| Nigerian airlines
and the battle for survival
By UCHE USIM
Monday, November
9, 2009
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Sun News Publishing |
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Accumulation of unpaid salaries, collapsing of routes,
deferred maintenance, incredible debt profile and
ultimately closing of business have become characteristics
of Nigerian airlines and aviation experts say these
are sure signs that all is not well with the airlines
in the country.
The biting effects of the global financial meltdown,
the instability of the naira and the current bank crisis
have not helped matters also. To worsen the problems
of the airlines, the banks that hitherto stood as guarantors
in various aspects of their businesses, have withdrawn
such assistance. It is now a cash and carry approach.
Simply put, Nigerian airlines may be living in burbles
and on borrowed time because behind the glamour in their
operations, lies huge debts and rot threatening to consume
them most urgently.
So far, three domestic operators have closed shops,
either temporarily or permanently, in the last one year.
The affected airlines are Capital, Bellview and Afrijet
Airlines.
Some of the surviving ones, for instance, Chanchangi,
IRS, Aero, Associated, Overland and Arik, unfortunately
are limping operationally speaking. They are either
deeply enmeshed in huge debts, or are being haunted
by the dreaded Economic and Financial Crimes Commission
(EFCC) over tax issues or loans that are seemingly non-
performing.
Nigerian Eagle Airlines, formerly Virgin Nigeria, is
equally not spared in the business tremor as it has
a running legal battle with one of its creditor banks
who is peeved that the airline has a huge debt to settle
and yet it is busy spending millions of naira changing
its identity. The bank emphasized that identity change
does not insulate it from the huge debt hanging on its
neck.
The airline, having dumped its former technical partner,
Virgin Atlantic also stopped its long haul services
and some regional routes as well.
As part of its survival strategies, apart from abandoning
its long haul service, it now has a maintenance agreement
with Ethiopian Airlines. It equally signed a codeshare
and interlining agreement with Kenya Airways recently
to buoy its expansion programme.
Arik, the biggest airline in the country in all ramifications,
equally has its own fair share of challenges that is
rapidly distracting it.
The airline is currently having a running battle with
BASL over the GAT and also has issues to settle with
the EFCC over tax matters. This is aside the bank loans
it must service.
Aero has equally scaled down its regional operations
and also withdrew some airplanes like the B737s as a
way of cutting costs and maximizing yield. The company
said having a lot of airplanes when the traffic is low
is unnecessary and cost of maintenance is no easy task.
It also used the same way to lay off some staff over
various misconduct, pilots and support workers inclusive.
The only airline that appears to have limited problems
is Dana Air.
The airlines that closed shops “died” due
to some factors or its combination. But the bottom line
is that bad business models, challenging operational
environment, narrow mindedness on the part of their
management, poor operational strategies and boardroom
squabbles ruined them.
Painfully, these were once strong airlines that scaled
the Federal Government’s recapitalization exercise
in 2006.
Bellview Airlines, the once big player in Nigeria and
the west coast is also a member of the International
Air Transport Association (IATA). Today, the world airlines’
body has yanked off Bellview from its IATA Billing and
Settlement Plan (BSP) platform and communicated same
to all BSP travel agents.
The entire action is to drive home the fact that there
is no sympathy for any sick airline. It has become the
survival of the fittest.
While it is imperative to note that the meltdown has
sent scores of mega scheduled airlines packing around
the globe, it is also good to emphasize that the surviving
ones have enjoyed the support of their governments,
not as national carriers but as flag carriers.
The supports have come either in form of fuel bailout,
tax relief, slash in charges and other forms.
Painfully, in Nigeria, the government sees the airlines
as strictly private concerns and as such wary to offer
any lifeline.
As airlines wail over harsh operating environment, the
Aviation Minister, Babatunde Omotoba has ruled out any
bailout plans for the domestic airlines in the country.
He said the aviation business remains the concern of
the private sector with the government providing the
enabling environment. “The plan we have, I have
already asked them to fix a meeting between me and the
Airline Operators of Nigeria (AON) so that we will be
able to sit down together and understand all the problems.
It is only after that that we can make a statement.
As at now, there is no plan for a bail out plan for
airlines”, he said.
Till date, there has not been any remarkable assistance
given to the airlines.
However, it is pertinent to state here that in giving
bailouts and other forms of assistance, a thorough evaluation
of the airlines’ operations should be done.
More so, answers to these questions must be provided.
First of all; which airline(s) is genuinely operating
within the dictates of the law? Secondly, any of them
involved in round tripping and other financial scams?
