Gradually, the nation’s aviation industry is sliding into a coma. How did the sector arrive in this sorry state, and what is the way out? Bukola Afolabi reports
Last Thursday at the Lagos and Abuja airports, a drama played out that underlined the parlous state of Nigerian aviation. Hundreds of passengers were stranded, following the abrupt cancellation of scheduled flights operated by Arik Air.
While some blamed the problem on unpaid operational debts owed aviation agencies by the operator, others on industrial action by unions, Arik in an sms to affected passengers said the suspension of “all its domestic operations until further notice was because of the “persistent hostility of the Ministry of Aviation and FAAN (Federal Aviation Authority of Nigeria) management.”
As of today, Arik is one the remaining two or three airlines still flying. The disruption of its operations further limits the choices available to the flying public – leaving them at the mercy of touts and shylocks that have invaded the airports in recent times. It is the latest evidence that the sector is in dire need of corrective surgery.
The place of aviation in any economy is quite strategic considering that it serves as one wheel upon which the economy runs. Aviation Minister, Stella Oduah, on the face of it, understands this. While giving a report on her first year in the saddle, she spoke of repositioning the aviation sector to make it a catalyst for economic growth on whose wheels President Goodluck Jonathan’s “Transformation Agenda” would ride.
“Our vision is that aviation in the next one year will become self-sustaining, meaning that we will have to contribute a minimum of five per cent to the gross domestic product (GDP),” Oduah told the guests at the event.
To achieve this, Nigerian airports are now receiving a facelift, and would be developed into an Aerotropolis concept. The Aerotropolis is an airport city with well-planned layout infrastructure, outlying corridors and clusters of aviation-linked businesses, commercial and residential infrastructure.
It encompasses the airport and a range of commercial facilities supporting both aviation-linked businesses and the millions of travelers who pass through the airport annually. The business clusters within the Aerotropolis include Free Trade Zone, business park, terminals, cargo village, fixed base operators, technical services, social services, amongst others.
Each of these clusters has a chain of several commercial offerings and activities, and presents huge economic and business opportunities through a joint venture business model. With the country’s aviation passenger traffic expected to rise to about 34 million in 2026, this concept provides a new airport experience for this growing number.
With this, it is the aviation sector that would be spearheading the country’s race to be one of the 20 biggest economies in the world by 2020. This has been proved in places like the United Arab Emirates (UAE) – particularly in Dubai, where the sector contributes 28 per cent to their GDP. In countries like Kenya, Ethiopia, and South Africa, aviation’s contribution to the GDP is far in excess of that of the UAE. Presently in Nigeria, the sector’s potentials have not been properly harnessed to contribute meaningfully to the GDP.
Just a few years after the attainment of Category 1 certification, not much forward movement has been made. The industry remains largely underdeveloped as low passenger traffic, shortage of critical infrastructure, dearth of skilled manpower, ailing airlines, lack of financial muscle, amongst other factors, characterise local operations.
Stakeholders worried at the turn of events in the sector warn that if the situation is not properly handled, it would make Oduah’s dream remain a mirage. This is more so because of the pitiable condition of domestic airlines in the country.
As at last week, only three airlines – Arik Air, IRS, and Aero Contractors – were still in operations. Overland Airline operates largely into fringe airports. Though the suspension of Dana Air has been lifted, it is yet to commence operations.
Apart from Aero Contractors, IRS, Overland, and two other airlines, no domestic operator in the country has survived one decade in operation before collapsing. In the last 10 years and slightly beyond, several airlines have either closed shop completely, temporarily, or are on the brink of doing so.
Some of these include Okada Air; KOLKOL; Chrome; Afrijet; Gas Air; Aviation Development Corporation (ADC); Albarka; NICON Airways; Fresh Air Limited; Executive Aviation Services (EAS); Space World; Allied and Umar. Others include Sosoliso; Harka Air; Harco; Freedom Air; Kabo Air; Savannah; Hamza; Bellview; Triax and Oriental; Capital Air; Skyline Aviation, Intercontinental Air; Concorde, Southern Air; Dasab, Air Nigeria, and Slok Airline.
