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Nigeria Air: A Threat To Domestic Airline Operators?



With about five to six domestic airlines operating presently in the country, there are fears that the introduction of a National Carrier by the federal government may spell doom for the local operators. In this piece, ANTHONY AWUNOR, looks at the possibility of the surviving domestic airlines competing favourably with the new Nigeria Air.

They say the airport is a terminal of sorts with several doors leading out to different parts of the world. It is more than that, it is also a shelter, a home , a place where air carriers display and promote their countries. Travelers troop in daily to commute by air to various destinations. A glass of wine, a piece of cheese, vegetarian or regular meal and of course the air hostesses attire or uniform, just being on an airline can tell you a lot about its country of origin.

At the Nnamdi Azikiwe airport in Abuja, stands are seen of international air carriers such as Lufthansa a German airline, British Airways which is obviously British, Delta Airlines which is American, and Ethiopian Air. And we wonder when will Nigeria have its own national pride? A national carrier that would tell the world Nigeria is a place to be?

The unveiling of the name and livery for the national carrier with the name “Nigeria Air” at Farnborough Airshow in the United Kingdom recently has further reemphasised government’s seriousness in running a National Carrier.

So far, only the development phase has been completed as indicated at the Public Private Partnership (PPP) Disclosure Portal of the regulator, the Infrastructure Concession Regulatory Commission (ICRC), but the government has assured that operation of the carrier is billed to commence December 24th this year.

Since the launch, many arguments have continued to trail the airline project.  Part of the debate is centered on ownership; the level of governed involvement as the 5 percent equity holder; source of $8m, $300m funding; whether the aircrafts are under lease agreement or not; the fate of Nigeria Airways workers and ultimately the fate of domestic airlines which are struggling to survive in the difficult business operating environment.

On the issue of fate domestic airlines, most stakeholders in the nation’s aviation industry, comprising of local airline operators and other aviation professionals have cautioned the government, not to sacrifice local airlines in order to run the Nigeria Air.

According to them, federal government should not use the tax payers’ money to run the newly established airline, just as they clamour for equal opportunities in the system so that all of them could thrive and add to economic growth.

Although, Chairman of Air Peace, Barrister Allen Onyema expressed excitement on the introduction of a national carrier but added that government should provide a level playing field for the domestic investors who have put their monies in the airline business without any form of support and protection from government.

Onyema who lamented that airlines are operating in a very harsh economic environment pointed out that foreign airlines are given preference to the detriment of domestic airlines.

Speaking recently on the issue, Onyema said “If you say it is a national carrier and it is private investors driven, are you not saying it is just investors like me, Alhaji Bankole and other investors? So you are simply saying that government is just supporting another private airline? I do not have a problem with the national carrier per se it is welcome. But it must not be given any undue advantage over other airlines as the owners are investors too.

Now, as this airline is coming on stream, are they going to take routes already allocated to other airlines and give it to this carrier? These are the things government has not told us.”

Similarly, Managing Director /Chief Executive Officer of Medview Airlines, Alhaji Muneer Bankole told LEADERSHIP that it is important for Nigerians to give the government the opportunity to come out and be able to tell everybody the template.

Alhaji Bankole maintained that although, it is still being talked about in Farnborough but that, when they come back to Nigeria, stakeholders would have to sit down and ask questions about the airline project.

Warning government not to deploy public fund into the project, Bankole said “There is definitely no threat once you know the onus. They operate normally like an airline. The only thing is that they should not take from the government and peoples’ funds, it should be privately driven”.

In his own views, Chief Executive Officer of African Aviation Services Limited, Mr Nick Fadugba said there are many questions that need to be answered in terms of the management, funding and the fleet.

Fadugba said “I believe the government now needs to brief the Nigerian people on the national carrier. Rather than doing it abroad we need to come home and explain to the whole nation what the concept of the new national carrier entails. More importantly I am interested in how does the national carrier interface with all the other airlines in Nigeria.

“Because remember that the government is the de facto owner of two other airlines: Arik and Aero. So this is the first time I have seen one government own three airlines. So the government needs to coordinate its airlines strategy in terms of moving forward.”

