How safety threshold rates can improve aviation ground handling business in Nigeria
Ground handling companies have continued to contribute materially to the growth of aviation sector in Nigeria, however their contributions are yet to be adequately balanced with economic returns especially over the last two decades.
Nigeria is not deriving optimal economic benefits from International Civil Aviation despite the fact that the Nigerian aviation market is a force to reckon with in the West Africa sub-region and Africa as a whole because of the size of the economy and population as well as the purchasing power of the middle class.
Checks show that the last time the ground handling tariff was reviewed in Nigeria was in 1999, yet the naira to dollar exchange rate keeps rising with inflation rate at its peak. These challenges are compounded by cost of living amid low value of minimum wage today.
However, ground handling companies are barely surviving due to the low operating profit. These companies cannot afford to invest in innovative technology, modern equipment, recruit/retain quality manpower and training aimed at preventing incidents and accidents. It is difficult to pay living wages to their staff.
Experts say if this continues unabated, safety procedures will become a reactive exercise instead of being seen as a proactive measure.
There is the link between safety and operating revenue. Whilst the handlers are fully committed to providing safe and secure ground handling operations, diminishing revenues due to low tariffs combined with increasing cost of doing business will continue to put material pressure on safety and security as well as long term sustainability of the ground handling companies.
The handlers are committed to promoting green aviation in Nigeria to reduce carbon born/emission by investing in green equipment in line with International Civil Aviation Organization (ICAO) and Nigerian Civil Aviation Authority (NCAA) directives and policies. The Ground Handling cannot afford to do this effectively.
Aviation Ground Handling Association of Nigeria (AGHAN) as a body has continued to fight to see that the rates charged by ground handlers are commensurate with services rendered.
The association has said there is a need to have safety benchmark rates and AGHAN has taken that up.
AGHAN is demanding low rate of interest to support its members’ business so that it can support the airlines. It also demands that grants and waivers given the airlines be extended to ground handlers.
Ground handlers have also called for easy access dollars at the same rate the airlines are buying which it believes will enhance it’s business and reduce the pressure on its operations.
Effects of poor handling rates
Low profit margin attracts low employee remuneration. Staff members face financial challenges and can become easy targets for criminals. The handlers want to enhance the security aerotropolis by paying living wages to staff.
Olatokunbo Fagbemi, the group managing director, Nigerian Aviation Handling Company (NAHCO) Plc said
NAHCO as a customer-centric organization, is focused on how to deliver the services based on the level of agreement that it has with its customers.
Fagbemi however disclosed that the challenge it has is that over the last few years, it’s rates have been static and some have even gone down, meanwhile foreign exchange and cost of living index have risen astronomically.
She said the company has been doing its best by showing that safety and security of its customers is not compromised and it wants to continue to be able to do that to any airline that it serves.
“In moving forward, we have to invest in our GSEs, facilities and our people; we have done this and we will continue to do this, but within these astronomical changes that have not been matched with the recent changes, we need to review our rates.
“Can we continue to do that and survive as an organization? The answer is no. Can we continue to offer the same level of services that we have been offering? The answer is no. We have done a five-year plan of where we need to invest; we will continue to do this. We know where the challenges are,” she said.
Fagbemi said ground handlers are all moving in the same direction, facing the same challenges and all have the same needs.
She maintained that with the current rate of the dollar to naira, no ground handling company will want to compromise. “I don’t see any compromise because it is about the sub-sector, we are all in the same market, doing the same thing and buying equipment from the same market,” she said.
Deregulation of the sector
Basil Agboarumi, managing director/Chief Executive Officer, Skyway Aviation Handling Company Plc (SAHCO) explained that the business no doubt is a function of demand and supply but there is no country in the world that will leave fixing of prices in the hands of those that run the show.
Agboarumi disclosed that when ground handling companies were trying to do some things on the cargo pricing some time ago, the government summoned them, adding that there are still laws that guide things ground handlers do.
“The fact is that inflation is coming in and it’s not helping us to do our business. After so many years of not reviewing our rates in some aspects of the business, the government sent correspondences to us on how we should go about that and in order not to make the same mistakes of the past, we think it is necessary for us to involve the government and the government has a role to play.
“Like AGHAN has always said, even ICAO has told you the steps to take before you effect any change in price. We are law abiding business people, so we have to follow the processes and procedures. We are engaging with the public and we are educating the people. We have been in some circles whereby some of the airlines have said publicly that price review of the handling rate was unavoidable,” he explained.
