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NIGERIA AIR : Time to engage

By Chris Aligbe, Aviation Consultant

In the Aviation Sector, the most trending news is all about the proposed new national carrier, “Nigeria Air” recently unveiled at the Farnborough Air Show by the Minister of State for Transport (Aviation), Senator Hadi Sirika.Nigeria Air

The extent of discussions and reportage remains unequaled in the annals of the history of the industry.  More critically is the number of high standing professionals in aviation and other sectors who have expressed their views on Nigeria Air.

These include: Dr. Oby Ezekwesili, Bismark Rewane, Capt. Nogie Meggison, Capt. Roland Iyayi, John Ojikutu and Nick Fadugba.    We have also had comments from Mr. Chike-Obi and journalists like Sonala Olumense.

All these are people who should be taken very seriously, among many others, when they ventilate on serious national matters by virtue of either their personal standing, professional success, the positions they hold or have held or the group they represent.

I have chosen the above commentators out of the numerous others, for the reason, inter alia, that their views aggregate most of the others.    I will therefore identify and engage their various positions, not necessarily as a final rebuttal as in Zik’s “Civil-Military Diarchy”, but rather, to extend the frontiers of discourse on this critical national issue.

“NIGERIA AIR MUST FAIL”:

This affirmative position was advanced by one of Nigeria’s outstanding citizens – Dr. Oby Ezekwesili whose incisive insights and analytical strength are usually magnetic.

Having held various national and international positions, which include Headship of Bureau of Public Procurement and Minister of Education as well as Vice-President of the World Bank, the tremendous experience and exposure of Dr. Ezekwesili, who was during her years under OBJ, nicknamed “Madam Due Process”, would have been invaluable if she had said the Nigeria Air WOULD FAIL rather than MUST FAIL.    This is because, unlike “MUST”, which is proclamation of a mere wish, “WOULD”, would have provided reasons why Nigeria Air would fail.

This would have educated us a lot, more so when one remembers that Dr. Ezekwesili’s service under OBJ spanned the period when five attempts at the floatation of a National Carrier (IFC’s Privatization of Nigeria Airways, Kema Chikwe’s Air Nigeria and Nigeria Global, Isa Yuguda’s Nigerian Eagle and OBJ’s disaster called Virgin Nigeria) all failed.    But since we don’t have her usual insight, I find no basis to engage her “MUST FAIL” wish.    To attempt to do so will either end in illicit deductions and imputation of improper motives or improper imputation of motives which are fundamental flaws in public discourse and logic.

Secondly, even in THISDAY report of her interview on AIT, which unfortunately I didn’t watch, she was reported to have opined that the government’s plan to invest US$300million to kick start Nigeria Air is a waste of public funds.

She looked at the opportunity cost of such an investment vis-à-vis other sectors of “higher” priority such as education, health and others.    Dr. Ezekwesili, as reported, further went ahead to say that, based on her experience at the World Bank, “if the government wanted ‘Nigeria Air’ to be private sector-driven as it claimed, the design of the Project would have been made in a way that the investors would have provided start-up fund for the airline”.

Fair enough.    But such designs have typologies and models which vary from one locale to the other.    For instance, across Africa today, there are new national airlines coming up – Uganda, Zambia and those already up like Kenya Airways, Rwanda, Asky and AWA all of which have different models.    Unfortunately, the THISDAY report did not indicate whether Dr. Ezekwesili proffered any model.

“THE RETURN ON INVESTMENT” ARGUMENT:

This position advanced by one of Nigeria’s most outstanding Financial Analysts, Mr. Bismark Rewane, of “Financial Derivatives” posits that, contrary to the Aviation Minister’s position that the US$300million start-up investment by the Federal Government will be recovered in three years of Nigeria Air operation, going by the known best returns on investment of airline globally, that, Hadi Sirika’s position is incorrect.    Based on his further evaluation, he advised the government to rather focus on an MRO Centre and Airport Concession which he considers more profitable.    I want to concur with Bismark in his financial position, not just because not to do so will be to engage a “lion in his den” but because the margin of direct financial return on investment in airline operations is usually low, uncertain and its volume is usually based on a lot of “ceteris paribus”; the protective cliché of Economists.

