Nigerian carriers are barely living from hand-to-mouth.WOLE SHADARE looks at factors that have eroded their profitability
African airlines’ losses
For the past two years, major African airlines have made losses amounting to $1.2 billion -about $700 million in 2015 and $500 million in 2016 according to the International Air Transport Association (IATA) 2016 report. But this is not the most troubling news.
The continent’s airlines are expected to post $100million losses in 2017, according to an IATA estimate. The expected losses for African airlines is in line with the $0.1billion total losses they incurred in 2016.
But the same cannot be said of Nigeria carriers. They do not declare profits or losses year-in year-out. It is generally believed that they are in red. This happens because the airlines are not listed on the Nigerian Stock Exchange (NSE) and it becomes so difficult for them to be so classified except for Medview Airlines.
“African leaders and investors need to re-evaluate their policies and come up with strategies on how to move the region’s aviation industry forward, or they will continue to lag behind as international airlines make headways into the region’s airspace,” says Nick Fadugba, the CEO of African Aviation Services and former secretary-general of African Airlines Association (AFRAA).
Faulty business plans
Lack of articulated business plan and failure of airlines to prepare for long term profit making are seen as part of the reasons for their stunted growth.
An Aviation expert and former Commandant, Murtala Muhammed Airport, Lagos, Group Captain John Ojikutu (Rtd), said most of the Nigerian airlines operators have very little background in commercial aviation. The business plan requirement in the Nigerian Civil Aviation Regulation (NCAR) expected to be developed and submitted for the AOC (Air Operator’s Certificate) and AOL (Air Operator’s Licence) were copied from those that were before them and were never made to sustain their operations.
He said often, they have proxies or partners in government agencies, ministries and in the legislation who provide them safe haven for debts owed on services provided to them by the government operators; open the flood gates of government intervention to them at low interest rate; give them zero duties on aircraft spares; concessional low rate on foreign exchange from the CBN.
The aim of most of the operators therefore in the industry, is to make quick money and not for the love they have for aviation but to rape it. The operators are generally, single ownership with poor management structure; bad financial management and a behavioural pattern to divest, divert and reinvest the earnings in the industry to other businesses.
Most airlines owners get carried away with the potential in the business that they divert funds to other businesses. These led to the collapse of many indigenous carriers such as Okada Air, Oriental airlines, Chanchangi, Air Nigeria, Sosoliso, Okada Air and among others.
Experts believe that most indigenous airlines experience short life-span because owners or operators of such airlines do not understand the nitty gritty of the business, the peculiarity of the Nigerian business environment, lack fiscal or financial discipline and often build on wrong models.
Not a few believe that business and the government are permanently at variance. Cost is permanently higher than income. Tax overburden and infrastructural deficit erodes revenue steadily.
Gazetted policies that will enhance performance are not implemented. Credit is not in the Nigeria business dictionary.
Nigeria has had over 50 airlines, but only five or six are operating. That is not complimentary. And why have they gone down? While some of the faults could be traced to the owners, majority of the reasons are traceable to government policies.
No doubt, the airline industry in the country is in distress. Unfortunately, the operators themselves, the regulator (Nigerian Civil Aviation Authority, NCAA), policy makers in the ministry and the legislators were very indifferent to the plights of the industry, so long there was an aircraft to fly them. The only solutions they all could proffer was to continue using public money to sustain the private airlines.
The Assets Management Corporation of Nigeria (AMCON) too cannot absolve itself completely from the travails of the industry.
In over five years before now, the corporation had been involved in the renegotiation and rescheduling several loans owed by some airlines to banks and to the federal government. One wonders how a private airline, not a public enterprise, that is not on the Nigerian stock market be owing as much as N268 billion from about six different banks as at 2014. AMCON was aware and went ahead to allow the airline to further access the federal government aviation intervention funds. One begins to wonder if AMCON and some banks are not part of the industry travails.
Aviation is prone to the most minute situation in the economy, ranging from weather to politics, reckless holidays. Notwithstanding the self-destruct of these carriers, government needs to come to their aid as they are of systemic importance to the Nigerian economy.