AVIATION INTERVIEW
The CEO of Aglow Limited, an aviation support services company, Tayo Ojuri reasons that in addition to crude oil, Nigeria can earn enormous revenue from Aviation and export of agriculture produce. Excerpts:
How can the federal government generate money from the aviation sector?
Well, there are two things: how can they make money from the aviation sector? The aviation sector is a driver for economic growth. So when the economy is good it actually drives the aviation sector, it is very cyclical, it is the first to go down and the last to come up. So in the time when we have a downward sector now, it has a huge negative impact on aviation. But how can we make money on aviation? We look at one: the policy of ownership, if you have proper ownership, not Nigerian flag carriers, we were able to drive efficiency, we are able to drive people who are pragmatic and drive commercialisation, these people will be able to ensure that they pay their money.
Secondly, and most importantly, the ownership of the airport, if you have an airport that is privatised, call it concessioning, I believe in privatisation because I have seen it work over and over again. Margret Thatcher started it in 1982 and you have seen the whole British airports got privatised, seven of them under one management, over time they saw that there was no competition, they said okay Ferrovial, which is managing them, cannot own the whole airport for competition sake, so they divided it up. They have the ownership, they have the money, and again you are making money from the operations of these airports. So in essence the airline ownership structure as well as the airport ownership structure, you will find out that the government is able to make money.
I will give you a typical example; look at what the Nigerian Aviation Handling Plc (nacho aviance) has become since it was privatised. Another example is the Skyway Aviation Handling Company Limited (SAHCOL). If SAHCOL were still in government’s hand and had not been bought over Barrister Taiwo, do you think they would be making the kind of money they are making now? They drive the efficiency and now Nahco sees them as huge competitor because they go out there to challenge them and with that they do they are able to bring more money in. you will find out that the American airlines are with SAHCOL and some are with Nahco. So those are the things that the government can do to make money.
And obviously the other part of it is, we are cargo dependent. Because of the rate of the dollar now, the imports have reduced, so what we have now, is you have lot of airports out there that are performing at suboptimal. I know because I consult for them. There are efforts to privatise. I know three companies that have actually got approval through the Federal Airports Authority of Nigeria (FAAN), to open warehouses and processing packaging companies close to the airport. ABX is one, it has actually signed an agreement with Arik and the company said it would export 15 tonnes of ugu (pumpkin leaves) from Anambra state. Another one is in Kebbi, it is another company that I am consulting for, Agro-Aviation, they are trying to get mangoes and onions from Kebbi to Morocco weekly. I was talking with an investor from Saudi Arabia; he actually said our beef is very lean, so if they see someone that can be taking fresh meat from here to Saudi every day, that is money because you are getting your money in foreign exchange.
The other way to make money is through export of goods that are produced here can be taken to the sub-region. If you look at the number of traffic on a monthly basis, I look at the numbers of passenger traffic, passenger movement on the sub-region, I look at the most used route and I know that there is a huge route development on the West Coast compared to international routes. So to make money you are able to take goods and services out from here to the west coast. And that is why Arik has started Libreville, they started Monrovia because there is traffic and there is need for these goods and services to be taken to these places and with this need it will generate foreign exchange.
So for aviation it is a catalyst for economic growth. But to fully tap on the full potential, what we need to do is to build and modernise the infrastructure. Infrastructure is really deficient. One thing we can do is for us to develop our transit passengers ability or capacity. Transit passenger is a huge source of income for the airport. What we have actually focused on is origin and destination, we can say since we don’t have huge tourism opportunities because of security issues, what we should look at is transit passengers from Benin, Togo or even people from Monrovia that want to go to Far East or Middle East or the US, they will come here, they will transit and go. I have mentioned about five opportunities that are really possible for government to make money.
Government is reluctant about privatisation and government is not inclined to supporting the airlines, so how can government grow the GDP or how can the aviation industry contribute to the GDP without government making these investments and do you think you can convince government to go into privatisation of the airport facilities?
I am surprised you said that because I have heard in the news, not once, not twice that government is kin on privatisation. Interestingly there is no policy guideline from this present government on what their goal is, we don’t know if it is concessioning or privatisation. But whichever one, my preference is privatisation. Because you said they are not kin on privatisation, the other question I will throw to you is do you think government can maintain FAAN, which is the owner, and operator of the whole airports? I cannot answer that question, the government cannot. It is unfortunate that they are over staffed, the efficiency level is really poor, even though it is a cash cow, we have only five airports instead of 22 airports making that revenue. So you find out you have those five airports taking care of the rest of the airports.
