Making Local Airlines Profitable

Barring any unforeseen problems, a new Minister of Aviation will assume office in a few weeks time. The Senate last week commenced screening of the ministerial nominees. Given the expeditious manner in which the exercise is being conducted, the screening should be concluded this week and thereafter, all those cleared by the Senate would be assigned their portfolios by the President.
In the aviation sector, stakeholders’ expectations from the in coming minister are huge.
One of the critical areas they said the in coming Aviation Minister should prioritise, is how to revitalise the domestic carriers and make their business profitable.

According to the stakeholders, Nigerian airlines have the tendency to make huge profit due to the huge passenger movement, but challenges, such as high cost of aviation fuel, high cost of aircraft maintenance, exorbitant taxes, charges and unfavourable government policies among others, have stunted their growth.

According to the stakeholders, there has not been any policy introduced by government that was aimed at growing domestic carriers; rather, some of the policies are inimical to their growth. Most of the policies, according to industry operators and observes are self-serving and anti-development.

Worried that the future appears bleak for the local airlines, the stakeholders said the in coming Minister of Aviation must strive to revitalise the sector. So, the new Minister, according to the stakeholders, must show commitment to the growth of air transport in Nigeria, by drawing a new roadmap towards the rejuvenation of Nigerian airlines.

Besides, they said, Nigerian airlines should be given the incentives to grow; they should be encouraged to operate profitably and they must be monitored to ensure that they are disciplined and abide by the best standards.
It is when the Nigerian airlines begin to operate profitably that the country will begin to turnaround today’s disadvantages to profits by having high capacity airlines and making more people to travel by air to local destinations.

Incentives

The President of National Association of Aircraft Pilots and Engineers (NAAPE), Isaac Belami said what Nigerian airlines need is modern aircraft. He said government should facilitate the acquisition of modern aircraft to the airlines, adding that this would enable the airlines spend less money on fuel because modern aircraft take less fuel and costs less to maintain.

Belami noted that if the money used by the Asset Management Corporation of Nigeria (AMCON) to buy over the debts of some of the airlines were deployed to acquire New Generation aircraft for the airlines it would have served the industry better; noting that this would have improved the operation of these airlines and enhance their profitability.

“That money that AMCON paid to cushion debts of some airlines if it has used it to acquire New Generation aircraft for the domestic carriers it would have been better. Nigerian airlines need New Generation fleet because they are fuel-efficient and this is important because fuel constitute a huge cost for the airlines. It is one dollar per litter in Nigeria but about 40 cents overseas. Nigeria needs Maintenance, Repair and Overhaul (MRO) organization so that these airlines would spend less money on maintenance. It was the fact that Nigeria does not have MRO facility that led to the collapse of Chanchangi Airlines and IRS Airlines. They could not offset the huge maintenance cost which would have been halved if the country has MRO locally,” Belami.

He also said that beyond helping the airlines to acquire aircraft and establish MRO facility, government could give the airlines waivers on landing and navigational charges, noting that it was surprising that Nigerian Customs Service had resumed charging duties on aircraft parts, which was stopped by the federal government.

“Customs said that the duty waiver on aircraft parts had expired, but I know that it was a government policy which was aimed at assisting the airlines so that they wont spend too much money importing aircraft parts which are critically important in their operation. Customs said it is a yearly thing; that the policy had expired, but government policy should not expire, especially as it was meant to assist the airlines.

“This shows that government does not understand the aviation industry because if it does, it cannot introduce a policy that has one year duration.
Government can also help by facilitating aircraft leasing company so that it will be easy for Nigeria airlines to lease aircraft,” Belami said.

The President of NAAPE also said that while the plan to establish a national carrier is laudable, government must ensure that other domestic airlines survive and are given the opportunity to operate profitably because “you need to have proper domestic airlines; you cannot start a national carrier and kill the other airlines. Yes, we need strong national carrier but attention should be given to the other airlines.”

Loans

Some airline officials and other industry stakeholders said the airlines are in dire need of working capital to ensure successful operation of their service. They urged government to urgently arrange for single digit, long- term credit facility for the airlines so that they could acquire new aircraft, boost their operation and have funds to pay for the maintenance of their aircraft.

