telecommunication firm from being taken over by three banks over debt issues. But there was no indication that the Minister, or the Nigerian Civil Aviation Authority (NCAA) made any step to save Arik or even Aero Contractors. Why?
The Nigerian environment is very hostile for business and our civil servants in the Aviation Ministry (now Ministry of Transport) are supposed to see to the advancement of the sector, ensuring that airlines succeed. They are supposed to measure their progress from year to year. They should tell us the number of aircraft in the last one year, the number of airlines that have increased their fleet over the years, the growth rate amongst others.
So, if there is no growth, there can be no development. How come Ethiopian Airline took us over? How come South Africa Airways took us over? What is that Ministry doing? The civil service is the government. The President will talk through the Minister of Aviation, who is responsible for the ministry, even if the Nigeria Civil Aviation Authority is autonomous.
How is the foreign exchange policy affecting the aviation sector?
Foreign exchange is one that is highly volatile. It has always been like this in the last 40 years. In the early 1970s, I remember the exchange rate was N4 to a dollar. During the first coming of President Buhari, we faced the foreign exchange problem and the airlines were running with what was called “blended rate.”Various banks offered different exchange rates. Foreign airlines were faced with that, leading to about five of them exiting the country.
I was working for a Brazilian airline- Varig, which also stopped its operations into the country because of foreign exchange issues. Most of them couldn’t repatriate their revenue due to scarcity of foreign exchange. Iberia Airline left; Varig, Scandinavian Airline, amongst others, all left. Since then a big vacuum was created. During Buhari’s first coming, there was trade with Brazil; we had counter trade with Brazil. Volkswagen Nigeria was relating with Volkswagen Brazil. We had Sakamori, we had telecom and pharmaceutical businesses from Brazil. There was huge economic exchange that time, but since the airline left, a vacuum has been created between Nigeria and Brazil in terms of business interaction. There was huge economic boost between those two continents then. Once aviation link is broken, economy is dead.
As at 1994, exchange rate was around N22 to a dollar. Nigerian airlines were selling one hour flight ticket for Lagos-Abuja or Lagos-Kano at N2,200 and at the exchange rate of N22, that amounted to $100. Lagos-Abuja was $100 value in 1994, which was about 23 years ago. Today, the exchange rate has moved from N22 to N450. Today, an airline sells ticket for the same Lagos-Abuja at a baseline fare of N16,000, which amounts to $30. Do they want to kill the airlines?
If I am in government, I will shut down the airline because this is showing your desperation for cash flow. And they call it promotion. What kind of promotion? Exchange rate will never make you earn the right tariff because people will not be able to buy the ticket. So, you decide to reduce the price, meanwhile your cost is increasing.
The airlines in Nigeria currently are not charging the right tariff after 23 years. If people cannot fly, then do not kill them. If I am NCAA Director-General, I will shut any airline that charges less than $100.
The current recession seem to have affected the airlines more? Do you agree with this?
The airlines borrowed a lot and their borrowing has dollar content and you do all your sales in naira. So, how can you get the foreign exchange content? The CBN says N306, which is not available. You spend so much on training, maintenance, and distribution. You have to pay dollars for virtually everything. The dollar is not available, so, the operators have to go to the black market to get dollars at a higher rate than the rate he sold the ticket. How do you want that airline to service its debts? Because he has started, he cannot kill the business, so he keeps on struggling and he gets to a level that all the creditors gang up against him.
What has happened to the airlines AMCON took over? What success has it made of them? What is the objective of taking over?The job of the receiver manager is to assess your assets and liability and make up his mind on whether you will revive it or kill the company?
All over the world, when a business goes to receivership, he might decide to say since the company is bankrupt, they will keep the business running and make sure it does not die. They can set all the debts aside and pay when the business picks up, they can attend to other things. I do not think we have bankruptcy law in Nigeria and if that is the case, it behoves on our regulator to find a way to support our airlines, having seen how and why they are dying, which is as a result of direct and indirect contribution.
If Richard Branson came here and failed, what are the factors responsible? Richard Branson is doing well in Australia, in the US and Europe, why did he fail in Nigeria?
The Ministry of Aviation, NCAA and all stakeholders, if Richard Branson failed in Nigeria, then do not blame Nigerian airlines at all. When Branson was leaving, he said Nigerian politicians are carrier destroyers. They do not follow through an agreement, they cancel agreements. What is going to be the investor confidence? The NCAA and the ministry, which are supposed to be government agents and decision makers should not have allowed AMCON to do what it did. They will ask AMCON their objective. An airline that went from 30 aircraft to nine and your eyes are wide open. Did the bad economy of the airline happen in one day? The aircraft would have been going for maintenance and not coming back.
