Cheta Nwanze, Head of Research, SBM Intelligence
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Subjects of Interest
- Fiscal Policy
- Geopolitical Analysis
Why President Buhari needs to jettison Nigeria Air 15 Aug 2018
On May 22, 2018, Chidi Izuwah, Acting Director-General of the Infrastructure Concession Regulatory Commission (ICRC), restated the federal government's (FG) commitment to float a national carrier by the end of this year. This was confirmed by the head of Nigerian Civil Aviation Authority, Capt. Muhtar Usman, on June 12. Then, on July 18, at the Farnborough International Airshow in England, Minister of State for Aviation, Hadi Sirika, unveiled the logo and name of the carrier, which will be called Nigeria Air.
Among other things, Sirika said that the FG would own 5% of the new airline, with an investment of $300 million. The minister went ahead to begin discussions with Airbus and Boeing for aeroplanes, amid strong backlash back home.
Since President Muhammadu Buhari made it clear in 2015 that he wanted a revival of Nigeria's defunct flag carrier, Nigeria Airways, or at least a successor airline controlled by the FG, some of his supporters have gone to town on how wonderful and profitable the airline would be for Nigeria. To my knowledge, there has been no serious study by the government as to why Nigeria Airways collapsed, or why not one of the numerous commercial airlines that have been established in the country over the years have operated successfully for a long period of time.
So, before we talk about the newly unveiled airline, it would be appropriate to look at the history of Nigeria Airways, and what led to its demise. Nigeria Airways started as West African Airways Corporation Nigeria (WAAC Nigeria) in 1958 with Nigeria as the corporation's majority owner. The Elder Dempster Lines and British Overseas Airways Corporation (BOAC), both erstwhile UK transportation company and airline, respectively, held 49 percent stake in WAAC Nigeria, with BOAC as the airline's manager. Naturally, the first international route was Lagos-London, which was operated by a leased plane owned by BOAC.
Shortly after Nigeria's independence from Britain, WAAC Nigeria became the flag carrier of Nigeria and the government took sole ownership of the enterprise. The airline expanded fast, with five new aircraft, and new routes to Abidjan, Accra, Banjul, Dakar, Freetown and Monrovia by 1963. Thereafter, BOAC gradually withdrew from the airline's operations, giving Nigeria more autonomy.
By 1970, the airline had 2,200 staff, eight aeroplanes, and expanded to other destinations such as Frankfurt, Madrid, Rome and more West African destinations. Despite some setbacks – for example, in 1969, one of its planes had crashed – in 1972, the British involvement in running the airline ended as Nigeria signed a management contract with America's Trans World Airlines (TWA). Fleet expansion continued, and by the end of 1978, Nigeria Airways had a total of 20 aircraft, mostly from the United States.
The agreement with TWA ended in early 1979, and by September of that year, KLM were the new managers of the national carrier. During the seven-year period of TWA's management, Nigeria Airways suffered five plane crashes, killing a total of 194 people. The airline's reputation as one of the premier carriers from former British colonies began an irreversible decline.
By the end of President Shehu Shagari's administration on December 31, 1983, Nigeria Airways' debts had exceeded its revenue, and there were 500 staff for each plane it operated. By the time then-General Muhammadu Buhari was Head of State, nine of Nigeria Airways' planes were unserviceable, and seventeen were operational. There were 8,500 mostly idle employees. Buhari ordered the airline to reduce the number of employees and routes as a cost-cutting measure. It did not work.
After Ibrahim Babangida overthrew Buhari and ordered yet another review of the airline, a new one thousand jobs were cut by 1988. With huge debts, most of the African routes were culled. As staff salaries were left unpaid, employees resorted to self-help and pilfering what they could. By 1997, Nigeria Airways had only three aircraft, and had been banned from most Western destinations over safety concerns.
When Nigeria returned to civilian rule with Olusegun Obasanjo as president in 1999, efforts were made to revive the airline, including leasing a plane from Air Djibouti. Both the country and the airline were in such dire straits that only a tiny, cash-strapped country located in one of the most volatile regions on the continent agreed to lease a plane to Nigeria.