So what is responsible for the high mortality rate afflicting Nigerian airlines? Harold Demuren, Director-General, Nigeria Civil Aviation Authority (NCAA), says domestic airlines were in greatly indebted to the aviation industry’s regulatory agencies. Airlines owe agencies like the Federal Airports Authority of Nigeria (FAAN), the NCAA, and Skypower Aviation Handling Company Limited (SAHCOL), billions of naira.
The debt owed to the regulatory agencies is only part of the larger financial crisis that is threatening to cripple the industry. Steve Mahonwu, president of Airline Operators of Nigeria (AON), agrees that the financial problem is the bane of airlines in the country.
Following the recommendations of the Paul Dike task force on aviation reforms of 2006, stakeholders are of the view that if the recommendations are fully implemented, the industry could be revived.
One of the recommendations of the task force was that domestic airlines needed to shore up their capital base. Depending on their choice, airlines interested in only domestic operations were to have a minimum of N500 million; airlines wishing to combine both domestic and regional, N1 billion; and those interested in domestic, regional and international, N2 billion.
But almost four years after the conclusion of the re-capitalisation exercise, which took place in 2008, airlines are now moving at an alarming rate back to the old order, as most of them have either stopped operating or are on the verge of closing shop.
Dele Ore, President, Aviation Round Table (ART), argues that re-capitalisation is not the only solution. Operators should emulate the defunct national carrier, Nigeria Airways, which employed the strategy of route development for its growth, he says. “Route development is a major part of an airline’s asset, not just financial re-capitalisation. When they develop routes, then they would make a lot of money from it later; for now, they are only enjoying the routes that have been developed by the defunct Nigeria Airways.”
Olumide Ohunayo, an aviation consultant, observes that Nigerian airline operators have failed to explore the merger option. He explained that though mergers and acquisitions would do the industry a lot of good, no operator was willing to let go of his airline. Business owners in this country, he says, are sentimentally attached to their business concerns such that they hold on tenaciously to them even in the face of an imminent collapse.
The situation in NICON Airways may, however, contradict such a view of business owners. At the beginning of the aviation reforms in 2006, industry watchers and stakeholders had thought that the merger /acquisition of EAS by NICON Airways would breathe a new lease of life into the ailing airline which was struggling to remain afloat after its air crash of May 4, 2002. Today, more than five years after the merger, the airline is completely grounded.
Similarly, as is done in other parts of the world, domestic airlines are yet to have an interline arrangement in place. ‘Interlining’ is a voluntary commercial agreement between individual airlines to handle passengers travelling on itineraries that require multiple airlines. When a ticket is issued for an interline itinerary, one of the carriers marketing flights in that itinerary will be selected by the ticketing agent as the “plating carrier”. The plating carrier collects the entire fare from the customer and is responsible for distributing the proceeds to other carriers in that itinerary, so long as those carriers carried the passenger. A plating carrier therefore gets the benefit of cash flow. With this system, airlines would have saved cost flying an almost empty aircraft to a destination.
Mohammed Tukur, Assistant Secretary (AON), agrees that such arrangement would augur well for the industry and operators. “Why would I fly eight passengers to Benin in a 120 capacity aircraft, and another airline fly 20 passengers to the same destination, when we could have an arrangement to merge passengers and then have a sharing formula,” he queried.
A reduction in the cost of aviation fuel, Jet A1, would also be a lifeline for operators. The price of the commodity is said to be the highest on the continent and ranks among the highest in the world. Jet A1 sells for about N180 per litre presently. A medium sized aircraft would require about N200, 000 worth of the product between Lagos and Abuja.
A window of opportunity that could also be employed by Nigerian airlines is the Cape Town Convention. This involves the domestication of all international conventions that a country is a signatory to. In times past, when an investor defaulted in the terms of agreement in purchasing an aircraft, the original owner found it difficult to withdraw the aircraft because the buyer would go to court for a stay-of-action ruling.