However, since I do not believe that the uncertainty of the single factor of financial return is enough to put off “Nigeria Air”, I will want to look at the issue of “Return on Investment” (ROI) from a wider ramification.

It is my position that ROI is dependent on the objectives of whosoever is investing.    If a private man is investing, the classic concept of ROI which implies recovery of invested funds applies.    This is what Bismark is rightly referring to and he cannot be faulted.

However, when governments are investing in Airline Project, the objectives are different with priorities that include, but not limited to, employment creation, provision of affordable and reliable air transport service for the air travel public, creating a platform for aviation manpower development, hub development and aviation services expansion, BASA utilization and reduction of capital flight. Without even calculating the consequential collateral benefits that trickle down, as well as the push and pull factors effects, the realisation of the above stated objectives, when reduced to monetary calculations, will more than triple the start-up investment of US$300million.    For instance, a “Nigeria Air” with a fleet of 10 jet aircraft would require between 35 – 50 personnel per aircraft, depending on the aircraft types.    It will reduce, at least by 20%, the over US$One Billion transferred out annually by foreign airlines on ticket sales.

Again, I am in agreement with Bismark that the government should pursue the issues of MRO Centre and Airport Concession.    However, I need say here that an MRO Centre in Nigeria will only succeed when “Nigeria Air” becomes operative.    This will create an immediate market for the MRO which is non-existent now but which is needed to build the usual symbiotic business relationship that is a sine qua non for success.    This is because no MRO succeeds without a Parent Airline.    In 2015, we carried out a survey of 56 MROs globally and found out that only 3 (three) started without any Parent Airline.    In Africa, the MROs in South Africa (the largest in Southern hemisphere), Ethiopia and Egypt all grew out of Parent Airlines, all of which are, up till today, National Carriers.    The number of operating aircraft in the country is so small and varied in types to support any MRO viably.

“THE CART BEFORE THE HORSE”  ARGUMENT:

This position which holds that the Aviation Ministry, by taking steps to float and bring “Nigeria Air” into being by December, without first sourcing investors and core partner is not only tantamount to    putting the “cart before the horse”, but    also negates its claim to the airline being “private sector-driven”.    A corollary of this argument is also that the 5% equity to be held by the government is unequitable to the US$300million being invested by the government over the next 3years – 2018 to 2020.

This position is held by quite some, most notable among whom is former AMCON CEO, Chike-Obi, who fired the first salvo by comparing the US$256million paid to acquire 30% equity of Virgin Atlantic by Air France/KLM with US$300million for 5% equity in “Nigeria Air” that is yet to be formed.    Incidentally, Mr.Chike-Obi spoke before the Aviation Minister explained the aim and application of the US$300million as a start-up fund and a 3year cash-flow provision which could be converted into equity or debt.    Out of the US$300million, US$55million will be spent in 2018 as an upfront grant/Viability Gap funding, US$100million in 2019 and US$145million in 2020.

Beyond this, what appears clear is that many a commentator seem to have missed the fact that no Nigerian investor will invest in a product he/she has not seen or is not part of the origination.    It is even worse when it is an Airline given the history of airline business in our country where over 25 private airlines have gone under, including two    that were quoted on the Stock Exchange – ADC and Albarka, as well as the wholly government owned national carrier – Nigeria Airways.    Secondly and quite critical is the fact that even if Nigeria Air is floated, investors will wait to know who will manage it before coming with their funds.

For instance, if investors find that the Management is a government appointed team, given our past experiences, they will stay away.    But if they find that the core-investor partner that will manage is a world class airline like Cathy Pacific, Singapore Airlines, Emirates, Qatar, Etihad, British Airways or Air France, they will cascade.