Thirdly, who will monitor the implementation of the
bailout package to ensure that funds, where applicable,
are not channeled to wrong places like the wasted N19.5
billion Aviation Intervention Fund? And lastly, what
are the milestones that need to be tracked to ensure
that the bailout programme achieves the anticipated
results?
It is after this underground work has been concluded
that the scheduled airlines that will benefit from any
bailout programme can be genuinely determined.
Another thing the government can do to rescue the airlines
and by extension the industry in general is to come
up with a regulation that mandates airlines’ to
merge or pack up. A system whereby airlines can only
merge voluntarily is not encouraging. More so, the present
level of capital, gross equipment and route mis-match
on the part of some airlines must be addressed by both
the airlines’ management and the Nigerian Civil
Aviation Authority.
Some operators deploy a 148-seater airplane on routes
that are almost saturated and right from the onset,
the airline records continual loss and eventually dies.
The airline will even die faster especially in this
era of global financial meltdown.
On how to support the domestic airlines in the country,
the Chairman House of Representatives Committee on Aviation,
Hon Bethel Amadi said his committee is and will remain
a strong supporter of the domestic operators.
Part of such, he emphasized, is the Fly Nigeria Act
which the committee will soon bring before the assembly
for enactment.
“The Act, he emphasized, will ensure that all
government agencies and anybody for that matter who
is spending government money in full or in part, must
patronize Nigerian carriers if it is the route Nigerian
airlines or their codeshare partners fly to.
The move obviously will help not only the domestic operators
a great deal, but also the nation at large to enjoy
part of the billions of naira foreign airlines repatriate
overseas annually.
Amadi also pointed out that the committee requires the
full cooperation of the airlines themselves as they
are the operators who must make all and sundry to understand
their plight and operational bottlenecks.
“This is because we can only deal with issues
that are within our knowledge. Since we finished with
the war of skyrocketed aviation fuel price and it was
brought down, it was agreed that they give us regular
feedbacks and reports to enable us ensure that aviation
fuel pricing mechanism we put in place was sustained.
That has not happened. We’ve not received official
letter from them since the issue was dealt with. We’ve
also pushed a proposal that government should find a
way to support domestic airlines either by reduction
of taxes, or giving other incentives to enable them
balance up. We would have expected the airlines that
are the ones wearing the shoes and know where it pinches
most would see the House Committee on Aviation as a
friend of domestic airlines that share their feelings
and it’s good that partnership be sustained”,
he said.
According to an aviation analyst, Olumide Ohunayo,
the government needs to deeply assist the scheduled
airline operators in Nigeria.
Ohunayo is of the opinion that government has a stake
in the airlines even though they are private concerns.
He said the government should come up with bailout programmes
most urgently if the surviving airlines are to stay.
The former President of the Cabin Crews Association
of Nigeria (NACAN) believes that government, amongst
other things should buy at least 30 per cent stake in
the airlines despite the fact that they are privately
run. Another option he adduced is tax relief on spares,
fuel bailout and debt reduction; if the airlines are
to survive.
Hear him: “The truth is, what we have right now
is that we have three of our airlines that are now technically
grounded. One even had an IOSA and has an IATA too.
So when you have an airline that has all that, you will
see that as a cosy airline. But today that airline is
grounded. And when you look at another set of three
surviving airlines, they are also burdened with EFCC
problem due to non-performing loans. And when an organization
has a problem when it is called non-performing loan,
it is another financial problem. And when you are in
that state, it is either you join the group of those
who are technically grounded or remain disturbed about
EFCC. And the more you’re disturbed, the more
your operations go down. And when you look at another
angle, then you have others who are scaling down their
routes. This appears to Virgin Nigeria and Aero. They
have closed a lot of international routes. And we all
know that we make more money when we operate internationally
than domestically, because you get your money in dollars.
But now they have to scale it down because of competition,
because of the crisis in the industry. Coming in there,
then you now look at how many airlines you have left
in the situation we’re in. Maybe one, maybe two.
So, what do we do?”, he pondered.
Also speaking in the same vein, the President (Nigeria)
of Sabre Travel Networks, Gabriel Olowo said the domestic
operators are getting weaker due to a number of factors:
“Nigerian Airlines are relatively weak when compared
with the mega operators in the market. They will grow
weaker in the face of present low demand factor and
stiff competition. Aviation world was at the stage of
stiff competition during late 70s and early 80s which
saw the exit of carriers such as Pan American.
Until lately, Nigeria refused to Liberalise and the
struggle for Markets by Okada, Kabo, ADC and Bellview
saw some of them bleeding to death.
Not until the world has evolved to the age of Co operations,
Consolidation and even Mergers than Nigeria entered
into the era of stiff competition and in the face of
declining demand, the misfortune is simply predictable.
