In 2015, when Muhammadu Buhari was campaigning for the presidency, he promised that he was a converted liberal democrat and that he would ensure that the country will continue to operate a free market economy.
However, shortly after he won the election, his actions and dispositions quickly changed to an anti-business and pro-state-led economy. From the retention of subsidy on petrol, the refusal to approve the privatisation of the nation’s dilapidated and perpetually non-functional refineries, the mopping up of funds from banks and their concentration in the Central Bank, even when the economy needs a revamp, to the talk about resuscitating state-owned enterprises (SOEs) and other such relics of the 1970s and 1980s that are no longer in fashion.
One of such relics the administration has been so determined to resuscitate is a national carrier. As we all know, the wholly-state owned Nigerian Airways went out of business in 2004 due to mismanagement, corruption, overstaffing, and a poor safety record, such that at the time of liquidation, it was $528 million in debt, which has not been paid till date.
Add Nigeria’s frequent policy summersaults, inconsistencies, notoriety for not honouring contracts and agreements, and the inclement operating environment for businesses, it wasn’t surprising that both local and foreign investors ignored the government
The effort to resuscitate the failed Nigerian Airways began in 2015 immediately after Buhari came to power. The efforts came crashing in 2018, when investors failed to show any interest at the Farnborough International Airshow in London.
The original plan was that Nigeria Air will begin operations in December 2018, with the first set of 5 airplanes that will later be expanded to 30 in five years. The initial start-up cost was estimated at N3.168 billion ($8.8m) and will increase to N108 billion ($300m) over the next 3 years. In the Outline Business Case (OBC) approved by the Infrastructure Concession Regulatory Commission (ICRC) and disclosed to the public, the airline was to be run as a public-private partnership (PPP) with 95 percent share pushed to private investors. The start-up capital of N3.2 billion to be provided by the government will be part-payment for the government’s 5 percent equity.
Hardly had the plan been unveiled than experts in the industry and on investments generally pooh-poohed the idea as unworkable. Their argument generally was that national airlines are capital-intensive projects that are becoming quite unpopular and unattractive to investors; and that the Nigerian Air expenditure will either die a premature death or the government will end up funding the project entirely on its own.
For instance, the chairman of the Airlines Operators of Nigeria (AON), back in 2018, argued that “setting up of National Carrier will cost Nigeria at least N1.08 trillion ($3bn). A single Boeing 777 as of today costs about N115.2 billion ($320m)” “Also, the national carrier will need an additional cash injection of N180 billion ($500m) subsidy per year on average for the next 10 years to keep the airline afloat…”
Of course, there were those, who for purely sentimental reasons or for national pride, wanted the ‘Nigeria Air’ project to work.
Ordinarily, investors do not like investing in national carriers. Add Nigeria’s frequent policy summersaults, inconsistencies, notoriety for not honouring contracts and agreements, and the inclement operating environment for businesses, it wasn’t surprising that both local and foreign investors ignored the government.
Read also: Nigeria Air will begin operations this year – Buhari
It was a thoroughly humiliated Hadi Sirika who, on September 19, 2018, accepted the inevitable and announced the indefinite suspension of the entire project. Although the government said it was suspended for ‘strategic reasons’, industry watchers believed the reason was due to the apathy of investors to the project and the government’s inability to single-handedly fund the entire project, especially since the project was not budgeted for.
But even then, not everyone was a loser. Over one billion naira was spent on the project in the form of business case design, transaction advisory team, and the design and unveiling of the logo. This is to say nothing of the huge estacodes of the entire Nigerian delegation to the Airshow in 2018.
And true to Sirika’s words, the process didn’t die but only shelved till another time. In September, the Minister announced Ethiopian Airlines (which has been on an acquisition spree of national airlines across Africa), together with a consortium of Nigerian investors, as the preferred bidder for a 95 percent stake in the new national carrier. It later emerged that Ethiopian Airlines, which will own 49 percent of the airline, was the only bidder, three other Nigerian investors, MRS Oil Nigeria, Skyway Aviation Handling Company Plc (SAHCO), and other unnamed investors will together hold 46 percent while the federal government will hold 5 percent, which will be in form of the start-up capital of the region of N3.5 billion. Ethiopian Airlines, according to the bid agreement, will invest $300 million to grow the new national airline to 30 aircraft and an international operation within two years.
Well, aside from the fact that Ethiopian Airlines will be a direct competitor to the proposed Nigerian Air on the Bilateral Air Service Agreement routes, and which will never place Nigerian Air’s interests above its own, it also is a major investor in over seven national airlines – in Congo, Malawi, Mozambique, Tchad, Zambia, Guinea, and Asky Airline in Togo – and its handling of those airlines has not been near impressive. They mostly remain diminutive and local carriers supporting Ethiopian Airline’s hub. I still can’t fathom why the Nigerian authorities think Ethiopian Airlines will handle the proposed Nigerian Air differently.
Then there is the huge debt the defunct Nigerian still owes. Any successor airline is likely to be held liable for the debts. What is more, former employees of the defunct Nigeria Airways are determined to go to any length to prevent the establishment of a new national carrier until their $80 million in outstanding pensions and severance payouts are cleared. Perhaps, that was why Ethiopian Airlines refused to commit any funds to the new airline until it was first operational.
Besides, this is not the first time the Nigerian government has tried to establish a national carrier with the same model. Previous attempts – which all failed – include Air Nigeria, NewCo, Nigerian Global, Nigerian Eagle, Virgin Nigeria, Air Nigeria, Nigerian Eagle, and Nigeria One.
It is difficult to rationalise the desperation to form a new national carrier that is almost bound to fail even when the Nigerian government currently owns two airlines via the Asset Management Company of Nigeria (AMCON) – Aero Contractors and Arik Air. What is wrong with merging those two and investing in them if it is so compulsory to have a national carrier? But again, this is Nigeria…