The MD of SAHCO recalled that between 2020 and now, the sector has seen a major leap in terms of the forex that used to be N350 to now over N500 to a dollar and the sector is a heavy consumer of forex yet no one wants to hear that there is a failure in ground handling services.
He noted that ground handlers have the duty to provide not just ground handling services, but the best ground handling services that can compete with any other in the world and for them to do that, they need the equipment to do that because the world is changing in terms of equipment.
“Ground handling equipment, personnel and certification are changing. So, we have to change with the developments around the world. In fact, you have to pay the right salaries and remunerations to attract and retain your best hands.
“We want to be able to compete and be able to retain our staff and to be able to do that, we need financial resources,” he explained.
On how soon, a new regime should be expected, Agboarumi said it is something that should start immediately.
Olatokunbo Fagbemi also said NAHCO looks forward to the implementation of the new price regime very soon.
“The last one year has been a challenging one for the industry, but despite these challenges, we have been supporting our clients and we will like to continue to support them.
“We want to ensure that their safety and security is not compromised and that for us is key. We are mindful of our obligations and relationships; they are very important to us. We want to ensure that whatever we do, we do them in line with safety and security,” she said.
As airlines continue to crave for good services, AGHAN insists that they pay them a resemblance of whatever is paid in other parts of the continent, even in West Africa.
Agboarumi insists that the current ground handling companies ought to leave the system better than they met it.
“What we should be asking ourselves is what legacies are we leaving behind? The issue is that there has to be a change whether we like it or not. If we want the interest of the sub-sector, then, I think the time has come for all of us to join this course from the government, airlines, handlers and the flying public. For me, we are engaging with the public. For you to have state-of-the-art equipment, you need to invest in facilities.
“These equipment don’t come cheap. Some of these equipment are already in Nigeria, some are in the shipping lines, some are still being manufactured.
We are looking at the future of the industry and we know what the airlines want, but for us to do it, we need a review of the handling rates,” he said.
According to him, the airlines have enjoyed some tariffs over the years in spare parts, aircraft acquisition and tax waivers, but the ground handlers are not enjoying all these. He said the ground handlers should also enjoy all these too.
Ground handlers spend multi-millions of naira to acquire just one piece of equipment into the country, he said, adding that the ground handlers should be encouraged too in the sector since others are benefitting.
Olatokunbo Fagbemi said the rates ground handlers are asking for is the benchmark below which they cannot offer these services safely.
The NAHCO boss said even in deregulated economies around the world have benchmarks that are given; some may not be announced while the others are announced.
She stressed that ground handling companies must not go below a framework that will harm the industry, harm the business and cause safety issues.
She said the NCAA is a regulator in charge of safety, security and economics of the industry. She disclosed that AGHAN has approached the NCAA from the safety perspective since the regulation sets out boundaries by which an operator can operate and so many things.
“So, when you say the industry is regulated, it doesn’t mean there are no boundaries, it is just that the boundaries are clear and you can come and operate, but when it is deregulated, the boundaries are formed, every part of it is clearly spelt out,” Fagbemi added.
AGHAN has placed the ball in the public court by giving analysis of charges in West Africa for instance.
In Europe for instance, they have uniform rates, which is high, yet, ground handlers are still complaining.
While AGHAN still works out to bring out the ideal rates on charges. Checks show that to operate in some West African countries; they are charged about $4,000 as a handling rate. Also, checks also show that foreign airlines operating in Saudi Arabia, cannot negotiate the charges because the charges are fix. However, the reverse is the case in Nigeria as airlines pay very little as handling rates.
In francophone African countries, ground handlers charge almost the same flat rates, but Nigeria continues to lose quite a lot to poor handling rates.
“Whatever we lose is not what can be quantified. The handlers are losing billions, the government is losing billions. For me, I have to buy equipment and the right form of equipment when they are needed. I want to ensure that the necessary certifications that are needed are done to boost my job; I want to be able to pay competitive salaries to retain them.
“I want to retain my clients with the kind of services I am offering. I want to leave that to AGHAN to determine what the right pricing should be and I am sure they are doing that and are doing it very well,” he added.
A new price regime is key to survival of ground handling business in Nigeria. It is also expected to ensure safe and secure operations. For a new price regime to be implemented, NCAA has a key role to play.