Acquisition, merger vital for airlines’ survival, says Aisuebeogun

A former Managing Director of the Federal Airports Authority of Nigeria (FAAN), Mr. Richard Aisubeogun, has said that mergers and acquisitions are the panacea for the survival of the country’s airlines.
The fragmented and microscopic nature of Nigeria’s domestic aviation market are majorly responsible for why the nation’s carriers are not competitive.
He stressed that “domestic airlines should consider mergers and acquisitions, which will enable them to spread risks, sustain their operations, provide better access to the international capital market and provide employment opportunities for the industry.”
In a paper made available to Woleshadare.net, Aisuebeogun warned that airlines facing financial exigencies often resort to various cost-saving or cost-cutting measures and where such measures impinge on aircraft operations or related personnel, they could have a potential negative effect on the safety standards and security of operations of airlines.
Describing the decline in the fortunes of airlines in the country as worrisome, Aisubeogun recalled that in 2010, Nigerian carriers owed FAAN $59.5 million, while the total debt of the airlines to aviation agencies as at 2011 was $66.7 million.
He explained that of the 150 active Nigerian airlines in 2001, the number declined to 19 in 2011, mainly due to financial mismanagement and failure to comply with industry policies, stressing that only eight scheduled airlines were on the register of the Nigerian Civil Aviation Authority (NCAA) as at March 2017.
According to him, the volatile nature of the airline business could be better appreciated in the light of financial distress, cost of funds, cost of living (gross domestic product versus disposable income), cost of operation, re-organisation, acquisition, liquidation and exits, which, he said, brought shivers to the spines of would-be investors.
Aisuebeogun insisted that most of the airlines failed because they were unable to meet the stringent regulatory requirements in the industry.

He declared that with the ouster of a great legion of operators, the industry was still weakened by inadequate capitalisation and poor corporate governance that could further undermine its long term prospects and also affect passenger safety.
Aisuebeogun further argued that while the Civil Aviation Act has made enough provisions for the financial regulation of the airlines, NCAA had failed to enforce those provisions.
He cited the recent collapse of Aero and Arik Air and their subsequent takeover by Asset Management Corporation of Nigeria (AMCON) as cases that proved that poor financial management, rather than adherence to safety processes, was at the root of the demise of most local airlines.
“AMCON’s acquisition of both Aero and Arik is as a result of the failure of these airlines to meet obligations to their providers of finance, which in this case are the banks.
“But, we have to note how the banking regulators like the Central Bank of Nigeria (CBN) and AMCON, unlike the NCAA, are always quick to step in and intervene just to ensure that the financial institutions that grant these credits to the airlines don’t collapse,” he said.
Aisuebeogun said the new deal that stakeholders in the industry must agree to working towards is the enforcement of financial regulations laws by the NCAA without any interface from the airlines or government.
However, he said the extent of compliance of Nigerian airlines to economic regulation in terms of regularity and timeliness of reporting was a crucial element in assessing continued survivability of an airline.
For decades, airlines were straitjacketed by regulations and protectionism that prevented mergers and the emergence of low-cost carriers. Liberalisation has led to changes, including the right for an EU-based carrier to fly anywhere in Europe, but a succession of economic calamities has had an even bigger effect, saddling carriers with unsustainable cost bases and leaving consolidation as an overwhelming imperative.
Wole Shadare