Events in the last three months have shown that the Nigerian aviation industry has already crossed its Rubicon without knowing it. Unfortunately, it is on a slippery slope and heading for a free fall. It appears the financial circumstances of all schedule operators is still unsustainable despite the governments last re-financing intervention. For a start, the Dana Air accident of 3rd June 2012, seems to have triggered a series of confusing and conflicting reactions from both the administrator and the regulator. Nigeria's weak and retarded 30 year old deregulated airline industry, desperately needs direction, instruction and support. Unfortunately, most of the actions taken seem to be reactive rather than proactive and lack any planned logic; Air Nigeria was grounded because it was insolvent could not pay it's employees and creditors but the airline did not have any structured recovery plan, neither did the regulator provide clear directions on how to recover the situation. The two months backlog of salaries easily cascaded into four months and a mounting debt profile as a result of fixed non-operational costs and compounding interest repayments. Unfortunately, just as I predicted and warned in the last week of June, Jimoh Ibrahim was given the opportunity to syphoned the remaining funds from the airline, rendered it insolvent and decided to close it down; giving the phoney excuse that operations will recommence in 12 months. The recent decision of the apex bank to blacklist a number of airlines from receiving further credit in a bid to mitigate their rising debts will only hasten their extinction and sadly translate the money used to re-finance their loans into a direct loss of taxpayers money. Due to the strategic nature of aviation the industry should not be left purely to unfettered theories of privatisation, deregulation and whims and caprices of charlatans/adventurous entrepreneurs. National interest does not necessarily mean a government funded or owned National carrier.
Nigerian airlines should be compelled to open their balance sheets to the regulator to prove financial sustainability. What they really need is the managerial expertise backed by a vigilant regulator to facilitate safe guidance into a sustainable and profitable operating zone.
The current structure that churns out operators without clearly defined models and target market segments creates a foray that results in a battle of attrition. A quarterly analysis by the economic regulatory team of the available seat kilometre (ASK), the revenue passenger kilometre (RPK), the break even load factors (BELF) for the various routes and the overall yield versus the total operating cost will give a good indication of the how sustainable the business models are. Sometimes there's need to re-evaluate strategies based on the volatility of the operating environment. Other factors that are outside the purview of the operators which can be addressed by policy are effects of inflation and fluctuating values of foreign exchange. Healthy competition could drive down prices but that can translate into safety risk where unbridled cost cutting is allowed to take place. Internal and external synergies is what truly translates into efficiency that creates both profits and sustainability. We need to see responsible airlines before more pressure is made to bear on the Federal government to provide incentives that'll facilitate profitability.
Indecisiveness on the part of related industry administrators has resulted in missed opportunities for stemming the current regression. It is not too late for the relevant authorities to effect the following initiatives and strategies.
1. AMCON should have all airlines that benefited from the BASA funds re-financing of their sustainable loans under administrative scrutiny With the right to veto their financial decisions.
2. The Regulatory agency NCAA should compel the airline operators to consider mutually beneficial commercial agreements and mergers in order obtain synergies and benefit from the economies of scale. The aim is to produce not more than five carriers from the entire stock of 16 struggling airline operators.
3. Of course the idea of a new National carrier starting from scratch is completely absurd. The Senate should wait for the consolidation exercise to be completed before designating two of the best carriers as national or flag carriers. This should reflect the national character of the country.
4. The federal government should implement measures that will alleviate the difficult economic operating environment in which the industry stakeholders have to contend with.
A. Pending the Establishment off a full flight stimulator facility and a compatible type rating training organisation (TRTO) in the country, all airline training cost should be tax deductible.
B. The airline operators of Nigeria (AON) should be granted the license to import the annual supply of Jet A1 required for operational use. This is to be sold to all operators at it's landing cost in order to reduce operational cost.
C. A zero import duty and VAT regime should be effected for all aircraft imports, spares and consumables.
5. Without any prejudice to national security, It is imperative that real transparency and accountability should be entrenched in the activities of all aviation agencies and service providers. This was suggested in NASI's brief to the industry in early 2005 to help stem the corruption and colossal of fraud currently experienced within the systems agencies.
Most assuredly, if these are diligently and immediately implemented there is a strong chance of sanity and recovery.
