Stories by Louis Ibah
The call for consolidation
Some stakeholders in Nigeria’s aviation industry are advocating a “regulated consolidation” in the local airline industry as part of measures to ensure the presence of strong and vibrant airlines in the country.
President Aviation Round Table (ART), Mr. Gabriel Olowo, told Daily Sun that the state of the local industry had degenerated to an extent where the Federal Government ought to step in and sanitise it. “I am not satisfied with the state of the airlines neither am I satisfied with the state of the airports that we have in this country,” said Olowo.
“We need the Federal Government to step in and carry out a regulated consolidation of the domestic airlines. It has to be regulated because if you want to ask the airlines to do merger and acquisition on their own, they will not agree to do it. So what is best for the industry is that government regulations have to bring about the consolidation so that, at least, at the end we can have one or two strong local airlines in Nigeria,” Olowo added.
Last year, President, National Association of Aircraft Pilots and Engineers (NAAPE), Mr. Balami Isaac David, had also called for the merger of existing airlines so that one or two strong and active airlines could emerge. Both Olowo and David had cited a similar reform in the banking and insurance sectors conducted years back as having saved those two industries from an imminent collapse.
“The Federal Ministry of Aviation should foster an arrangement through incentives that will bring about mergers of airlines, culminating in the emergence of one or two mega-carriers which can become global players,” said David.
“The government could through the Bank of Industry (BOI) adopt a carrot and stick method. The carrot could be offering soft loans to merger carriers that achieve a certain level of capitalisation, while the stick would be withdrawing or suspending the Air Operator Certificate (AOC) of airlines that fail to meet prescribed capitalisation after a given time, or restrict them to particular hubs only,” David added.
Why merger or acquisition
The need to get the existing airlines merge or be acquired under a process regulated by the government comes following the recent crisis which has rocked the industry, especially in the last three months. It would be recalled that within the period, the industry had witnessed the shutdown of Aero Contractors and the suspension of services by First Nation and Arik Air.
Some concerned stakeholders that spoke to Daily Sun, decried the epileptic performance as well as the dwindling fortunes of the local airlines which had resulted in the shut down of Aero Contractors and particularly the depletion of the aircraft fleet for most of the operators as well as the attendant job losses for some pilots and cabin crew. Some of the key factors which have impacted the smooth operation of the domestic airline industry include, funding constraints caused largely by the apathy of creditor institutions to grant loans to finance new fleet acquisition and routine maintenance abroad; the scarcity and exorbitant cost of foreign exchange (forex) as well as aviation fuel (Jet A1); the high premium charged by local underwriting firms, multiple taxation by various regulatory agencies and service providers, as well as the impact from the Bilateral Air Services Agreement (BASA) signed with about 78 foreign countries.
In fact, the BASAs which has come with the designation of multiple routes to some foreign airlines by the Federal Government, according to analysts has served like the proverbial last straw that broke the Carmel’s back, for more than any other factor, it has culminated in the end of robust and economically viable airlines plying Nigeria’s domestic routes.
Some examples of successful mergers
One example of an airline that has continued to remain very strong after multiple mergers and for which Nigeria should emulate is the American Airlines, which is an American publicly traded airline holding company headquartered in Fort Worth, Texas. It was formed in December 9, 2013, through the merger of AMR Corporation, the parent company of American Airlines, and US Airways Group, the parent company of US Airways.
Today, this merger airline is the largest airline in the world, with more than 6,700 daily flights to 336 locations in 56 countries worldwide, with about $40 billion in operating revenue, and over 100,000 employees.
The other example is what happened in 2010 when British Airways and Spanish Iberia Airlines merged and International Airlines Group was formed by the merger of the two airlines. Both carriers however continued to operate under separate brands.
In 2004, Air France merged with KLM Royal Dutch Airlines, changing the company name to Air France KLM, although the two airlines still operate as separate airlines. The question to ask is: why then should Nigeria’s ailing airlines not merge if these major world airlines are doing so to remain strong and competitive?
Seven airlines currently operate in Nigeria – Arik Air, Air Peace, Azman Air, First Nation, Overland, MedView Airlines, and Dana Air. Should Aero Contractors return to the sky, the figure would increase to eight.
Unfortunately, these airlines are operated as a monopoly – a one man business. None of them is listed on the Nigerian Stock Exchange. And analysts have cited the fact that none of these companies is quoted as reasons for their low capitalisation. Under a regulated consolidation exercise, it is believed that the ownership structure of the airlines would be changed as they would be forced to seek listing on the Nigerian Stock Exchange to boost their capitalisation. Nigerians will then be able to own equities or shares in the airlines. This would give the quoted airlines some economy of scale, good management as well as good corporate governance, which at present is lacking in most of the airlines. Under such a regime, the airlines would be able to compete with the foreign airlines, create more jobs for Nigerians and their profitability no doubt would be guaranteed.
“Consolidation will give the emerging Nigerian airlines a good fleet, flight schedule integrity, and create jobs for Nigerians and we will be able to reciprocate the BASAs we have with foreign airlines,” said Olowo
Abolition of VAT
Most stakeholders would also like to see the conclusion of the merger or acquisition in the industry being quickly followed up with the review of the multiple taxation regimes presently in place.
Said one airline official, “I think once the merger and acquisition is over, the government if it really wants to encourage the new airlines that will be formed should put an end to charging Value Added Tax (VAT) on air transportation business in Nigeria because as at today, it must be noted that air transport is the only transport service being presently VATed – against the principle of equity as road, rail and waterway transportation services are VAT exempt.”
“FAAN, NCAA, NAMA, and even Bi-Courtney Aviation and all the agencies in charge of airports should be made to effect a downward review of such charges, especially landing and parking charges in order to assist the airlines,” the official who wouldn’t want to be named added.
FAAN seeks to grow non-aeronautical revenue
The Federal Airports Authority of Nigeria (FAAN) is seeking ways of boosting its revenue from other sources outside it’s core aeronautical businesses.
Managing Director/CEO of FAAN, Mr. Saleh Dunoma said the dwindling fortunes arising from the negative impact of the present economic realities is a wake-up call for the agency to respond to President Muhammed Buhari’s charge to “think outside the box”.
FAAN earns most of its income from aeronautical sources, including landing, take-off, and parking charges paid by both foreign and local airlines that makes use of its 22 airports across the country. The FAAN boss who spoke at the 2016 annual performance review meeting of the directorate of commercial and business development held in Calabar, Cross Rivers State, recently however charged participants to evolve new and efficient measures to improve on non-aeronautical (canteens, bookshops, hotels, car parks, malls, etc) revenue sources while attaining best practices in service contract with its stakeholders.
Said Dunoma, “There must be a major paradigm shift in our business model. This will provide us the opportunity to collectively carry out a forensic audit of our activities, processes and values in the pursuit of our vision to be amongst the best airport groups in the world.”
“My expectation is that attention will be given to the critical areas of commercial operations targeted at the urgent optimization of revenue performance, enhanced work processes, and substantial decline in revenue losses,” Dunoma added.
Speaking earlier, the Acting Director of Commercial and Business Directorate, Mr Tito Okpaise, said the retreat with its theme “Fortifying processes for sustained growth” is meant to renew commitment, determination and zeal of Staff to deliver beyond expectations. The annual retreat which was last held in Ibadan attracted senior staff from the 22 airports across the country.