“Government should help the airlines obtain credit facility at single digit interest rates but must ensure that the loan is not misused. It should ensure that we have MRO established locally because it cost much more maintaining aircraft overseas and as the Naira weakens against the dollar, it cost much more to carry out maintenance of the airlines equipment,” one of the industry operators said.

The stakeholders also spoke on the importance of government looking at the possibility of introducing Fly Nigeria Act with code-share clause that would ensure that domestic carriers could partner with international airlines for overseas flight destinations.

The operators also urged government to also look at the Bilateral Air Service Agreement (BASA), which they said is tilted in favour of foreign airlines that are given multi entry points.

“We know that Nigerian airlines do not have capacity but there is a way that government could give multi-designation to foreign airlines and the local carriers could benefit from it. For example, if you give an airline the approval to fly to the Nnamdi Azikiwe Airport, Abuja; you can give the airline the authority to fly to Port Harcourt but on the condition that it must do so in partnership with a local carrier. This can work this way: if the airline lands its passengers in Abuja the local partner will now take passengers billed for Port Harcourt at the airport of departure to that destination. In this way, you get the local airlines involved,” explained an official of one of the Nigerian carriers.

President of Sabre, Network West Africa and also President of Aviation Round Table, Gabriel Gbenga Olowo, on his part, attributed the major cause of airline business failure in Nigeria to harsh operational environment. He said that this could be changed with government policies or government reviewing its policies to aid the growth of Nigerian airlines.

Olowo said inefficient and obsolete airport facilities and owner manager syndrome play significant roles in ensuring that Nigerian airlines do not succeed for a long time.

“Commercial airline failures in Nigeria given my uninterrupted watch for over four decades is majorly due to the very hostile business environment, (this is supported by recent World Bank report), deficit infrastructural development, none professional bureaucrats in government whose machineries are inversely related to business and finally ownership where corporate governance does not operate. One man calls all the shots resulting in multiple decision errors and business collapse,” Olowo said.

Aviation stakeholder had reasoned that the Ministry of Aviation rarely rises to the challenges of the sector and wanted it scraped. They also accused the Ministry of not having policies or a blue print on how to grow domestic carriers. One of the industry operators had warned the federal government not to get carried away by the touted globalisation, adding that no country gives equal opportunity to indigenous airlines and foreign airlines.

“They always introduce laws to protect their own and create business opportunities for their indigenous carriers. This is what the Ministry of Aviation does not do,” the industry source said.

Industry expert, Captain Uche Ojadi said the management of the airlines and the poor economy were some major factors responsible for the poor performance of Nigerian airlines.

“Primarily, it has to do with the management of the airline, then secondly the economy. A structured management will cover every aspect. For example, before you start an airline you go to the financial drawing board and ensure that it is going to work. Airline is not a diversified business, you just carry passengers and cargo for money, so there is no possible mid-way you will make a change to or branch to see if it will work. So you must get it right from the onset. So if people don’t get it right from the onset and mid-way they want to start correcting it, a lot of flaws might have come in before then, so effectively correcting it becomes a problem.

“The economy of the country affects success or failure of Nigerian airlines, you are talking about pricing and a few other things, then again the policies of the government. For example, a lot of international carriers fly directly to different airports in the country, when they do that it is now impossible for the domestic carriers to carry passengers to those places and the revenue they lose is quite high in that area as well. For example, if an airline lands in Lagos the passengers from those airlines who are travelling to other destinations within Nigeria will now have to use the local carriers. But now if you give the foreign operators the approval to land in both Lagos and Abuja, Kano and Port Harcourt, they fly directly to those areas, the domestic carriers will not have any enough passengers to take to those airports. In the past Lufthansa used to partner with Aero to take passengers to Port Harcourt when it lands in Lagos. But now such partnership is not necessary because the international airlines can operate to any airport of their choice,” Ojadi said.

The general believe in the aviation industry is that it government does not see growing local airlines to success as a responsibility, the airlines may never grow. When these airlines still operate at the present low capacity, Nigeria may not play significant roles in aviation in the continent and may not benefit hugely from its high passenger traffic market, which may be the second highest in the region.