But today, because of the domestication, the NCAA now stands as guarantor of those aircraft purchased by Nigerian operators. So, if an airline is in default, NCAA will simply sign a release and the owner would have access to take possession of the aircraft without recourse to court. This has given confidence to the international investors to do business with local operators. But even at that, investigations show that most domestic operators are unable to benefit from this arrangement because of lack of funds or credit facilities from banks.
As a fallout of the banking reforms started by Central Bank Governor, Sanusi Lamido Sanusi, in 2009, banks have become very cautious in granting credit facilities to businesses in the country. Airlines have been one of the worst victims of the credit crunch in the economy.
Gbenga Olowo, President, Saber Travel Network, says airlines in the country have been battered through government instability and policy inconsistency. For instance, he frowns at extra frequencies and multiple designations to various airports given to foreign airlines, which he reckons constitute a major disservice to domestic operators.
He further argues that ignorance and our unhealthy financial system are other factors why domestic carriers are not flourishing. “In my 30 to 40 years in the industry, Return on Investment (ROI) in the sector has revolved around 5 to10 per cent, if not less. Airlines’ bottom lines are badly affected with the slightest instability. Examples include the Sept 11, 2001 (9/11) attacks in the US, Iceland volcanic ash in Europe, weather disruptions, terrorism and all sorts of force majeure situations. “This is why most sensitive governments always rise up to bailout airlines in such instances,” Olowo explained.
The mindset in AON is that government has hardly ever come to the aid of operators to relieve them of the burdens of expensive maintenance, spare parts procurement, pilot training and other areas of their operations.
Even the N200 billion bailout granted to airlines has turned out to be meaningless. Edward Boyo, chief executive officer, Overland Airline, was chairman of a Presidential sub-committee set up to find lasting solutions to the challenges facing the airline industry in the country.
While submitting the committee’s report on February 18, 2010 to Mansur Muhktar, the then Finance Minister, he canvassed for a 50 per cent reduction in airport charges for airlines just as the five percent ticket sales charges should be slashed by 50 percent. The report equally requested that the Nigerian Airspace Management Agency’s (NAMA) terminal navigation charges and third party revenue collections be set aside, while airlines should retain 10 per cent of any charges collected on behalf of the agencies as administrative charges and NCAA statutory fees.
For his part, Ore is convinced that government should not even grant bailout to operators. His position is based on the managerial capabilities of operators, which he blames for the state of their airlines. He believes that an operator who could not manage his operation effectively with his funds or bank facility may be unable to do same if given a bailout by government. Rather, he wants government to probe how operators found themselves in their present situation.
His point may be valid. For instance, the case of the now defunct Bellview Airline, founded in 1992, has not ceased to amaze industry watchers. At its peak, the airline flew 11 international destinations – amongst them Amsterdam, London, India and others. It was the first domestic airline to be certified by the International Air Transport Association (IATA). By June 1997, Bellview was worth $15 million, winning both continental and domestic laurels.
Also, Afrijet Airline, which staged a comeback with much fanfare, soon ran into turbulent waters as it could no longer finance its operations. It had to withdraw due to inability to pay staff entitlements. There was no aircraft to operate, as it could not foot the bill to sustain its operations and lease payments.
Chris Aligbe, chief executive officer, Belujane Konzult, is sad that the airline sub-sector in the aviation industry has remained a toddler in spite of the many years of its existence. He is, however, not surprised at the precarious situation domestic airlines have found themselves in.
If anything, Aligbe’s prediction about two years ago that four airlines would collapse has come to pass. This, he says, has made it very imperative for airlines to merge or form an alliance. Airlines Alliance is an agreement formed by two or several airlines to establish cooperation in the global aviation industry. This cooperation helps the airlines better their performance with respect to air transport and customer service. Though the degree of cooperation differs between alliances, airlines alliance is more helpful for small airlines.
There are three major international airline alliances, namely: SkyTeam, which is a combination of 15 members, including Air Europa, Air France, Alitalia, Aeroflot, Aeromexico, Continental Airlines, Czech Airlines, KLM, Delta Airlines, Korean Air and a few other carriers.
This alliance transports more than 400 million passengers every year and serves about 845 destinations. The alliance covers a large number of cities in every continent of the world. There is also the Star Alliance, which serves more than 900 destinations and transports about 455 million passengers every year.
