NIGERIA AIR: TIME TO ENGAGE

The management of the airline will be crucial to its success, argues Chris Aligbe

In the aviation sector, the most trending news is all about the proposed new national carrier, “Nigeria Air” recently unveiled at the Farnborough Air Show by the Minister of State for Transport (Aviation), Senator Hadi Sirika. The extent of discussions and reportage remains unequalled in the annals of the history of the industry. More critically is the number of high standing professionals in aviation and other sectors who have expressed their views on Nigeria Air. These include: Dr. Oby Ezekwesili, Bismark Rewane, Capt. Nogie Meggison, Capt. Roland Iyayi, John Ojikutu and Nick Fadugba. We have also had comments from Mr. Chike-Obi and journalists like Sonala Olumense. All these are people who should be taken very seriously, among many others, when they ventilate on serious national matters by virtue of either their personal standing, professional success, the positions they hold or have held or the group they represent. I have chosen the above commentators out of the numerous others, for the reason, inter alia, that their views aggregate most of the others. I will therefore identify and engage their various positions, not necessarily as a final rebuttal as in Zik’s “Civil-Military Diarchy”, but rather, to extend the frontiers of discourse on this critical national issue.

“Nigeria Air must Fail: This affirmative position was advanced by one of Nigeria’s outstanding citizens – Dr. Oby Ezekwesili whose incisive insights and analytical strength are usually magnetic. Having held various national and international positions, which include headship of Bureau of Public Procurement and Minister of Education as well as Vice-President of the World Bank, the tremendous experience and exposure of Ezekwesili, who was during her years under OBJ, nicknamed “Madam Due Process”, would have been invaluable if she had said the Nigeria Air Would Fail rather than Must Fail. This is because, unlike “Must”, which is proclamation of a mere wish, “Would”, would have provided reasons why Nigeria Air would fail. This would have educated us a lot, more so when one remembers that Dr. Ezekwesili’s service under OBJ spanned the period when five attempts at floatation of a national carrier (IFC’s Privatisation of Nigeria Airways, Kema Chikwe’s Air Nigeria and Nigeria Global, Isa Yuguda’s Nigerian Eagle and OBJ’s disaster called Virgin Nigeria) all failed. But since we don’t have her usual insight, I find no basis to engage her “Must Fail” wish. To attempt to do so will either end in illicit deductions and imputation of improper motives or improper imputation of motives which are fundamental flaws in public discourse and logic.

Secondly, even in THISDAY report of her interview on AIT, which unfortunately I didn’t watch, she was reported to have opined that the government’s plan to invest US$300million to kick start Nigeria Air is a waste of public funds. She looked at the opportunity cost of such an investment vis-à-vis other sectors of “higher” priority such as education, health and others. Dr. Ezekwesili, as reported, further went ahead to say that, based on her experience at the World Bank, “if the government wanted ‘Nigeria Air’ to be private sector-driven as it claimed, the design of the project would have been made in a way that the investors would have provided start-up fund for the airline”. Fair enough. But such designs have typologies and models which vary from one locale to the other. For instance, across Africa today, there are new national airlines coming up – Uganda, Zambia and those already up like Kenya Airways, Rwanda, Asky and AWA all of which have different models. Unfortunately, the THISDAY report did not indicate whether Dr. Ezekwesili proffered any model.

“The Rreturn on Investmest” Argumen: This position advanced by one of Nigeria’s most outstanding financial analysts, Mr. Bismark Rewane, of “Financial Derivatives” posits that, contrary to the aviation minister’s position that the US$300million start-up investment by the federal government will be recovered in three years of Nigeria Air operation, going by the known best returns on investment of airline globally, that, Hadi Sirika’s position is incorrect. Based on his further evaluation, he advised the government to rather focus on an MRO Centre and airport concession which he considers more profitable. I want to concur with Bismark in his financial position, not just because not to do so will be to engage a “lion in his den” but because the margin of direct financial return on investment in airline operations is usually low, uncertain and its volume is usually based on a lot of “ceteris paribus”; the protective cliché of Economists.

