Published On: Mon, Sep 3rd, 2018

Nigeria Air: Maintenance is a major ball-buster in Aviation – Adenekan

Recently Nigeria’s Minister of State for Aviation, Hadi Sirika, launched the first phase of the federal government’s efforts at starting a new national flag carrier to be called, Nigeria Air, amidst concerns by Nigerians of a reverse Midas touch. Indeed, after two failed attempts (Richard Branson’s Virgin Nigeria and Jimoh Ibrahim’s Air Nigeria) at reviving a national air carrier on the heels of the collapse of the state-owned, Nigerian Airways, locals have become cynical of the efforts of the federal government to midwife a new airline. Analysts have argued heatedly that Nigerian governments are viscerally incompetent in running for-profit businesses. In the interview below with Business Hallmark’s, TESLIM SHITTA-BEY, Aviation expert and economist, TAIWO ADENEKAN, expresses his optimism about the new carrier and suggests areas that may require the special attention of the managers and shareholders of the nascent company.

Excerpts:

The federal government of Nigeria recently launched the logo of a new national air carrier to be called Nigeria Air; the response of analysts has been mixed, should Nigerians be excited?

Yes Nigerians should be excited. A country with over 180 million people, 36 states and over 120 bilateral air service agreements (BASA) and with 60 years of independence and still being without a national carrier is obscene and disgraceful.

So the concept is really good when we look at the issues of national pride, economic development and national security. The idea will reduce capital flight associated with foreign operators and significantly cut down on demand for foreign exchange.

A major part of analysts early doubts about the new proposed national carrier is its initial funding arrangement, are there reasons to be worried?

Well the Federal Government of Nigeria (FGN) is looking at a 5 per cent equity interest by the government. But what the FGN is bringing to the table is more than 5 per cent; it is closer to 50 per cent. The signed BASA agreements alone come to somewhere in the region of US$ 2 billion. I believe that the BASA should be valued in before final equity stakes are determined. The governments of different countries have different equity stakes in their national carriers. The issue is clearly one of different strokes for different folks. Different nations set different examination questions for their students, so answers to these questions should equally be different. The answers to different national economic problems, therefore, should also be reasonably expected to be different. As long as we develop our own concepts and ideas, as well as contribution to the project we will determine the best equity structure for the airline.

Quite a few people believe that the fundamental economics of airline business in Nigeria is sufficiently troubled to make the business unviable, in both the short and the long run, do you agree?

I totally disagree. Medview Airline, a domestic operator, managed by Nigerians and listed on the Nigerian Stock Exchange (NSE), declared profit in 2017 and a turnover running into billions. The success of the airlines operations is a mixed set of factors involving competence, experience and sound business management.

Even in a harsh economy such as ours that went into a recession and wriggled out slowly, an airline can still do well. It rests on the business model of the airline. Nigeria air’s business model and management quality will be critical in deciding its flight or flounder. The fact is that we need to develop a unique model that will ensure profitability through intelligent route operations. We need to examine the model adopted by the Turkish and Ethiopian airlines and adapt them to the Nigeria Air project.

The absence of domestic Maintenance, Repair and Overhaul (MRO) facilities makes operating costs scary for local operators, what do you think needs to be done in this area of the aviation business?

After 60 years we find ourselves in this appalling situation. Ethiopia started after us and their MRO has become the mainstay of their economy. Maintenance is the biggest factor in aviation economics after fuelling considerations. Aviation remains the most regulated sector in the world. Safety of passengers, staff and equipment is given topmost priority. A situation where a mandatory C check costs as much as US$4million is quite heavy. Government is working hard on this and with the appointment of transaction advisers; we hope to get into big time MRO operations. The Facility exists in Uyo and two other locations in Lagos which has been certified by the National Civil Aviation Authority (NCAA).

There is a widely held view that airline costs are too prohibitive to make the business viable as breakeven volumes of passengers would be difficult to meet, as demand for airline services is not strongly inelastic ( a situation where a rise in price leads to a much lower percentage fall in demand for the service) and passing on the full cost of air travel to passengers could prove difficult, what say you?

Lack of understanding of the dynamics of airline operations has in the past (and perhaps even in some present instances) led to the problems with demand, service type and pricing.  The aircraft equipment chosen for a route should be that best suited for the underlying route economics. The equipment should be selected in such a way as to ensure that utilization levels are not lower than 80 per cent daily. There is a concept of ‘’low cost carrier’’ that for short distance travels cuts the service delivery costs to bare knuckles. An end to end review of costs on these flights could elicit several points of savings that would enable the airline bring down ticket fares and perhaps increase passenger volume. With 27 airports and 20 million travelling passengers, airline business is viable in Nigeria. We need to identify and use a travel solution that will ensure that the operations, sales and marketing activities of a typical carrier are viable.

Here’s a quick throwback question; analysts have argued that a better plan to set up a national carrier would be for the federal government to merge two distressed airlines, Arik and Aerocontractors, presently under the wings of the Asset Management Company of Nigeria (AMCON) and convert them into a new carrier, is this plausible strategy?

Yes it is a potentially workable option. Arik Airline, Air Peace, Aerocontractors and Medview have a total of 40 aircrafts put together. These can jointly bring to the table over 2,000 cumulative years of air flight experience. The options of some major or minor mergers would appear to be quite attractive but competing egos and self-interest may make this a farfetched Nollywood script. Reality is a lot more sober and sobering. One would guess that a lot would hinge on the Asset Management Company of Nigeria’s (AMCON’s) forward perspective of the industry and the fortunes of the airlines under its supervision.

Another front end question pushed to the back of the envelope: Do we really need a national carrier?

Yes we do need a national carrier, apart from national pride (admittedly a fickle reason), we need to consider security, Gross Domestic Product (GDP), Foreign Reserves, Investment Portfolio, Economic Development, mode of service delivery for Nigerian consumer protection and so on.

Most of what foreign airlines do (aside passenger flight service delivery) is capital flight. There is scanty addition to the stock of domestic capital. The airlines engage in discrimination against local Nigerian passengers and lap up travel budgets in their favour. Having a national carrier has immense local benefits.

What would be your recommendations for a short to medium term strategy for the new airline?

I would recommend that a bill be promoted by the national assembly (NASS) to perhaps be called the ‘’fly Nigeria Act’’. The Act would be designed to ensure that Nigeria Air enjoys comfortable market share as a national carrier.

Secondly I would consider the possibility of employing a travel network business solution developed locally by Nigerians. This would go a long way in covering the entire country with efficiency-bounded air travel services based on sophisticated route planning, route analysis and operational guidelines for fares and tariffs. This is the sort of backbone support provided by Ethiopia and Turkish airlines.

Thirdly, we need to develop six regional hubs. Each hub to be located in each of the six geo-political zones and ensure that air travel covers each of the zones within a smartly designed national business model.

Fourthly, we need to establish functional MROs. This is crucial to the sustainability of the airline business, and has strategic implications for the foreign exchange market (inflows from third party customer airlines), human capacity development (aeronautical engineering and ancillary skills) of the sector and corporate bottom lines. The support and sustenance of MROs would mean massive operational support for local carriers and a major fall in their expenses.

On perhaps a last note on this issue, I make bold (and perhaps controversially) to say that the government should subsidize fuel costs for the sector as is done in some countries. I would also want to see modular fuel plants designed exclusively to produce Jet A1 fuel or Duel Purpose Kerosene (DPK). If we are going to get the aviation business running we cannot be frugal on boldness and deliberate action, we need to come up front row positive by pushing the boundaries of the sector to self-sustainable growth.

 

 

 

 

 

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