As a businessman you will not grow the business that way. So what is the way forward? The way forward is for the airports to be privatised. Now the other question you asked, we have seen privatisation, we have seen concessioning, it has not been the best opportunity or the best experience in Nigeria. What I will suggest is, let’s have a more thorough process whereby you have thorough airport management companies that have managed a minimum of 500 passengers throughput. This is because the rule for airport management and for an airport to be successful is to have a one million passenger throughput, according to IATA International Air Transport Association) standard. So with that set, you will find out that you will have airport management process, you have thorough, well renowned, transactional advisors come to help that process, coming to take care of that process and when that process is done, you have the likes of IFC (International Finance Corporation) and then with that they come in and there is a guarantee. With that government is able to make upfront money and consistently ensure that money is got from the aviation and airport sector on the consistent basis. This is because these people will bring efficiency and ensure the loopholes are covered. So if it is well done we will be better for it.
If you are given the so-called unprofitable airports to develop, how can you make them viable?
What Rynair, one of the most successful low cost airlines used to say is build and they will come. What I will not do is make it a social service but the beauty or the privilege we have in Nigeria is in all the states we have economic driver peculiar to every part of the country; because when you look at an airport, you must have demography; a master plan and economic driver. Once you look at the demography of the people travelling, you might not have lots of people travelling because of disposable income to travel, but you might have lots of cargo out of that airport. You might have other opportunities out of that airport, so it is for us to understand what are the economic drivers and what is the radius of that airport that we can build on to actually grow that airport. And this is what a private enterprise will do, because a private enterprise will be keen on growing that airport. They will look at the cargo; they will look at optimising real estate.
They will look at bringing ancillary services; they could bring casino, or even amusement park or entertainment to that airport. They might bring other things that will grow the economy, maybe build a hotel resort whereby you have professional organization coming to do their annual general meeting or bi-annual. When you do that you have about 300 people coming there for something and by then the hotel gets something. So when you are saying that some of these airports are not viable, viability is relative. FAAN over the years has focused on what is the easiest; they have not gone to the road less travelled. The road less travelled is to focus on these airports.
You just spoke on non-aeronautical revenue sources now, which FAAN has not maximised, what other ways can we develop non-aeronautical like in Lagos? And do you think FAAN is over exploiting the airlines in terms of charges?
There are a lot of ways to develop non-aeronautical revenue, if you look at what that market needs. When you realise what your market needs… I will give you a typical example, look at MMA2 (domestic terminal of the Murtala Muhammed Airport, Lagos), MM2 has realised the demography, they have restaurants, they have supermarkets, they have revitalised car park, they have opportunity to make even a night club or other things on top of that car park, like an event center. The other part of it, you see a lot of advertisements; the airport has a lot of captive audience. Advertising is huge there; they have been able to optimise that; even their towing of vehicles. You have Kia Motors coming to showcase and change their cars everyday, you have Nigerian Breweries Limited come there every Friday to setup, so the terminal is being creative.
And if you have even an airport loyalty programme, if you have put technology to it, with wifi because you know that most of the people that travel there have a smart phones, you can see what they like and you are able to draw them back in. If you do a comparative analysis between MMA2 and GAT (General Aviation Terminal) at the Lagos airport, you will realise that they have actually made use of all the facilities and there is stillroom for more business. Those are the things you see and they are actually bringing value to the system and that is why you find out that MMA2 over time is being considered the best airport in terms of facilitation because they have added value to the system. So that is how you can build ancillary revenues.
On the other question of overcharging, I don’t think FAAN is overcharging because you find out that at this time unfortunately FAAN has not been creative. In England they have been able to look at the dual system. Because you cannot increase the number of landings due to BASA, you find out that they are trying to take advantage of that. What I think you should be asking is, do you think the services that they are paying for is of value? I don’t think they are charging too much because if you look at the slot allotment, you find out that there is a peak and the thrust in Lagos. Everybody comes in from 5:00 pm or 6:00 pm and everybody starts leaving at 9:00 pm and that is where the pressure is. So if you look at it, do we have optimal gates, for the avio-bridge charge they are charging, is it commensurate for the landing and parking, do they get good service? For the Passenger Service Charge, is the air conditioning; is the passenger facilitation top notch according to IATA standards and ICAO?
How can the airlines reduce fares so that more people can travel?
Reduction of fares is not just tied to airports, you are looking at fuel which is 40 per cent of their operation, you are looking at the cost of their maintenance which is about 20 per cent because it is done overseas, you are looking at staff cost and some cost of even operating that airline, that is huge. So I don’t think airport charges are huge cost. When you look at airport, the five per cent charge, maybe you are looking at it on a holistic charge by the government agencies because if you look at five per cent, that five per cent they collected for ticket service charge, they collected on behalf of the Nigerian Civil Aviation Authority (NCAA) so it is not owned by the airline. The other part, landing and parking which they pay, if they should be paying based on the aircraft weight then obviously they will be paying NAMA for navigational charges.