The point I am making is precisely that for “Nigeria Air” to fly, the two most critical determinants are: THE PRODUCT (AIRLINE) AND MANAGEMENT.    As a professional, the Minister should be aware of these two factors and his present approach is most probably being guided by this indubitable fact.

 

THE “NATIONAL CARRIER NO LONGER FASHIONABLE” ARGUMENT:

This position is canvassed by Capt. Roland Iyayi, an airline operator and former CEO of NAMA and Capt. Nogie Meggison, President of Airline Operators of Nigeria.

Though Iyayi is not opposed to floatation of a national carrier unlike Meggison, who always say that his members are opposed to it, both are on the same page of non-fashionability. While their position is not supported by any existing African airline as all of them are National Carriers, mostly in the old classic model of 100% government equity like the defunct Nigeria Airways, including even the up-coming ones, they cite European Airlines as example, forgetting that all of them were National Carriers before they were privatized.

If the two professionals mean they are opposed to a 100% government equity-type “Nigeria Air”, I will join them with a placard in protest.

But what we have been told is 5% equity which I think is small but enough to give the vital sovereign cover necessary for a National Carrier that will engage in international operations in reciprocity to our over 70 BASA.    I wish Iyayi and Meggison talked about models, typologies and functionality rather than fashionability.    What does it matter whether I am wearing Agbada, Babariga, Ofong-isin or Ted Lapidus Suit provided it is functional, decent and fitting?

“THE THREE NATIONAL AIRLINES” ARGUMENT:

This position arose from a rhetorical question asked by Nigeria’s foremost and most exposed Aviation Consultant, Nick Fadugba, during the recent League of Aviation and Airport Correspondents’ (LAAC) Seminar in Sheraton to the effect that as at that date and even up till now, the Federal Government owns two airlines – Arik and Aero through AMCON and that floating “Nigeria Air” would bring them to three.    He then said, “I do not know any country in the world where the government owns three National Carriers”.

Although Nick in his serious mindedness did not expound further, his observation has since elicited a flurry of comments, mainly in the social media, permutations and imaginary restiveness of the staff of these two airlines.

Those who wrote are aviation professionals of good standing, the most prolific among them being Group Capt. John Ojikutu (rtd), a former Airport Commandant, now Aviation Security Consultant and Secretary of Aviation Round Table (ART).

Comments have it that the government intends to merge Arik and Aero to form “Nigeria Air” and use Aero as MRO Centre while Arik would be the Operational Base.    It was stated that the staff of the two airlines have become jittery over their fate and were wondering whether they would not suffer the fate of Pensioners of Liquidated Nigeria Airways whose entitlements have not been paid since 2004.    Unfortunately, there is no iota of truth in the above claim.    All views expressed are not based on any fact known and unknown.

The facts on this issue include the following: AMCON is basically a fund recovery agency and its business is neither to acquire nor own any property or asset on behalf of itself or on behalf of the government.    Whatever asset AMCON is disposing must be aimed at recovery of debt owed by the organization to the government.    It cannot by statute transfer such assets to government.    I therefore posit that a much more defensible position is that the government does not own any airline and by this very fact, neither Arik nor Aero is a national carrier.

Secondly, AMCON estimates the combined debts of Arik and Aero at over U$$800million which it must recover from whosoever is acquiring them.    Does it therefore make any sense for the government to spend US$800million on such acquisition, spend monies on pay-off and on merger with all legal encumbrances than spend the projected US$300milllion on a new airline that will be free of encumbrances?

If these and other issues were thought over, all the energies and time spent on Fadugba’s “kite” would not have been necessary.    One thing we should not forget is that there are in the Federal Executive Council very cerebral and highly exposed Nigerians who are very successful in their various professions and businesses before becoming Ministers.    These can evaluate business proposals tabled at the Council.

Lastly, a check on all the processes midwifing “Nigeria Air”, which include, but not limited to; Project Proposal, FEC initial approval, FEC approval of Transaction Adviser, FEC deliberation on the Transaction Adviser’s report, Approval of the ICRC and issuance of the Outline Business Case (OBC) compliance Certificate which states terms and conditions which must be complied with, otherwise the Project would be denied legality; would have put paid to this issue, and would have made all the ventilations on Arik-Aero issue unnecessary.

