Nigeria Air and the Future of Aviation Industry

With so many reactions trailing the recent announcement of Ethiopian Airlines as core investor and partner to the national carrier, Nigeria Air, Chinedu Eze looks at how the new airline with government stakes will impact on the aviation sector

Many Nigerians have been reacting to the confirmation by the Minister of Aviation, Senator Hadi Sirika, that the federal government has selected Ethiopian Airlines as the core investor and technical partner of the new national carrier, Nigeria Air Limited.

At a press conference held by the minister last week, he confirmed that Ethiopian Airlines Consortium had a combined score (Technical and Financial Bid) of 86.7 per cent, saying that all preparations for the establishment of the national carrier, Nigeria Air had been concluded and the airline would kick off within six to eight weeks.

According to him, “After the detailed Infrastructure Concession Regulatory Commission (ICRC) governed selection process, Ethiopian Airlines (ET) Consortium was selected as preferred bidder, offering an owner consortium of three Nigerian investors MRS and SAHCO (46 per cent), the Federal Government of Nigeria, owning five per cent and ET 49 per cent.”

On the money spent so far, the minister said, “The money spent for the launch of Nigeria Air, (about N400 million) for all the requirements to establish an Air Operator Certificate (AOC) and be admitted starting an airline operation, is well within the five per cent capital investment of the Federal Government of Nigeria, that will be overall needed to establish the national carrier initially for the AOC approval and everything else required by stringent national aviation regulations, as prescribed in the FEC approved Outline Business Case (OBC).

“No further FGN funding will be provided above the five per cent share capital of the next national carrier of Nigeria, which was provided to launch Nigeria Air.”

The minister also said the national carrier would be launched with three new Boeing 737-800, (not wet lease) with a configuration that is very suitable for the Nigerian market and they will grow to 30 and 40 within three and four years.

The Doubts

However, the Nigerian Sovereign Investment Authority (NSIA), which was included as being part of the 46 per cent stake, may not be on the same page with the aviation minister.

Following the minister’s press conference, NSIA issued a statement, saying that it is not involved in any way, as part of the private equity ownership of the airline, being a government establishment.

The development obviously puts to doubt the genuineness of the shareholding. Although the minister did not explain in details the shares owned by each investor, now that NSIA has explained that it does not own any of the shares, it therefore creates doubt as to how the shares were allotted. How many shares are owned by SAHCO? How many shares of the 46 per cent are owned by MRS. These doubts are automatically giving strength to critics who described the whole national carrier arrangement as a sham.

The Ministry of Aviation earlier said that it would take in three aircraft on wet lease, which means that the company that leased the aircraft to Nigeria Air would provide the crew and take care of maintenance, but the minister explained during the press conference that it would be dry lease, which means that Nigeria Air would provide the crew and maintain the aircraft. As a new start-up, which is in the process of recruiting its technical and administrative personnel and which reports indicated it had sent out some technical personnel for training, it again creates more doubt whether it would be able to operate these aircraft on dry lease.

Since the press conference by the minister, many Nigerians have expressed divergent views.

Industry expert and Secretary General of Aviation Round Table (ART), Group Captain John Ojikutu, (rtd) said the national carrier; Nigeria Air could have been established without a foreign partner.

“First and foremost, am not in support of having any of the foreign airlines and a competitor with us on the BASA (Bilateral Air Service Agreement) routes as our technical partners; the foreign airline interest in the partnerships comes before ours. Secondly, similar partnerships with the KLM and the SAA (South Africa Airways) in the early 90s did not benefit us. We should therefore look for partnerships outside the competitors in the BASA routes in countries like Canada, Australia, etc. “However, if we must still look into the US and EU, let it not be among our competitors. We must also not forget that these competitors including the Ethiopian Airlines belong to the various major commercial aviation alliances which our new airline may not be given access into until the World Airline Organisation like IATA (the International Air Transport Association) find us worthy and that will not come soon,” Ojikutu said.

Shareholding

Other Nigerians who expressed their views pointed that that there was nowhere in the press conference where the minister stated how much Ethiopian Airlines was bringing into the partnership because, ideally, an airline that has so much controlling share ought to bring in cash to propel the partnership.

One of the aviation industry stakeholders stated that when an airline has such controlling share of another country’s national carrier, it buys over the grandfather rights of that country’s major routes. Now, Ethiopian will provide the technical support and also technical personnel for the foreseeable future of Nigeria Air Limited, it will obviously provide the equipment for the domestic and international operation of the airline and also carry out maintenance of the aircraft under the airline’s fleet, so it will get paid by the new airline.