Fadugba therefore, called on the minister as a matter of urgency when he returns, to meet with Nigerian airline operators and iron out the gray areas as there is a looming challenge if that is not done.

President, Aviation Round Table Safety Initiative, ARTSI, elder Gbenga Olowo while applauding government’s effort in fulfilling its promise to restart a national carrier, said government must not be too forward in doing certain things that the transaction adviser is expected to do.

Olowo said” The logo looks good, I can see the flame go into the air and I hope it doesn’t flame out. I am expecting to hear from the transaction adviser the modus operandi of that airline, that is the most important thing to me. The transaction adviser should tell us the boards, the management of the airline, these are people who should take decisions because I heard the Minister is already talking with the aircraft manufacturer, lessors and things like that.

“The decision about aircraft funds, whether to lease or purchase, if you are going to do a private airline, this should rest on the board and management and I don’t think that is the role of the minister.

“I am eagerly waiting to hear from the transaction adviser to hear the modus operandi of Nigeria Air. I am believing government that it is a private carrier and is coming to compete with the rest of the carriers on ground because we do not want a government monopoly, we want a competitive operator that is going to be very formidable. Not only against Nigeria but against all the partners that fly into Nigeria. That is what I expect”, he added.

In a chat with LEADERSHIP, Aircraft engineer and former President of National Association of Aircraft Pilots and Engineers (NAAPE), Engr Isaac Balami commended Senator Hadi Sirika, stressing that the actualisation will make domestic airlines to come together as a team.

Engr Balami who described the unveiling as long overdue stated that he is also happy that the government listened to their advice of not giving the federal government many stakes in the airline.

Raising hope for private domestic airlines, Balami said “The minister promised that he  does not want to destroy the local carriers .We also know that it is not so easy for an individual to bring 10 or 20 aircraft to compete with the likes of Ethiopian airline. So it is more realistic because federal government took our recommendations not to give government many percentage of the shares.”

Emphasising that, if government got too many shares, there would be a lot of interference, he added that with the small share the government is having, it means that one person will be at the board to represent the government.

He also said that, without government having controlling shares, the public would now have a lot of confidence that there would be proper structure and corporate governance to run a proper business.

On domestic airlines, Balami said “The future could be bright. Of course, it is bright. From what the minister said, there is hope. Again somebody will be there in the National carrier to tell the government what the airlines are going through. The Warri and Kaduna refinery could produce aviation fuel to about N50 to N70 per litre as against N20 per litre paid.

“The cost of airlines operations could be cut down; for example, an airline like Arik that buys about N1 billion cost of aviation fuel every month can could cut it down. Other issues such as lack of maintenance facility can be solve by the government partnering with serious organisations to maintain aircraft by way of C-checks in the country.

“There will also be the possibility of a world class catering service providers available. I commend the minister for the bold step”, he said.

To the Secretary General, National Union of Air Transport Employees, NUATE comrade Olayinka Abioye, the carrier can only fly and be successful if government do the needful of paying the workers of the defunct Nigeria Airways Limited that the new carrier is replacing.

He said the NAL ex-staff are being owed as severance benefits over N78 billion which the government promised to pay but till now nothing has been done.

” This government is playing to the gallery, more than 10,000 former workers of Nigeria Airways served this country, service this national carrier that went dead in the hands of Obasanjo.

“The FG is owing them N78 billion as their severance benefits. The president of this great country, President Muhammadu Buhari approved that that money be paid and this money as we speak has not been paid. And some people are toasting to the success of the National carrier”.

His counterpart in the Association of Nigeria Aviation Professionals (ANAP), comrade Abdulrazak Saidu said, the unveiling was nothing to take serious, “they left this country to go an unveil their National carrier in another country, you think this people are serious about this, when there is nothing on ground here, we don’t believe in all these, they have deceived us enough.

“We have Air Nigeria, Virgin Nigeria now you say Nigeria Air, Nigeria Air is what, is it an airline?”.

