Tuesday, February 7, 2023

Nigerian Airline Status 2022: What’s Next In 2023?

Prof. Tilmann Gabriel.
Prof. Tilmann Gabriel.

For the last 70 years, Nigeria has aimed to develop a healthy airline industry, originally as a one-national airline construct, as so many other nations leaning towards a minority share with reputable airlines, now focus on a primarily private airline industry, as customary in most economies around the world.

The only successful airlines in Africa are currently all owned by either the Ethiopian Airlines, Royal Air Maroc or Egypt Air. Most other national carriers owned by their governments (Kenya, South Africa, Mauritius etc.,) are struggling to survive, thanks to significant annual subsidies from the government. What, then, is the truth about the airline business, specifically in Africa?

Business is an infinite game, with new rules and new players all the time. It is frustrating for executives and employees to remain number one, unsure if this is sustainable in the foreseeable future. ‘Too big to fail’ is a book that describes the dilemma of executives who have to innovate a huge company to stay abreast with changing rules and aggressive new players. IBM, General Motors, Sears etc., as well as airlines like PanAm, TWA, Alitalia were considered too big to fail.

In Nigeria, the largest African nation by people (220 million, forecasted to hit 400 million over the next 30 years), all initiatives to launch a sustainable national carrier have failed. Nigeria Airways, founded in 1958, was the longest symbol of national pride. 

Gabriel counted some 130 AOC (air operators’ certificate) holders in Nigeria, which went under in those 70 years of Nigerian airline industry, assuming this is a world record. Many of these 130 airlines only flew for a few years, after spending lots of money (an airline launch costs at least $150million today), energy and disappointed hopes. Nigeria Airways was the longest existing airline so far, shut down in 2003, after 45 years in the domestic, regional and international skies.

Key reason for the demise of Nigeria Airways was the involvement of the Nigerian government, dictating fares, rules and free tickets for many. No airline can survive such intervention in the revenue creation business. Sucking the lifeblood out of an airline, which has critical costs in the US dollar (aircraft leases, fuel, foreign fees etc), is a sure recipe for failure. Eventually, the then government could no longer substitute such failure. 

What happened with the next hope of a successful Nigerian airline project, Virgin Nigeria? An agreement for Virgin Nigeria, to use the same terminal for domestic and international operation in Lagos, was no longer honoured by the new government elected in 2007. Eventually, the 51 per cent government majority share in Virgin Nigeria was left with the pull-out of Virgin’s 49 per cent and, with it the loss of the international relations and the Virgin supplied aircraft. Its successor Air Nigeria was unable to survive without the Virgin assets and expertise.

Why is Ethiopian Airlines successful then as a 100 per cent government-owned airline? Not a short story. Over 70 years it grew mainly organically, slowly and with realistic budgets and expectations. The main difference was that the management, still led today by the highly regarded Girma Wake as chairman, was never directed by the government and by the inevitable changes of governments in a democracy.

Today, Ethiopian is the leading African Airline, with a 20 per cent profit margin and a strategic plan to double its fleet of 130 aircraft by 2035. Vision, strategy and a highly competent management governed by a board of experts is the key for success. 

Engineering disruptive innovations, adjusting to the fast changes in aviation (for example ET’s new cargo focus during the years of COVID-19), lean cost structures and as a reliable contractual partner with its lenders and aircraft lease companies, have made Ethiopian Airlines a valuable African airline, winning awards, and global recognition.

Is this possible in Nigeria as well? During the nascent days of the Buhari government, the administration agreed on an aviation roadmap with a national airline, a leasing company, a maintenance company and an aviation university as its key components.

Under the Minister of Aviation, Hadi Sirika all these roadmap projects were well under way, proof of a successful strategic political direction of this government of the last eight years. It is important that the next elected government continues this direction and present a stable aviation industry in Nigeria to the world, based on international aviation laws and supportive political governance.

The private-public partnership (PPP) concept which governs all these aviation projects, ensure that it is not the government and taxpayers’ money, which the success of these aviation companies is based on, but a consortium of industrial investors carefully selected by the independent Infrastructure Concession Regulatory Commission (ICRC)-governed privatisation process. This way the government has initiated its political strategy to create a profitable aviation industry in Nigeria protected from political influence and the reliance on taxpayers’ money.

Africa is looking into a brighter future; the aviation industry is projected to grow rapidly, leaving the rest of the world far behind. Airlines will be a key infrastructure development for the continent, driven by the African Union’s Agenda 2063. African free trade, combined with an open sky for Africa-based airlines is the prerequisite for this development, which shall improve the infrastructure of the continent and contribute well above 5 per cent to the country’s gross domestic product (GDP), but also create tens of thousands of jobs. The Single African Air Transport Market (SAATM) will be the frame for the success of those African airlines which get it right. SAATM will enable the airlines to serve not only their countries but many of the 54 African nations. It is high time that Nigeria, therefore,develops a strong domestic airline to cope with the SAATM challenges of an Africa-wide competition.

The existing airlines in Nigeria are organised in the Airlines of Nigeria (AON) and Nigeria Air, the new national carrier, has applied for its membership, becoming a respected party of the common interests of the Nigerian airline industry. Some member airlines objected against the Ethiopian shareholding (49 per cent) in Nigeria Air, starting a court case which will be heard on January 16,2023, at a Lagos court. The Aviation union has labelled this an unpatriotic attack on the interests of Nigerian aviation. In the end, Nigeria Air will be launched. The AOC application with the Nigerian Civil Aviation Authority (NCAA) is in ‘phase three’, indicating that the launch is very near. The PPP process governed by ICRC is also about to close, with the Federal Executive Council’s approval of the contracts with the investor consortium to be signed shortly. The decision process of selecting the preferred bidder consortium of respectable Nigerian owners and Ethiopian Airlines was completely transparent and managed by the ICRC-governed PPP procedures.

Nigeria Air, ready to launch with a fleet of Boeing 737 for domestic services, is currently recruiting many Nigerian aviation professionals to help start the airline’s operations. The airline’s operations control centre within the Nnamdi Azikiwe International Airport is ready to be opened with most modern IT systems. The booking engines on the airline’s website and App will be available shortly, with loyalty credit cards and other innovative pay systems. The immediate goal is to introduce all up-to-date customer service systems to make flying a pleasurable experience and easy to use.

Nigeria Air will be a new competitor in the Nigerian market, adding to the existing airlines. As Michael Porter taught us many years ago, the five factors of competition are for all businesses to recognise that all competition creates new business for all, as the customer has added choices. Simply put, the new year will have added choices for domestic flights for all customers, regionally and internationally. 

Nigeria Air has the strategic direction, with a solid business plan for the next 10 years and a start-up budget of $250million. The Nigerian government only invested 5 per cent as part of its start-up fund ($12.5 million), in line with its 5 per cent share in the airline. By the transparent and structured PPP process, the government has ensured a clear ownership structure, including the leading African airline, with a secured start-up budget which gives Nigeria Air a solid financial foundation. 

The Buhari government had promised a new aviation industry which the future of Nigeria can rely on. It took hard work by many stakeholders, driven by a minister of aviation never tired of pushing this administration’s strategy over the last seven years.

Gabriel, who wrote in from Abuja, researches and works on African aviation projects.

Prof. Tilmann Gabriel
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