To survive, Nigerian airlines must see the sense in
Interlining, Code sharing, and Merging. The approach
in banking sector may be deployed through near coercion
as it is un-African to cooperate. Share capital will
not be the criteria but Minimum Airworthy Aircrafts
of about 50 pieces per airline is desirable. Deadline
should be set for compliance. This way Nigeria will
end up with 3-4 mega airlines, with broad based ownership,
and competitive capacity. Virgin Nigeria/Virgin Atlantic
experiment would have resulted in a Nigerian first mega
experiment but regrettably, the relationship has gone
sour. Debt forgiveness and bail out for Nigerian Airlines
(especially those who weathered the storm of struggle
for market liberalization) remain a necessary condition
for their losses during the struggle”, he stated.
Another Aviation Consultant, Sam Akerele, the government
must, amongst other things set up an Aviation Trust
Fund up to N5 billion naira for airlines to borrow from
to meet urgent needs like unanticipated engine repair
and other spare acquisition.
It should be noted that airlines are excellent job providers
for various categories of professionals ranging from
pilots, to engineers, dispatchers, accountants and to
administrators. As such, once any airline goes under,
thousands of people become jobless automatically. This
also cuts across various regions and countries the airlines
fly to.
Bellview has close to 2,000 workers across its routes
network and with the latest development, they have all
become jobless.
Families dependent on the workers have equally been
jolted by the airline’s sudden “death”.
The same sad news of job loss extends to Captal Airlines.
Afrijet, whose Managing Director, Capt Berry Noelle
recently stepped aside, is not spared from the crisis.
As a survival strategy, recently airlines have considered
a lot of options to retain their passengers. A lot of
them have crashed fares on the routes they ply. Arik,
Aero and Dana are airlines known to have crashed fares
on various routes in recent times. As a matter of fact,
Aero crashed its fares to a ridiculous N5,000 for a
one hour flight provided a passenger books and pays
online long before he/she travels. That was part of
the airline’s 50th birthday anniversary.
While this strategy might have helped the airline immensely,
others are not finding it funny. Some carry as low as
12 passengers from Lagos to Abuja and this is the route
considered to be the most lucrative in Nigeria.
With that low passenger volume, the airline cannot even
pay for its fuel, parking, landing and passenger processing
charges, let alone dreaming of making any profit.
More so, if the traffic remains low, how will airlines
carry out mandatory checks like C-Check? C-Check, according
aviation analysts, cost 1.8 million dollars per B737
aircraft on the average. That is about N300 million.
With low passenger volume, it means some airlines will
either defer it or may have to close shops after conducting
the check.
To ensure safety is not mortgaged, the Nigerian Civil
Aviation Authority (NCAA) Director General, Dr Harold
Demuren hinted that the agency is currently conducting
the economic audit of airlines to ascertain their financial
health status. The exercise is expected to detect the
frail ones and weed them off, while leaving the strong
ones on the scene. But the big question is: Is there
really a very strong airline in Nigeria today?
“We have opened a searchlight on the domestic
airlines. We are looking at some issues like defaulting
in the payment of salaries, fuel, payment on insurance,
a lot of bad debts. The truth is that you can owe a
fuel marketer, for instance, if you buy a N200 million
worth of fuel everyday, you can not pay that everyday,
you already have a credit line with the marketer. If
you are credit worthy, you can owe but if you don’t
service your credit, you don’t pay your debts,
it shows that you are not credit worthy.
So, that is very important. Those are the things we
are going to check. However, insurance, is a no go area
because you are not allowed to carry passengers in public
transport category for hire and reward without having
adequate immediately and we have learnt our lessons
from what had happened in the recent past. Then, the
other one of course is how much you are owing the various
agencies; are you paying your landing and parking charges,
rent, navigational charges to the Nigerian Airspace
Management Agency (NAMA) for those doing international
operations; charges to the NCAA, the Nigerian Aviation
Handling Company (NAHCo) Plc, the Skypower Aviation
Handling Company Limited (SAHCOL)? If you are owing
in all these ones, it shows something is wrong, you
can owe but you must be credit worthy. We are watching
these very carefully and the oversight team is already
looking at this. Let me say what is the most important,
we must ensure that safety is not jeopardize because
if safety is jeopardized, the industry is gone. In this
meltdown, we want to ensure that safety is not relegated,
you must do your maintenance, train your crew and you
must pay your bills.
