Ethiopian Airlines’ stake in Nigeria Air, an existential threat to aviation sector – Stakeholders

As the federal government wraps up plans to flag off the national carrier, Nigeria Air, stakeholders in the aviation sector have expressed concerns over the choice of Ethiopian Airlines as a core investor in the airline.

A month ago, the federal government through Hadi Sirika, the minister for aviation announced Ethiopian Airlines as a core investor for the proposed national carrier, Nigeria Air, following a successful bid.

Sirika said Ethiopian Airlines will have 49 percent equity while Nigerian private investors (SAHCO, MRS and other institutional investors) are 46 percent and the Federal Government five percent.

However, the choice of Ethiopian airlines and the equity percentages have since elicited various reactions, as many think this would pose an existential threat to the domestic carriers and the entire aviation sector.

They allege that Ethiopia Airlines is putting nothing or very little on the table as Foreign Direct Investment to own 49 percent of one of the world’s largest markets, Nigeria.

There are also concerns that Nigeria will still be paying Ethiopian Airlines for aircraft leasing, engineering, crew and management; an arrangement that may not be sustainable.

Already, Ethiopia Airlines has listed Nigeria Air as one of its subsidiaries on its website, a development that has left many asking questions as to why Nigeria Air is a subsidiary to Ethiopian airlines, instead of a partner.

“Ethiopian Airlines have always been interested in taking a pie of the Nigerian market for a long time and there is nothing wrong with that idea. If the idea is to build a pan-African airline, involving a Nigerian airline, I have no objection to this. But when you want to build an airline and make us as a subsidiary, not a partner, then I have a problem with that,” Olumide Ohunayo, an aviation analyst, told BusinessDay.

Ohunayo said that Nigeria Air cannot come into the Single African Air Transport Market as a subsidiary, adding that the Nigerian Aviation Market has grown beyond this.

He explained that since Covid-19, three new airlines have come up in Nigeria and all the three airlines started with aircraft owned, not wet leased or dry leased and wondered why the national carrier would be operating leased aircraft from Ethiopian Airlines.

He stressed that it is a shame to start a carrier with wet leased aircraft from Ethiopia when private individuals can start airlines with their own aircraft, adding that this would be practically demeaning domestic airlines and the power they have brought into the industry.

“Our domestic airlines have taken care of the domestic market and we even have excess capacity now. We are not raising any bar by being a subsidiary to Ethiopian airlines. We can seek management expertise from any of these carriers not becoming a subsidiary. There must be a win-win situation.

“If Virgin Atlantic can offer us shares, what is Ethiopia bringing to the table? It is just the eagerness to take over the Nigerian market. The government is simply handing over our commonwealth and patrimony to Ethiopia,” Ohunayo said.

John Ojikutu, member of aviation industry think tank group, Aviation Round Table and chief executive of Centurion Securities, told BusinessDay that Ethiopian Airlines has been a threat to the domestic airlines.

“Ethiopian airlines flies to about four of our airports; how many of our domestic airlines do that? With the partnership with Nigeria Air, are we going to retrieve those destinations from Ethiopian airlines?” he said.

“Ethiopian Airlines like any other foreign airlines coming to Nigeria is a competitor on our Bilateral Air Service Agreement (BASA) continental and intercontinental routes and its partner, ASKY in the West African region has taken the markets of the region away from domestic airlines like Aero, Arik, etc, that once dominated the regional flights,” Ojikutu said.

He explained that what those in the administration of the Nigeria’s aviation industry are doing is to give to ET what belong to Nigerians; jettison the commercial agreements on multiple frequencies outside the BASA which in the days of Nigeria Airways was fetching us about $80 per passenger and open up the markets on the domestic routes to the foreign airlines especially to Ethiopian Airlines.

He said Nigeria cannot share or continue to give to its competitors the foreign airlines its commonwealth.

“What those in the administration and management of our civil aviation are trying to do is to establish a government carrier and not a national carrier. If we must set up a national carrier, we must learn from the experiences of the past with KLM, South African Airways in the 80s/90s and lately the Virgin Atlantic. All these are our competitors on the BASA routes.

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“Those who found themselves in the past in the positions of civil aviation authority take absolute powers to do their wills but their wills are not those of the public. Their wills converted the national carrier Nigeria Airways to government carrier. We must avoid the mistakes of the past that did not benefit us,” Ojikutu said.

He however suggested that Nigeria can look outside its BASA for partnership to set up a national carrier or flag carriers and get credible technical and investment partners from Canada and Australia.

He said partners can also be gotten from the United States but partnership must not be any of our present competitors on BASA.

He also suggested that share holdings for the foreign partners should not be more than 40 percent; credible Nigeria investors 30 percent; FG and States 10 percent and the rest 20/25 percent to the Nigerian public.

“Convert Aero and Arik to two flag carriers; one for continental routes and the other Intercontinental routes. However, we must assess the local and the international debts against their assets. Look outside for creditors, locally and internationally.

“If we cannot revive the Nigeria Airways in twenty years, we have shown no lessons learnt from the mistakes of the past. If an Airline like Arik could go under within five years in operation, and still under receivership in six years, we have learnt no lessons.

“If Aero, the oldest of the private airlines, could go under within two years its technical partners withdrew their service, we have not learnt any new lessons. What these airlines have shown with very short lifespans is that these are no lessons from the mistakes of the past. They all need external technical partners,” he explained.

Sindy Foster, principal managing partner, Avaero Capital Partners said the bidding process adopted for the national carrier has been far from ideal.

She said the issues however go beyond the bidding process and it needed to start with intent.

“We do not have a long term Nigerian Aviation Policy which has determined what type of aviation industry we need to build for Nigeria, now and in the future. So we are taking decisions today which may not align with the needs of Nigeria going forward.

“I would take a step back and look at the industry with a critical eye, look at what needs to be done to make the existing sector work better. It does not make sense to scrap where we currently are due to poor performance or underperformance when the reason the industry is under performing is structural,” Foster explained.

She said no airline can operate successfully in this environment without reliable and affordable supply of aviation fuel and lack of availability of forex to buy spare parts, pay for maintenance and other dollar expenses such as aircraft leases.

She also said no airline can make money when their assets are underutilised due to short opening hours of airports.

“No airlines can overcome delays caused by occurrences outside of their control such as VIP movement, bad weather, bird strikes, etc. These are inevitable and are within the ambit of the aviation authorities to do something about,” she said.

History has shown that this is not the first time the government is floating a private sector-led airline as various attempts by past governments to set up national carriers failed over power play, government intervention, lack of management and unhealthy competition, amongst others.

Proposed national carriers and the ones that have gone into extinction include Nigerian Airways, Air Nigeria, NewCo, Nigerian Global, Nigerian Eagle, Virgin Nigeria, Air Nigeria, Nigerian Eagle and Nigeria one.

Richard Branson, the chairman of Virgin Atlantic said: “We have Virgin’s ill-fated footsteps by setting up a new airline in Africa in conjunction with the Nigerian government. The details of the doomed attempts to crack the Nigerian market in the 2000s is better imagined. We put together a very good airline-the first airline in West Africa that was ever IOSA/IATA operational safety audit accredited but unfortunately it got tied down to the politics of the country. We led the airlines for 11 years.

“We fought a daily battle against government agents who wanted to daily make fortune from us, politicians who saw the government 49 perecent as a meal to seek for all kinds of favour, watchdogs (regulatory body) that didn’t know what to do and persistently asking for bribes at any point.”