What policies do you want the new government to introduce in order to lift the aviation industry?
I will first look at it objectively what my peak and my lowest. Where don’t I have optimal time? What are the things I can give? From my operational experience what I will do is provide the service for which these airlines pay for. Once I provide these services, because I think the pain for these airlines is that they are paying for the service they are not getting. And there is nothing as painful as when you are paying for a service you don’t get and when you get a service and you don’t pay for it. What I will enforce is ensure that the service that they are paying for should be given. It is just like you paying for your child school fees and they are not teaching the child anything. I don’t think at this time I can say okay reduce it because for route development I don’t think we need more routes because we are well served but what I think I should do is provide the service so that the payment or the service is over and beyond.
On international operation which way can government benefit from foreign airlines operating into the country? Are there policies that can make them partner with local airlines without the foreign airlines feeling that they are being stampeded?
Yes, it is good you said that because even the foreign airlines, if you look at the strategic plan of Etihad and Emirates in the last one and half years, what they have done is trying to buy into smaller airlines across the globe. They went to buy in Italy, they have gone to buy in Brazil, they have gone to buy even in Angola. So you find out that when they go to buy they want to buy into performance. And I know for a fact that one of those big airlines have come here to partner with an established airline so that they can buy into it, that way they can actually achieve: one: operate, take advantage of the regional and domestic operations, which will feed their own airline, which will create jobs, which will be economically advantages to all parties. Because there will be interlining agreement, and alliance, however what we have seen is that because of ownership structure in Nigeria, people are reluctant to partner, which is unfortunate because at some point, I always give typical example, when a business grows and when an airlines grows just like Virgin grew, at the point that it grew to some extent. Richard Branson took Virgin to the point he could not manage it as a single owner, he actually allowed Singapore Airlines at that point to buy 51 per cent and he owned 49 per cent.
So you find out that they were able to drive efficiency, profitability, and they were able to bring technical management to it. This is because airline management and operations is cumbersome as it were; the profit margin is very lean worldwide. So bring that global expertise into it, it will be value added to Nigerian business. So that is what we need and that is what the private ownership people would give. They have seen airlines that worked and obviously if an Aero that is now managed by AMCON, if that value is sold to lets say British
Airways holding company, AIG, that owns Iberia and British Airways, I am sure that it will turn it around. Because they have seen the ownership, they have seen the operational and efficiency of Aero. So those are the things I think we should look at, not stampeding airlines, with that there will be unison within the domestic and foreign airlines.
Do you think the Bilateral Air Service Agreement (BASA) being signed by the Ministry of Aviation is lopsided against the interest of Nigeria and how can we change that?
I think it is lopsided and disadvantageous to Nigeria and Nigerian airlines because we opened lots of our entry points which should not be the case, we should just have restricted entry points to foreign airlines and as well as royalties that are being paid. And you have domestic airlines running the other leg of the routes but you find out that the challenges that we have is capacity to return this bilateral; unfortunately we don’t have. We have had three domestic airlines starting to build that capacity but airline usage or airline patronage is built on trust and credibility. So you find out that someone that is just starting a new route, you have to engage in route development. There are passengers that are very comfortable with an airline on a route and they will rather pay an extra $100, $200 or $500 to go on that either because they have an alliance and they are going further point rather than our airlines that have one origin and destination.
So what we need to do is to build capacity, someone used to say let’s have the Fly Nigerian Act like the Fly America Act but you will find out that for government officials let them fly it, that will actually help grow both the domestic on the international routes.
What is your view of the Nigerian passenger market?
Actually in the last year or two it has not gone up more than 15 million, so the growth has not been exponential. However, with the growth of the middle class there will be increased growth. And again it is now we found out the growth in domestic has just been Lagos-Port Harcourt, and Abuja. And you find out everything is tied to Abuja, which is not good. There should be lots of other sides, which is developing tourism and you actually see that when you have Calabar carnival. So we should have more of these where we actually have tourism that drives it. But Passenger traffic is growing but not exponential. We can take advantage of that traffic before the rail becomes super fast and before the roads are done well. Now, the road are still not good, to be selfish I believe the aviation sector should take advantage of that, of being able to offer discount fares to attract passengers so that they will grow that sector. And the other part of attracting passengers is to help reassure passengers about safety. The average Nigerian is sceptical.
CULLED FROM THISDAY