They are supposed to monitor the economic health of the airlines on a daily basis. The airline filled the forms and the NCAA has the right to make sure it is correct. When you are talking about capitalisation in this sector, it is not like the banks. Capitalisation is not liquidity. Our NCAA must be ready to see how liquid the airlines are. If they are not liquid, they must find out why and you must account for his problem of liquidity, and where he cannot account for it, you realise that revenue is not covering cost; you have a job to do.
Nigerians are watching to see the development in the new management of Arik Air. What is the hope that they will be able to revive the airline?
Personally, I have no hope in AMCON because its antecedent has not convinced me otherwise. The way they have been moving in the last three to four weeks, I see no hope. They took over Aero Contractors and I haven’t seen anything after that. They removed the CEO of Aero and sent him to the Nigerian Airspace Management Agency (NAMA), they brought in the chief pilot from Arik to Aero, all their postings have been haphazard, so I see no hope but I pray that they don’t kill the airline. The airline must not go under. It is not about paying off the banks, but it is an in-depth understanding of the cause of the problem. If there are priority allocations of foreign exchange to some sectors, even religion, this is a very sensitive sector for forex allocation.
If the airline operator has borrowed with huge forex content, and it has gotten to such an alarming rate, then there is a problem. For foreign airlines, they reduce frequencies, they are cutting their expenses, their bigger operational base are not in Nigeria. So, all they do is sell here and move their money. So, they know how to handle their problems. The Nigerian airlines’ home is here. Somebody needs sympathy for them and that sympathy should be from our own government, our NCAA and the Ministry. I see no reason why we cannot call the airlines together and find a way to make them strong.
If I have my way, I will merge all of them into one without killing their individual identity. The total aircraft for Nigerian airlines today is less than 30. South African airways has 53 aircraft, Ethiopian airline has close to 100. We can bring our airlines together and do a very robust schedule for all their aircraft put together. As a roster – the first airline will go for flight one, the next flight will be used as flight two. If the first airline does not go for any reason, the second airline can go, while the third airline can be used as flight three. The schedule will be maintained. So, you will be competing to do your flight because you are on the schedule and I will do 1, 000 flights using all the aircraft. I will use technology. If they can grow their fleet, they will continue to grow it to make it efficient. If you are going to position the aeroplane, we must have a standby. If you cannot position it in 30 minutes to take off, then the airline on standby will move in.
The issue is policy. The NCAA just needs to ask for the airlines’ airworthy aircraft; we can have two strong competitors. This is to reduce competition and improve standard because NCAA will not take rubbish from any airline. That is what Imo Air is trying to do. Imo Air operated by Dana Air, that is the concept. It is done all over the world. If you go to the United States, that is what is done. American Airlines operated by different operators. American Airlines has robust schedule and it is not operated by American Airline aircraft, but aircraft under the supervision of American Airline.
There are reports that the new management of Arik may have to reduce workforce by 70 per cent. What do you think will be the effect of this, considering the size of Arik?
This will be suicidal. It will make manpower 60 per cent and money 40 per cent. If you fire Arik workers and you are thinking of a good airline tomorrow, you may be running into problems. Look at the workers in the industry, the people circulating today are those that came out of most airlines that have gone under. Manpower is key and if AMCON is serious about managing the airline, it should just retain manpower now. Keep the manpower because it is even the least cost.
In Nigeria, each time there is crisis; manpower is the first they will cut, which is not supposed to be. Manpower should be retained because we need it again and again. When we were planning the restructuring of the now-defunct Nigerian Airways, we realised it had 6,000 workers, but just one aircraft. We said to ourselves, let us keep some of this 6,000. So, we looked at all the assets of Nigeria Airways, which included the engines, the catering department, water department, maintenance department, amongst others. After we did the forensic audit, we knew that from all the assets, we should be able to get six brand new aircraft. We said we would call Boeing and Airbus and offer them all the assets in exchange for six aircraft.
We would put four for domestic and West Africa and two for international. Then Nigerian Airways would complement other indigenous airlines and we would not have too much competition in the domestic market. We then looked at the world average with regards to workforce per aircraft. In some countries, you need 50 to 100 workers per aircraft, in some airlines we have between 150 to 300 workers per aircraft. So, we did an average and arrived at retaining 200 people per aircraft.