“I know of an African airline that wanted to operate as Liberia’s national carrier, which means that it will operate to international destinations from Liberia, the Liberian government requested that the airline should pay $75 million for grandfather rights to the routes it would take over. Also when an African airline wanted to operate to one of the countries in the Caribbean, that country requested that the airline should pay $120 million for the right to operate from that destination. So, in that vein, coming to take over Nigerian major routes in partnership with startup Nigerian airline, which is a start up under its absolute technical management, Ethiopian Airline should pay Nigeria about $700 million. This is because Nigeria has existing lucrative routes and it has high passenger traffic both local and international. These are invaluable goodwill Ethiopian would exploit and make profits from,” he said.

Ethiopian Airlines

Despite the avalanche of criticisms that trailed the announcement of the partnership between Nigeria Air and Ethiopian Airlines, no one has expressed doubt about the competence of the East African carrier to effectively provide the technical support to the new start-up.

Ranked number one airline in Africa, Ethiopian management has always believed that for Nigeria to reap the benefits of its huge traffic, which is still growing; it needs a national carrier, which would streamline development in the aviation industry. An airline with government stakes would have training programme to develop future pilots, engineers, marshallers and others without looking at the immediate cost; just as the defunct Nigeria Airways was doing. It is expected also that a national carrier would be in a better way to negotiate commercial agreements with airlines after BASA has been negotiated; just as the defunct Nigeria Airways did. So, the former Managing Director of Ethiopian Airlines, TewoldeGrebreMariam, once told a team of Nigerian journalists in Addis Ababa that Nigeria needed a national carrier to maximise the benefits of its air transport sector and to also become more influential in the global aviation industry.

Reports indicate that Ethiopian commands the lion’s share of the Pan-African passenger and cargo network operating the youngest and most modern fleet to more than 130 international passenger and cargo destinations across five continents.

Ethiopian joined Star Alliance, the world’s largest Airline network, in December 2011. Ethiopian is a multi-award winning airline including: SKYTRAX Best Airline Staff Service in 2013 & 2016, ‘Best Airline in Africa’ in 2017, 2018, 2019 and 2020, and Four Star Airline Certification in 2017.

With well over 100 aircraft both narrow-body and wide-body, Ethiopian Airlines is Africa’s largest airline by fleet size. The carrier has an extremely diverse fleet of aircraft, which it uses to connect passengers from Asia, North America and Europe to Africa, and vice versa.

The Partnership

The partnership means a lot to Nigerian airlines. There are fears that Ethiopian Airlines would take advantage of this partnership to eclipse existing airlines, using the advantages that would be given to Nigeria Air by the federal government.

Looking at the broad implication of the new partnership, a senior executive of one of Nigerian airlines looked at the pros and cons of the partnership between Nigeria Air and Ethiopian Airlines.

Nigeria, by far is the biggest air transport market on the continent and therefore, the biggest threat to ET (Ethiopian Airlines), effectively neutralised for now. ET becomes ‘Nigeria’ and the beneficiary of the prime market. ET is advantageously positioned already as is, not to mention the added prime operating advantages it is about to receive to give the existing domestic players more than a run for their money. In other words, the domestic playing field will be ‘shaken up’ a bit, to a small or large extent, with things skewed in their favour.

On the pros, the senior official said: “Nigeria has a chance to present a world class airline with its name on it. That means you will see Nigeria’s name and flag on aircraft in many far-flung places (presumably). That should have an impact on the national image (after all, it won’t have ‘Ethiopian’ written on it)! Hopefully, proper airline management discipline will be imparted for the benefit of the local industry. (The ‘know-how’ already exists today to a large extent, but the requisite ‘broad corporate discipline’ has been the lacking ingredient). The domestic airlines are now incentivized, whether they like it or not, to dig deeper and find the right strategies to stay on and thrive in this new playing field.”

Level Playing Field

But considering the fact that the new airline, having government stake, has been given special places at the Lagos and Abuja airports, an industry stakeholder had noted there would never be equal playing field for existing carriers and the national carrier.

“Of course, government cannot provide a level playing field for all airlines. Already the new carrier will be operating its domestic service from international terminal in Lagos and special terminal in Abuja, so it is not equal opportunity for all. I recall in 2007 when Arik Air and Virgin Nigeria Airways were operating from international wing of the MurtalaMuhammed Airport, Lagos, a committee was set up to examine the security implications. The committee recommended that the two airlines should relocate to the domestic terminal because it is against international standard practice to operate both international and domestic service from the same facility. Today, nothing has changed but they want the new airline to break the rules they made against Arik Air and Virgin Nigeria Airways,” a source said.

The Managing Director of Flight and Logistics Solution Limited, Amos Akpan, after examining the transaction by the federal government, said: “I notice there is a determination by this government to start Nigeria Air operations before the next government comes in. Being insistent on starting operations within a set time is not bad, but let us avoid putting up something that will not be sustainable.”