Renowned aviation expert, Retired Group Captain John Ojikutu while commenting on the national carrier, said this is a new beginning for the sector, adding that several attempts have been made with Virgin Nigeria and Air Nigeria and hope that after 20 years Nigeria will succeed this time.

According to him, “I just pray this attempt we are making now, we are going to carry it to the end. If we have about 70 BASAs and as at today we are not reciprocating it apart from those going on regional routes, is a new beginning but I just hope it is going to be a new beginning”.

He however expressed fears about the management and ownership of the airline, “we don’t know the people that are going to run the airline, we don’t know the technical partners yet, we don’t know the Nigerians that are going to buy into it, the Nigerian investors that are buying into it”.

In the area of partnership, Ojikutu said the new airline should never think of partnering it competitors, he suggested that the airline should go the way the Gulf airlines started.

“The Gulf airlines started as Gulf airways, it is the Gulf airways that gave birth to Emirates, Etihad, we need to get people outside this country, outside the present market who can help outside our competitors, you cannot go into business with your competitors”.

Allaying the fears of local operators, the Minister of State, Aviation, Senator Hadi Sirika has continuously maintained, even before and after the Farnborough launch, that Nigeria Air will be private sector driven devoid of undue interference from the government.

Assuring that, the new national carrier would be driven by the private sector as it is a business and not a social service, Sirika informed that government will not be involved in running it or deciding who runs it. The investors, he said will have full responsibility for the decision.

In terms of ownership, Sirika said Nigeria’s national carrier by international convention must be beneficial and majority be Nigerian owned to enjoy the benefits and privileges accruing to national carriers, adding “ So in all cases majority ownership in equity terms will be Nigerian, while management of the national carrier will be concessioned via a renewable long term operate and maintain concession agreement to the minority private sector strategic equity partner to be selected via an open competitive international two stage PPP procurement exercise”.

On funding and government ownership of 5 percent equity, he said “the Government is not funding the entire project. It’s just providing startup capital in the form of an Upfront Grant/Viability Gap Funding. Once the strategic equity investor is in place, they will be expected to build on the initial investment made. The OBC made it clear that the strategic equity investors will not start the national carrier; government has to start it in order to attract credible investors.

Explaining further on source of the required $8m and $300m start-up fund, Sirika said “$8m represents startup capital for offices etc required for takeoff. But $300m is the entire airline cash flow funding requirements (aircrafts, operations and working capital) for three years (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 – $8 million is included here), 2019 ($100m) and 2020 ($145m). In order to ensure take of the airline in 2018 government will provide US $55 Million upfront grant/viability gap funding to finance startup capital and pay commitment fees for aircrafts to be leased for initial operations and deposit for new aircrafts whose delivery will begin in 2021”.

Debunking the claim in the social media that government is paying $300 million for a 5 percent equity share, he said the remaining financial injection by government will be determined by the quantum of equity that the strategic equity partner will bring as a result of the PPP competitive bidding process.

“Furthermore, with ongoing discussions the cash flow requirement may be lower than $300 million; furthermore, the cash flow estimates contains a 20 percent buffer that is put in on the assumption that the airline may suffer an operating loss in year 1 due to competition and need to build a brand. As mentioned earlier governments contribution to equity will be in the form of an upfront grant/VGF.

Government’s upfront grant/VGF contribution to equity will be funded through either a supplementary budgetary allocation or development financial institutions like AFREXIM bank, AFBD, ISDB etc, who have indicated keen interest in funding the national carrier project because of its bankability and profitability profile”, he said.

Insisting that Nigeria Air is more of a private investment, Sirika said the Outline Business Case (OBC) made it clear that the strategic equity investors will not start the national carrier; government has to start it in order to attract credible investors.

The government, he said therefore, had to get involved at this initial stage as the logo and others are requirements for an ATL and AOC required for NCAA to license an airline.

The minister said that the existing airlines have their own business plan and liabilities which does not conform with the OBC developed by the Transaction Advisers. Furthermore, to attract a good strategic investor, Sirika pointed out that it is best to start on a clean slate and that adopting the existing airlines will immediately transfer their liabilities to Nigeria Air and it may never take off.