This is the economic audit we are talking about; we
don’t want a situation where you don’t have
enough funds to run a safe operation. If you don’t
have this, you can’t be here and this audit has
started about a week ago and it is going to be an ongoing
exercise. The main thrust of this exercise is to ensure
that the airlines have enough funds to carryout a safe
operation and if NCAA is convinced that an airline can
no longer carryout a safe operation, that airline will
close shop. The concept is about safety and safety cannot
be compromised and jeopardized. At the initial stage,
we said that safety was number one and our goal has
not changed. The goal is zero accident and that is what
we want to achieve”, he explained.
It is a crystal clear fact that a poor airline is tempted
to cut corner and thus impair safety. More so, a poorly-motivated
staff is likely to overlook a lot of things in aircraft
operations due to his/her depressed state of mind. This
also threatens safety.
The fact is that passenger traffic is a function of
the economy and individual’s purchasing power.
When the economy is bad, as it is in Nigeria currently,
travellers consider other options of transport. Today,
road transport has stolen passengers that would have
ordinarily flown.
Another Aviation Consultant and Chief Executive African
Aviation, Nick Fadugba also shares the same view the
Aviation Minister.
According to him, bailout should be carefully done because
in recent past, monies earmarked for the aviation sector
has been grossly mismanaged.
“It is a very interesting idea to have an intervention
for the domestic operators. But I am very cautious about
that type of project because we have seen in the past
that funds that have been set aside for aviation development
have been misused or misplaced or just generally got
lost. And also don’t forget that airlines are
a commercial business. You cannot rely on any subsidies.
We must have a good business plan, a sound business
plan, and a bankable business plan. If you are going
into the airline business, you know it is capital requirement.
If you don’t have the money, please go into farming
or some other industry that doesn’t require much
fund, please because safety is at stake and we’re
talking of human lives take the advice”, he stressed.
The best option for the aviation sector is to have a
summit where all issues pertaining to the sector will
be addressed genuinely. Special attention must be paid
to the domestic operators who are the vehicles to drive
the sector.
While this is happening, the Federal Government is helplessly
watching as Bi-Courtney Aviation Services Limited (BASL)
and various aviation unions flex muscles over the General
Aviation Terminal (GAT) when the airlines that will
generate the much-needed revenue are in very bad shapes
and are dying gradually.
The simple truth is that whether the GAT reverts back
to the Federal Airports Authority of Nigeria (FAAN)
or BASL takes total control of it, as it is vigorously
pursuing; without viable airlines, there will be nothing
like air transport system in Nigeria. So, government,
BASL and the unions should dissipate their energies
on ensuring the survivability of the domestic operators,
whom the GAT is meant for, than sinking neck-deep in
the ownership tussle that is ravaging the industry presently.
No matter how beautiful a terminal is, without viable
airlines, the structures therein are useless. It becomes
a case of building houses for commercial value without
tenants to occupy them. So how does such a landlord
dream of recouping his investment?
More so, the government is not fighting for the welfare
of the domestic operators in the real sense of it. Why
give international airlines multiple entry points into
Nigeria and starve local operators of such benefits?
Why not assist the airlines to reciprocate the Bilateral
Air Service Agreement deals rather than trade the routes
for royalties?
British Airways flies daily into Lagos and Abuja from
London; Lufthansa flies into Port Harcourt, Lagos; Air
France also flies into Lagos, Port Harcourt and most
recently Delta that also flies into Lagos and Abuja.
If the government is hell-bent on sustaining the operations
of domestic operators, why not ensure charges are very
low.
It is clear that Nigerian airlines, as they are today,
cannot survive the charges levied on them by BASL in
MMA 2. Airlines are worried that charges will also be
hiked if the company eventually starts operating the
GAT, especially after it is rebuilt. With N1,000 per
passenger processing fee as against N350 at the GAT,
amidst other hiked charges; low cost airlines like Overland
and Associated cannot certainly survive in that terminal.
Hence, it is better to develop the GAT as a low cost
terminal for effective patronage.
The success of any nation’s aviation industry
is buoyed by the airlines. Healthy airlines are the
vehicles that drive the growth of the sector and all
must be done to ensure they survive.
While it is good to make a case for the airlines, the
operators themselves are not united. Some of them have
refused to officially join their umbrella union-the
Airline Operators of Nigeria (AON), hinging their reason
on the fact that the leadership of the body are composed
of people who do not work in functional airlines presently.
As such, they see them as people not full in touch with
realities.
With the weak bond between, they fight for their cause
from very selfish perspective, such that there is usually
a conspiracy against certain operators for some indescribable
reasons. They usually sing discordant tunes when presenting
their problems and it makes their issues worse.
Be that as it may, the functional operators have refused
to form a common front to flush out the present leadership
since they feel they do not genuinely protect their
interest. Such is the belief of Arik Air. But even at
that, government has to come up a bailout package for
the airlines.
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