Among the members of this alliance are Air Canada, Air China, Austrian Airlines, British Midland International, Lufthansa, South African Airways, Singapore Airlines, Swiss International airlines, Turkish Airlines, US Airways and United Airlines.
Star Alliance has reached destinations in US and Canada, South America, Central America, Mexico, The Caribbean, Europe, Middle East and Australia. One World is another reputable group. This alliance transports about 320 million passengers yearly, and has reached more than 600 destinations. The members of Oneworld include British Airways, American Airlines, Cathay Pacific, Finnair, Iberia, LAN, Qantas, Japan Airlines, Malev and Royal Jordanian Airlines. Oneworld serves destinations in US and Canada, Central America, South America, The Caribbean, Europe, Middle East, Asia, Africa and Australia. Also cargo airlines have begun forming alliances, and the prominent one is known as WOW Alliance.
John Obakpolor, a retired Air Force officer, observes that such unions create a global network that can be used by airlines to benefit air travelers to reach a larger number of destinations with ease and extend their services to passengers worldwide. Benefits that can be enjoyed by travelers include lower airfares, increase in the options of departure times, availability of flights to a greater number of destinations, reduced travel time and various special offers.
“Very soon, we might not have more than 20 major airlines globally, because all of them have fused into alliances,” Obakpolor said.
Ohunayo posits that airline owners may have done well trying to invest in the business, but it has not yielded much result. This is because aviation is a capital intensive business and with the operating environment here, sourcing for funds becomes a challenge; therefore, consolidating by merges is the best option. “Why own 100 per cent of a loss making investment, instead of owning 10 per cent of a thriving and profit-making investment,” he asked rhetorically.
Another factor contributing to the poor condition of the nation’s aviation industry is the state of our airports. Stakeholders are of the opinion that they are not befitting of a country that prides itself as the giant of Africa. Their parlous state has made it impossible for achieve seamless operations – especially in the area of passenger facilitation, which is a major prerequisite for aviation to thrive.
This factor is the major reason why Kotoka International Airport (KIA) Accra, Ghana, emerged as the Best African Airport of the Year at the Routes Africa 2011 Conference in Bamako, Mali.
A walk around the Murtala Mohammed International Airport (MMIA) Lagos, tells a sorry tale of dilapidation and decrepit facilities. From archaic conveyor belts, to non-functional cooling systems, congestion, sometimes manual handling of luggage, to stinking and water logged toilets, the MMIA falls short of a modern airport. Even the ongoing remodeling work has not shown much promise of resulting in a standard airport. The MMIA presently receives over 40 foreign passenger and cargo airlines.
There are also management challenges arising from the dearth of manpower in the industry. Obakpolor and Aligbe both agree that what local airlines now rely on now is “residual manpower or returnee professionals” i.e. professionals who left Nigeria Airways, following its liquidation and have returned to the industry.
Unfortunately, this group of people is now ageing and the airlines have not been able to train new professionals to replace them and manage the industry. Demuren, however, gives a ray of hope that manpower training would get a boost in 2012 in order to sustain service delivery in the sector.
“Manpower development will help combat brain drain and threats from Middle East airlines that are taking away the best hands from the Nigerian aviation sector. Emirate and Middle East airlines have continued to be a threat to us because they have excessive resources to attract our good hands and that is why we need to train the existing manpower to compete with them,’’ he said.
He vowed to sanction any airline that fails to meet the mandatory training of local professionals in its programmes. Outside acquisition of equipment like aircraft, manpower training is the most expensive aspect of airline business.
The value of the naira, the country’s local currency, against the dollar is not helping. This is because most of the airline services are dollar denominated, like routine maintenance, major checks, procurements of spare parts and everything.
The AON’s Tukur is worried about what these challenges portend for the industry and economy. “If they should allow airlines to continue to operate under the present condition for the next one year, we are not going to see any airline flying, as the only remaining viable one is Arik,” he warned.
Mahonwu advises that the federal government should resuscitate the Nigerian aviation industry, otherwise, it may just become history.