However, since I do not believe that the uncertainty of the single factor of financial return is enough to put off “Nigeria Air”, I will want to look at the issue of “return on investment” (ROI) from a wider ramification.

It is my position that ROI is dependent on the objectives of whosoever is investing. If a private man is investing, the classic concept of ROI which implies recovery of invested funds applies. This is what Bismark is rightly referring to and he cannot be faulted.

However, when governments are investing in airline project, the objectives are different with priorities that include, but not limited to, employment creation, provision of affordable and reliable air transport service for the air travel public, creating a platform for aviation manpower development, hub development and aviation services expansion, BASA utilization and reduction of capital flight. Without even calculating the consequential collateral benefits that trickle down, as well as the push and pull factors effects, the realisation of the above stated objectives, when reduced to monetary calculations, will more than triple the start-up investment of US$300million. For instance, a “Nigeria Air” with a fleet of 10-jet-aircraft would require between 35 – 50 personnel per aircraft, depending on the aircraft types. It will reduce, at least by 25%, the over US$600million transferred out annually by foreign airlines on ticket sales.

Again, I am in agreement with Bismark that the government should pursue the issues of MRO Centre and airport concession. However, I need say here that an MRO Centre in Nigeria will only succeed when “Nigeria Air” becomes operative. This will create an immediate market for the MRO which is nonexistent now but which is needed to build the usual symbiotic business relationship that is a sine qua non for success. This is because no MRO succeeds without a parent airline. In 2015, we carried out a survey of 56 MROs globally and found out that only (three started without any parent airline. In Africa, the MROs in South Africa (the largest in Southern hemisphere), Ethiopia and Egypt all grew out of parent airlines, all of which are, up till today, national carriers. The number of operating aircraft in the country is so small and varied in types to support any MRO viably.

“The Cart Before the Horse” argument: This position which holds that the aviation ministry, by taking steps to float and bring “Nigeria Air” into being by December, without first sourcing investors and core partner is not only tantamount to putting the “cart before the horse”, but also negates its claim to the airline being “private sector-driven”. A corollary of this argument is also that the 5% equity to be held by the government is unequitable to the US$300million being invested by the government over the next three years – 2018 to 2020.

This position is held by quite some, most notable among whom is former AMCON CEO, Mustapha Chike-Obi, who fired the first salvo by comparing the US$256million paid to acquire 30% equity of Virgin Atlantic by Air France/KLM with US$300million for 5% equity in “Nigeria Air” that is yet to be formed. Incidentally, Mr.Chike-Obi spoke before the aviation minister explained the aim and application of the US$300million as a start-up fund and a three -year cash-flow provision which could be converted into equity or debt. Out of the US$300million, US$55million will be spent in 2018 as an upfront grant/viability gap funding, US$100million in 2019 and US$145million in 2020.

Beyond this, what appears clear is that many a commentator seems to have missed the fact that no Nigerian investor will invest in a product he/she has not seen or is not part of the origination. It is even worse when it is an airline given the history of airline business in our country where over 25 private airlines have gone under, including two that were quoted on the Stock Exchange – ADC and Albarka, as well as the wholly government owned national carrier – Nigeria Airways. Secondly and quite critical is the fact that even if Nigeria Air is floated, investors will wait to know who will manage it before coming with their funds. For instance, if investors find that the management is a government appointed team, given our past experiences, they will stay away. But if they find that the core-investor partner that will manage is a world class airline like Cathy Pacific, Singapore Airlines, Emirates, Qatar, Etihad, British Airways or Air France, they will cascade. The point I am making is precisely that for “Nigeria Air” to fly, the two most critical determinants are: the product (airline) and management. As a professional, the minister should be aware of these two factors and his present approach is mostly probably being guided by this indubitable fact.