“WE POSSESS THE REQUIRED MANAGEMENT COMPETENCES” ARGUMENT:

This position comes from some industry professionals who argue that there is no need to bring in foreign management for “Nigeria Air” since there are outstanding indigenous professionals with requisite managerial competence.    This is very far from the truth as it is not supported by the facts available.    We no doubt had great first-class Pilots and Engineers in the days of Nigeria Airways, many of whom have died due non-payment of their pension rights.

But even then, we did not have great airline managers.  Capt. Joji recognized this as far back as 1992/3 when in his effort to implement his great privatization vision that would create “Air Nigeria/Nigeria Airways”, brought in about 18 outstanding professionals, many of who retired from Swiss Air and Sabena.    They were to constitute the apex start-up team for “Air Nigeria” which was to operate international routes while Nigeria Airways was to operate domestic and regional routes under Nigerian Management.

Further evaluation will reveal that the toddler-profile of our airline operations and collapses are due to five major factors which include, wrong business models, low capitalization,  harsh operating environment, unfavourable policies and low managerial competences, arising from “owner-manager syndrome”.

This last factor is rated high among the collapse factors.    Today’s managers are less exposed to skills of modern airline management and are dependent on residual knowledge.    In the last 18/19 years, only two Nigerians: Engr Jani Ibrahim (1999-2000) who came up with a turnaround vision as MD of Nigeria Airways and Capt Dapo Olumide (2008-9) who took over the management of the beleaguered Virgin Nigeria at the exit of the Virgin Atlantic team and was clearly turning it around until Jimoh Ibrahim took it over, can be said to have visibly demonstrated clear airline-business management competence.

It is vital here to correct those who still cite Virgin Nigeria as national carrier that it never was.    It was owned by a triumvirate-Richard Branson (British) and two Nigerians masked by UBA/UBA Capital who had the authority to illegitimately and illegally confer the airline with the national carrier status.    It was a product of quintessential abuse of office which the Nigerian tax payer is today paying for.

MINISTERIAL OBLIGATION:

It is necessary to point out here that since Nigeria Air is proposed to be a National Carrier, every Nigerian is a stakeholder and therefore has a right to be informed well and to critique, as an input.

Therefore, all criticisms whether abrasive, constructive or unconstructive must be seen as an exercise of due rights and treated without prejudice.    The Aviation Minister should robustly engage the public with full necessary information on the projected new National Carrier which belongs to them.    Not to do this is to allow the ongoing distortions to fester.    It is time to address it before it becomes too too late.

FOOD FOR THOUGHT:

All of us who have written can pay our flight fares at least on Economy Seat, some Premium Economy, others Business Class.    But what about the large majority of other Nigerians; students and parents, etc?

Are we happy that air fares out of Nigeria are the highest?    Are we happy that our children who have trained as Pilots and Aeronautical Engineers, over 600 are roaming without jobs?    Are we happy that Ethiopian Airline, Asky (Togo) and AWA (Ghana) have taken over our skies and airports?    Are we happy that we are losing our natural hub endowment to Accra (Ghana)?    Are we comfortable with the huge annual capital flight of over US$One billion from the airline sub-sector?    These questions can go on and on and are quite numerous to exhaustively raise.

We killed Joji’s Air Nigeria (1993), we electrocuted Jani’s turnaround (2000) and we exterminated IFC privatization project (2001).    In all these who lost?    Not IBB, not Joji, not Jani, not OBJ, not IFC/World Bank and not Kema.    The Nigerian Nation and its citizens lost.    Are we then going to kill Sirika’s vision?    If we do, who will lose?    Certainly not Sirika, not Buhari but all of us, our nation, our children and their progeny.    Something to think about.

  • Chris Aligbe, Aviation Consultant

kandimuwa@gmail.com


Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.