Failed business model brings aviation sector to its knees

The air transport industry in Nigeria is on the verge of collapse, plagued by shortage of funds, high maintenance costs, multiple taxation and poor business models, among others.

Consequently, the number of operational aircraft in the fleets of local airlines has dropped from 54 in 2010 to 39 this year (2013).

Furthermore, in the last few years, many local airlines, including Bellview, ADC, EAS, Air Nigeria, Chanchangi, FirstNation and Dasab have folded up. There are now only six functioning airlines in the country and these operate lean fleets and skeletal flights.

Industry watchers say problems of the aviation sector include lack of high level aircraft service facilities (hangars) in the country and customs duties on importation of aircraft parts.

It is said that the poor state of the nation’s aviation industry is particularly telling, because alternative transportation systems, roads, rail and waterways are

likewise crippled by poor infrastructure, government monopoly and neglect.

A cross-section of industry analysts who spoke to BusinessDay, canvassed fresh consolidation for the carriers, as well as getting core professionals to manage the affairs of the sector.

A global consulting firm, Accenture had said in a report on airlines, that a combination of consolidation, public listing, provision of maintenance facilities and local refining of aviation fuel, would reduce the risks of the airline business in Nigeria.

Accenture, in a review of the nation’s aviation industry, also recommended that operators could adopt the low cost carrier model, that government should engage in massive upgrade in airport infrastructure, as well as institute a more efficient regulatory regime.

“In our view therefore, a ‘therapeutic’ consolidation, induced via regulatory requirements such as : capital adequacy ratios, working capital requirements, minimum age of, and number of aircraft per fleet, amongst others, would ensure that airlines are stronger, healthier and potentially operate more safely.

“ This approach is based on lessons learnt from other industries in Nigeria, such as banking, where the minimum capital base was increased, and banks were ‘forced’ to merge”, Accenture said.

The review observed that consolidation could also be achieved via foreign investment, as in the case of KLM/Kenya Airways in 2005, where KLM got 26 percent share for $26million.

“Kenya Airways has developed into one of the most successful airlines in Africa, being consistently profitable at the operating level and growing at annual rate of 8 percent in passenger traffic between 2001 and 2011”, the report said.

Some analysts had also attributed the problems of the airline to owner manager syndrome, apart from funding issues, adding that until many of the owners leave the core operations of airlines to technocrats, the airlines will not survive.

The airlines had been accused of mismanaging the funds sourced from government’s first intervention fund of N300 billion, adding that many of them could not account for its purpose.

Shehul Iyal, senior special assistant to President Goodluck Jonathan on aviation matters, who argued that it was wrong to accuse the Federal Government of failing to assist the operators, had disclosed during a public hearing that 10 airlines got N87 billion from the fund but regretted that ‘lack of cooperation from the agencies and supervising ministry; lack of transparency and accountability in funds management; dilapidated infrastructure and equipment; poor and inadequate facilities; and weak/compromising supervision by the supervising ministry’, contributed to the airlines’ woes.

 

SADE WILLIAMS