Since we would be able to get six aircraft from the assets, then that would give us 1,200 workers from the six aircraft. So, we bloated it and said we would take 2,000 out of the 6,000. So, our recommendation was to retain 2,000 out of 6,000 because we are going to start a new airline and we wanted to go to the Nigeria Stock Exchange where we would float for the company for the Nigerian people and it would be the peoples’airline.
The owners would be qualified, chosen from the Nigerian people and serious managers would be in charge, home and abroad. A Nigerian is the Director of Engineering in American airline. The man manages 800 aeroplanes. Unfortunately, all we said was not implemented and we learnt that the airline was shut down. So, manpower is key.
What is your take on the national carrier proposed by the Minister?
I am in haste and I want to see it quickly. I support it, but I will not agree it be called a national carrier. It should be called another flag carrier. If the kind of consolidation I am suggesting for the existing ones happen, we will have two big players to face a British Airways. With the kind of players we have, we cannot face a British Airways or a Lufthansa. We cannot even compare with Ethiopia Airlines. Commercial discussion here is not a joke.
What is the level of consultation between the private sector and the government when it comes to issues that affect aviation?
Aviation Round Table is an NGO, which is made up of concerned people in the industry. The best we can do is to talk and send the communiqué to the government to see. We discuss the issues and recommend the best ways to go about them. The communiqué goes to the President, the Minister and the media. We have reflected on almost every issue in the last one year, it is left for the government to implement some of the solutions we have proffered. What is driving us is to know how aviation can advance. What is making Emirates big? We are celebrating Ethiopian Airlines to Kaduna, but where is our own to celebrate? This is very sad. Ethiopian Airways came to run Air Nigeria for us and now Ethiopian is on top.
What do you think should be the average number of aircraft by Nigerian airlines?
In the Nigeria of my dream, an operator must start with an equivalent of a South African Airways, which is 50 aircraft, one operator. We must do equal services to the countries of all the foreign airlines. If Lufthansa does three flights, I will do three to Germany. British Airways will do seven and I will do seven. You will not let them do 21 and ask me to do 21 because they already have the market. I am going to deliberately reduce their market and give it to my people. I must make sure that our airline has what it takes before I will go to Britain to negotiate. They will tell you Heathrow is not available, then I will tell them Lagos is also not available.
You have to give my own people Heathrow for me to give you Lagos. I won’t do open sky because I do not have the muscle yet. The muscles the foreign airlines have are stronger than mine. What kind of nationalism do I have? I went to negotiate air traffic to India for Bellview because our government said we cannot do London and other lucrative routes, I wanted to prove that we could do it as we have aeroplanes to do it and pilots. We had Airbus 300 and A800, which was the biggest at the time, sold at $52million. Those in the ministry said if we go to London we would disgrace the flag; they didn’t believe us. So, they asked if we could do India and we agreed, but unknown to us they had other plans. Stupidly, we took the business. When I went to negotiate Bilateral Air Service Agreement (BASA), the Indians I met were real experienced aviators. They said we could not come to India because they did not want to come to Nigeria. They held our aircraft at some point, so they put all the bills down and they asked us to pay the bills if we want to come to their country.
So, we agreed to settle the bills. They went on to tell us that on our aircraft, they will give us 100 seats and we will be selling tickets as Air India. Those are commercial negotiations. How will you go and negotiate for Arik and you will not take Arik with you? What kind of ministry is this? When they take Arik officials, they tell them they are observers, they are not supposed to talk, we are the ministry and we should talk. Is it the ministry that will fly? Our industry is dead. How can a ministry go and do commercial agreement without an airline? Going forward, we need someone who understands the economics of the business. As the Minister of Aviation, you should understand where the money is coming from.
There are some feelers in the industry saying foreign airlines are taking some of our best hands, meanwhile we have pilots with little experience that do not have anywhere else to go. Do you think it is a plus?
It is a plus for us. What will a pilot do if there is no aeroplane to fly? If my aeroplane reduces from 30 to nine and my pilots are sitting down, they cannot fly. That was why they picketed Landover because pilots were rostered and there was no service for them. They are very delicate specie because if you want to hire them you have to be very careful, especially if you don’t have sufficient hours for them to fly. Let them go and get experience and the day I need them, I will go for them. The day we have strong two players with 50 aircraft each, then we will get there. Then, a Nigerian pilot will be cheaper; a Nigerian engineer will be cheaper. If I give a Nigerian pilot house in Ikeja, an expatriate will say he wants Ikoyi, with security.
