The role of the federal government in establishing a new national carrier

Any government directly or indirectly running another national air carrier in Nigeria is a recipe for disaster and we all know it (past examples are strewn all over our aviation history). With that said, the government does have a significant role to play.

Based on previous experience and case studies around the world, I envision the role of our government in the start-up of a new airline to be one where the government facilitates the obtaining of start-up capital, (as loan guarantors), in exchange for a specific and agreed to non-voting percentage stake in the new privately held airline. The government will specifically help secure and negotiate terms of financing for the airline based on obtained loans from international lenders such as, Exim Bank, ILFC, IFC and other international aviation related financing institutions worldwide. To be clear, the government’s role at this point is to be the loan guarantor for the new airlines and not to directly own and operate the new airline.

The new airline should be a privately held business start-up with government shares in the company. The airlines’ management team must be professionals with firsthand experience in running a large private sector business (with Profit & Loss accountability to shareholders).

Just as you can’t ask or expect an unqualified pilot to successfully fly a plane, you cannot have someone with no previous, large business, P&L bottom line management or operating experience to run a privately held company.  The new airline’s management team will be accountable to its shareholders (in this case, the loan guarantors, the federal government and private investors)

Government’s exit strategy

The new management holding company of the new airline is also expected to raise initial seed capital to start the new airline (separate funds from aircraft procurement costs obtained via financing loans).

The federal government will serve as loan guarantor to help with the establishment of new air routes and help negotiate legal international air rights, bilateral agreements, certificates of airworthiness, landing rights and reciprocal fee approvals in foreign countries etc.

The federal government is not expected to advance the new company any direct cash funding (this is where it will become messy if the new company accepts funds directly from the government in exchange for an equity stake in the new airline). Last time around, these kind of soft loans and loose repayment terms from the government became barter exchanges between the airlines and the government and translated into free flights for government officials and other bottom line perks that cost the airline and the travelling public dearly.

Once these terms and conditions are established and the airline is fully operational, the new national carrier should list on the Nigeria stock exchange (after the requisite waiting period) and allow the new airline raise additional funds to operate independently from the government.

There is a proven and very successful support role by governments to private sectors all over the world. The British government helped relaunch British Airways in the 1980’s and most recently, the US government bailed out the American auto industry. Once the funds are secured and raised, the respective governments took a “hands off” approach to the running of the airline and auto industry respectively, and let the experts run the businesses for a profit. It was this profit that allowed British Airways and the US auto industry pay back the loans with interest to their governments in record time.

For Nigeria, the new airline should be floated on the Nigerian Stock Exchange so that the public can obtain information on how well run this airline is and what  sort of returns they can expect for their investment.  Funds raised subsequently on the stock exchange go towards the leasing of new aircraft (please note that I said leasing of new aircraft not the purchase of new aircraft, as most airlines today prefer this option; it involves less capital or cash outlays, especially for a new start-up operation).

The operating bottom line

The government can help clear the way for the new airline by securing new air routes, international financing and ensuring that all local regulatory requirements for the establishment of the new national carrier are met. In return, the government must be paid a handsome dividend in terms of interest and shares.

Finally, the new venture must be run transparently so the shareholders (the Nigerian people) can see and enjoy the benefits and profits of running a national carrier. We look forward to the government’s recommendation and viewpoint on this opportunity.

Nigel Sonariwo