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Why govt should support Nigerian airlines

By Kenneth Ehigiator

If there is any news that had come positive to airline operators in the country in the last one or two decades, it is the federal government’s promise to come to their rescue to enable them operate safely, efficiently and profitably.

No doubt, the operators have been faced with very difficult operational conditions, compounded by rising cost of aviation fuel or JET-A1, arbitrary and multiple navigational charges, high landing and parking charges, exorbitant ground rents and even falling value of the naira against major currencies of the world.

At present, aviation fuel, for instance, sells for a high minimum of about N130 per litre, and this is often considered the highest anywhere in the world, to the extent that foreign airlines now resort to Nigeria’s neighbours in West Africa to source fuel.  But unfortunately, local carriers have nowhere to fall back on, and must buy at the cut throat prices independent oil marketers sell their product.

Beyond just making a pledge, operators are gratified that government had actually gone ahead to set up a 10-man committee to articulate areas of intervention for the airlines, and one of the major drivers of the process is an operator and owner of Overland Airways, Capt. Edward Boyo.  However, while the committee is engrossed with the task of identifying areas of possible government assistance, stakeholders in the industry are eager to know what exactly government has in stock for the operators.

Suggestions had been made variously of the need for government to set up an aviation development fund where all airlines operating in the country would contribute a certain percentage of their annual earnings.  The idea is for needy airlines to have where to secure facilities at very low interest rate, rather than approaching the banks which interest rates are often unfriendly.

The idea was for government to float this fund with some seed money and then make it mandatory for operators to also contribute to the fund.  Some observers of the sector have also gone ahead to suggest that government assists the operators with import duty waivers to enable them source their spare parts at affordable rate, especially as everything about aircraft maintenance is sourced overseas and denominated in dollars and other major currencies of the world, and this also forms one of the demands the Airline Operators of Nigeria (AON) put before government at the meeting presidency officials held with the operators at Aso Rock Villa in Abuja recently.

But one suggestion that had not gone down well with most players in the industry is the idea of a financial bail out for the airlines.  The argument of this set of people is that it would not be morally justified for government to use public funds to bail out airlines owned by private businessmen, raising questions of what became of the funds should operators default in repayment.

Reference had often been made to how the U.S. government injected funds into the U.S. commercial aviation in the aftermath of the terror attacks on the country on September 11, 2001.  This obviously is a different scenario, as virtually all the major U.S. carriers that benefitted from the bail out are publicly-owned, in the sense that they are quoted in the stock market.

At the moment in Nigeria, airlines’ ownership is built around just one or a few individuals who dictate the directions of the airline.  Aviation Minister, Mr. Babatunde Omotoba, had also tactically ruled out financial bail out, even though he spoke of government’s desires to assist airlines in other areas which he had so far refused to identify.

The question again is: Do Nigerian airlines need government’s intervention?  The answer is yes, they do.  Responsible governments everywhere in the world have recognised the role aviation could play to jump-start economic development or recovery from a recession.

They do not, therefore, spare any effort at intervening whenever the sector is in trouble.  The Americans have shown it, the German government is doing same at the moment.

For instance, the German government is currently putting pressures on non-European airlines to raise Business Class prices on some routes to avoid undercutting European carriers.  According to the German government, it is illegal for non-EU airlines, such as Emirates, to undercut the prices of other carriers on routes from Germany to non-EU destinations.

“This measure does not primarily affect Emirates but I have also called upon other aviation companies from non-EU countries to remove their tariffs from the market,” the president of Germany’s Office of Transport Goods, Andreas Marquardt, said in the letter written to managements of some non-European airlines.

What the German government has done here is simply protecting the interest of its carrier, Lufthansa, and other European carriers.  This is exactly what government across the globe are doing to protect their aviation sectors.
Observers also believe that it would not just be enough for government to put in place interventionist measures for the airlines, it must also be able to check the excesses of managements of the airlines.  This is against the backdrop of the fact that most of the airlines that have collapsed in the country in the last two decades suffered mismanagement of resources.

The country has got to the stage where airlines have to be compelled to embrace good corporate governance, especially as airline business revolves around service.  However, whatever rescue package government has in stock for the airlines, issues of multiple frequencies and entries for foreign airlines must be quickly addressed because of the huge capital flight these have engendered over time.

It is doubtful if the British government, for instance, would allow Arik Air to enter the U.K, through Heathrow and Gatwick Airports.  The implication of allowing foreign carriers to enter Nigeria through more than one point is that it reduces the capacity of local airlines in terms of passengers’ traffic.

Besides Lufthansa Airlines which has spoken of its readiness to interline with strong Nigerian airlines to distribute its passengers in the country and West Africa, no other major foreign carrier flying into the country has indicated interest in doing this.

This remains an effective way local airlines in Nigeria could be helped to make more money and offer Nigerians efficient service.


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