Players in the Nigerian aviation industry are confronted with myriad challenges including increased direct cost and reduced availability of foreign exchange which has seen stunted growth of industry operators. SAHCO returned to the path of profitability mid-year 2019.
However, the big question remains whether the Lagos-based aviation handling firm can sustain this stellar performance going forward.
Corporate Overview
Skyway Aviation Handling Company Plc. (SAHCO), one of the aviation ground handling companies in the country came into being in 2009 following a prolong and complex privatization exercise.
Sifax Shipping Limited and Global Apex Logistics Limited through SAHCO Limited acquired a 100percent stake of the Federal Government in Skypower Aviation Handling Company Limited as a result of the privatization of the company. Global Apex Logistics Limited, however, sold its stake in the shares of the company. SAHCOL merged with Skypower in 2018 with the former being the surviving entity. With a low take-off grant in 1999, coupled with being one of the relics from the badly-managed Nigerian Airways, its chances of survival was very little. It was a ‘child’ not positioned for success.
Interestingly, the turnaround in the management and financial performance of the company over the years since the divestment exercise has further lend credence to the fact that countries grow when the economy is open for private companies to invest.
The company currently operates in commercial airports in 16 cities across four regions of Nigeria. The Board is chaired by Taiwo Afolabi with having the highest holding interest of 78percent (direct and indirect), while Agboarumi Basil is the Managing Director and CEO.
Agboarumi joined SAHCOL, then a subsidiary of the Nigerian Airways Limited, as a pioneer staff/head of the Public Affairs Unit. After the privatisation and subsequent takeover of Skypower Aviation Handling Company Limited by the SIFAX Group in 2009, he was appointed the Head of Corporate Communications; he was later elevated to the position of general manager in 2014 in charge of Corporate Communications and Information Technology Department, providing leadership for the day-to-day operations. Agboarumi has more than 18 years’ experience in Aviation Ground Handling & Public Relations/Management.
The company last year listed 1,353,580,000 ordinary shares priced at N4.65, the shares were listed by way of an Initial Public Offering (IPO) on the Main Board. Making the company the first company under the Bureau of Public Enterprises (BPE) privatization programme to successfully finalize an Initial Public Offering and list its shares on a securities exchange
Industry Overview
The Nigerian aviation ground handling business has only two major players, NAHCO Aviance and SAHCO, effectively making it a duopoly.
The ground handling section of the aviation value chain is the service requirements of an aircraft while it is on ground, between the time it arrives and the time it departs on its next flight, to ensure the safe and smooth processing of passengers, baggage, cargo, mail and other materials associated with air transportation.
According to the International Air Transport Association (IATA) airlines outsource more than 50% of the ground handling that takes place at the world’s airports to a third party or non-airline handlers.
Nigeria’s aviation market is the third-largest in Africa. Although relatively cyclical, the sector has a recorded a 10-year GDP CAGR of 9percent, almost double the national GDP CAGR of 5percent. Nigeria has huge potential to become an aviation hub for Africa, using its natural advantages such as its central location on the continent, huge population estimated at 190 million and expected to reach 250 million in the next decade, and a growing middle class
Figures from the Nigerian Bureau of Statistic
show that in 2018 the total number of international passengers who passed through Nigerian airports reached 4,43 million in 2018 as against 4,05million passengers in 2017. This represents 9.42percent growth rate. Similarly, the total number of domestic passengers who passed through Nigerian airports reached 12,79million in 2018 as against 10.38million passengers in 2017. This represents 23.19percent growth rate.
Rebound from a negative bottom-line trajectory
The group has over the years engaged in restructuring, repositioning and right-sizing of the company, making further investments in the areas of infrastructure and personnel training and introducing some minor economic incentives.
SAHCO’s full-year 2017 results showed quality performance despite the difficult operating environment. Challenges in the Nigerian economy (lingering recession, increased cost and reduced availability of foreign exchange, deterioration in air traffic numbers, low cargo volumes) as well as the closure of the Abuja airport, contributed to the modest results recorded.
Revenue decreased, by a marginal 0.9%, to N4.86 billion, increased operating costs and finance expenses meant that the company reported post-tax profit of N217.73 million, a decline from the N897.01 million reported in the full year 2016.
The aviation handling company had a tough 2018 having incurred N665 million losses. Despite revenue rose nearly by a quarter to N6.13 billion for twelve months ended December 31, 2019, bottom-line closed in red over inability to tame administration expenses which surged 33 percent.
A further dive into its books revealed that cash from contract with clients forms the bulk of revenue, with proceeds from investment rental income accounting for some 3 percent. Going by disaggregation based on major service lines showed receipts from foreign handling and cargo handling accounted for nearly 80 percent. SAHCO rebounded to positive bottom-line path when it realized N171.53 million worth of net income in half-year 2018.
The company’s revenue grew 24 percent to N3.51 billion mid-year 2019 from N2.84 billion last year. Direct costs which include cargo shed, warehouse, concession fees and oil & lubricants among others, jumped 17 percent, but grew slowly compared to top-line.
SAHCO’s operating cash was healthier as it generated N762 million from operations half-year 2019, up 44 percent, equating to cash margin of 22 percent.
SAHCO has passed the International Safety Audit for Ground Operations (ISAGO), conducted by the International Air Transport Association (IATA), at three of its bases of operations – Lagos, Abuja, and Kano International Airports. The certification signifies that the company has modeled its operations to the ISAGO standards, as a result committing to operate within accepted industry best practices. The company is also an RA3 certified aviation ground handling company. The ‘EU Aviation Security Validated Regulated Agents’ RA3 certification is a supply chain security initiative designed by the European Union. With this certification, EU-member states recognise SAHCO as a regulated agent and confirm that it meets the security requirements for screening air cargo and mail entering the EU.
Looking Ahead
According to SACHO, it has invested in acquiring new equipment that are new to this clime such as the LAM 35 High loader which is the first in the Nigerian Aviation Ground Handling industry and also the baggage tow trucks which has the biggest capacity in Cargo and baggage loading of up to 40 tonnes, while placing a premium on staff welfare by investing in their training and retraining.
As part of SACHO’s expansion plans, the company is building a 3-level commercial structure to accommodate its growing clientele, recently completed the construction of an Export Cargo Accepting Bay to accommodate the growing export industry in Nigeria and this is being used judiciously while empowering its Engineering and Maintenance team to innovate by building some equipment as well.
SACHO says it is not only concerned about maintaining the present momentum but also committed to improving on the present gains in line with global best practices, also striving to be the very best within the West Africa region and eventually the global world.