So, why did Nigeria Airways collapse?
The online newspaper, Premium Times, did a report on the demise of the former national flag carrier. Every contract given out between 1997 and 1999 when Jani Ibrahim was Managing Director turned out to be fraudulent. But the biggest damage done to the airline was by Mohammed Joji who misappropriated a total of $31 million. Not a single one of the people who were indicted by the Justice Nwazota-led Commission of Inquiry set up in 2002 to investigate the management of the airline's affairs has faced justice.
National airline carriers often operate as status symbols of countries. They also give countries that ability to project soft power on the world scene. Some carriers, like Singapore Airlines and Korean Air, are models of excellence and efficiency. Others, like the premier carriers of the oil-rich Gulf states – Emirates (Dubai), Etihad (Abu Dhabi) and Qatar Airways – as well as Turkish Airlines have evolved to become the industry standards in luxury and urban lifestyle.
British Airways, KLM and Lufthansa represent the old guard that ushered in the modern Jet Age and they are veterans in the long struggle to remain relevant in the wake of a dizzying spate of consolidation, innovation and unprecedented consumerism. These old carriers have been sold off by their governments, who originally set them up, to private investors. Nationals of other countries are part of the ownerships of British Airways and KLM.
National carriers, like all other airlines, are expensive to run, demanding to maintain and operate. The industry requires significant cash-flow and is cursed by razor-thin margins. In Africa, national flag carriers are in the midst of a torrid phase. All the names Nigerian officials have bandied about as the epitomes of national carrier are struggling. Kenya Airways is in the middle of an operational and debt restructuring that will see it resume aviation fuel hedging in the second half of this year to counter price volatility. The restructuring of the airline also involves a merger with Kenya Airports Authority in order to compete with the Gulf-state carriers.
The best of the bunch of African national carriers is Ethiopian Airlines, which bucked the African trend, and made more than $200 million in 2017. The airline has been expanding, thanks in part to newer fleet, and a geographical advantage that enables it to compete favourably with Gulf-state carriers.
On the poor-performing end of the spectrum is South African Airways (SAA). While it has been ranked the fifth best airline in the world, SAA is operating under such a suffocating load of debt that it is haemorrhaging cash after six straight years of operating losses, including a loss of 5.6 billion rand, or about N148.6 billion, in its 2016/2017 financial year. South African taxpayers have forked out more than 30 billion rand (N796.5 billion) since 2012 to keep it in the air.
In many ways, SAA is another version of the Nigeria Airways story, the difference is that the former is still operating. The government has proposed at least 10 turnaround plans in the past two decades. Staff numbers include roughly 300 flight attendants, about 700 pilots, whom Reuters reports have been encouraged to look for jobs elsewhere. They have drafted their own severance pay offer to the airline. SAA's new CEO, Vuyani Jarana, is implementing a turnaround strategy that he says will inevitably involve job losses. Meanwhile, his airline needs to find 21 billion rand in the next three years to stay in the skies.
The economic problem with running national flag carriers are well documented. SAA's woes are emblematic of the struggles of traditional flag carriers around the world, who are contending with low-cost rivals and a spike in oil prices.
While the airline industry is set to grow globally, Africa is the weakest region, with the continent's airlines struggling to improve load factors – that is, the percentage of seats filled. African airlines recorded 61.5 percent in load factor in 2018, compared with 81.7 percent globally, according to International Air Transport Association (IATA). In other words, starting a national carrier under the current global climate will be fiscally foolhardy, to say the least.
Africa's largest economy presents its own unique set of operational challenges. The government that is parroting the virtues of a flag carrier is hardly a paragon for fiscal responsibility. The administration has been characterised by rising debts for the country and a habit of not implementing its spending plans. There are also security and infrastructural challenges that would make it impossible to build a world-class airline operation.
Private local carriers are struggling under over-regulation and heavy taxes. Arik, Nigeria's biggest carrier and until recently a candidate for national flag carrier status, has been requisitioned by the Asset Management Corporation of Nigeria. The Muhammadu Buhari government is best served not to waste everyone's time with the proposed Nigeria Air venture.