State governments spend billions on unviable cargo airports

State governments in Osun and Benue are spending billions establishing cargo airports that have remained unattractive to airlines coming into the country.

“For any state to be thinking of building cargo airports is a misplaced priority because many of the states that have built cargo airports lack understanding of the industry and its working systems,” John Ojikutu, Managing Director of Centurion Securities and member of industry think tank group Aviation Round Table (ART) told BusinessDay.
Ojikutu explained that an airport is considered viable if the annually internal generated revenue is sufficient to maintain all the services it provides, which include; salaries of the airport staff, power generation, external services bills, amongst others.

In Osun State, Moshood Abiola International Airport’s construction started on the cost of N11 billion.
Rauf Aregbesola, Governor of Osun state whose administration is promoting the project, argues the Osun Airport will not just be for passengers and cargo alone. He says the inclusion of a Hangar for the repair of aircraft will make it viable.

Samuel Ortom of Benue flagged off the construction of a N38 billion cargo airport at Dauda in Guma Local Government Area of the state.

Ortom said the project would provide a platform for quick evacuation of farm produce from the state to markets abroad. According to him, the effort would be beneficial to rural farmers, boost agricultural activities and cut post-harvest losses.

However, experts have argued that even although Osun and Benue states engage in agricultural economic activities, no commercial flights are in place in these airports and passenger traffic emanating from them are relatively low.
Chibuike Ameachi, The Minister of Transportation,  hit the nail on the head when he cautioned state governments to refrain from the establishment of airports.

Ameachi’s advice came as many states groan under cash crunch, following dwindling handouts from the Federation Account. The minister counselled governors to exert their energies on projects that would impact positively on the people.
According to Amaechi who spoke in Abeokuta, the Ogun State capital, an airport is a project that no governor should undertake at a time when the economy of the country is crawling. He however gave a caveat – unless the socio–economic fortunes permit it.

As far as he is concerned, more than half of the existing airports are commercially unviable.

But data from the National Bureau of Statistics (NBS), shows that the bulk of cargo traffic is still concentrated at the Murtala Muhammed Airport, MMA in Lagos.  MMA accounted for an average of 90% of all cargo traffic through Nigerian airports in 2015 leaving just 10% for other cargo airports.
The remaining cargo traffic is shared between Port Harcourt, Kano, Abuja and Calabar which continue to scramble for the remaining 10 per cent of both inbound and outbound cargo traffic.
BusinessDay checks show that airports designated for cargo by the Federal Airports Authority of Nigeria, (FAAN) include airports in Abuja, Akure, Calabar, Ilorin, Jalingo, Jos, Kano, Lagos, Makurdi, Minna, Owerri, Port Harcourt and Uyo.
“It is a waste of time for any serious government to say they want to build cargo airports at this time because the only viable cargo airports in Nigeria are Lagos, Abuja, and maybe Port Harcourt,” said John Okpaku, the Managing Director, ABX World, a major agro-allied export company in Nigeria.

Okpaku explained that no airline would take cargo to an airport that is not viable, adding that airlines pay huge sums of money for parking and landing. So, when they cannot make returns on the cargo carried, they rather would avoid going to such airports.

“Before a cargo airport is built, it is important to first ensure that the logistics and the packaging of goods and services are developed. When you look at cargo in Nigeria, it is focused on agriculture but there is more to it than just agriculture, Tayo Ojuri, industry expert and CEO of Aglo Limited, an aviation support service company told BusinessDay

Ojuri mentioned that there are manufacture cargo, just-in-time cargo, spare parts cargo and pharmaceuticals amongst others.

According to him, “We need to develop all those streams of cargo revenues and cargo opportunities. We need to ensure that from farm to market, the produce should be well packaged and ready for the market. For just-in-time manufacturing, cargo operators should work with manufacturing companies within the vicinity or catchment areas and bring in raw materials.”

“This way, we have a ready source of income for the cargo airport. If we are able to have a source of opportunity for distribution and logistics, we can make a difference.”

He explained that airline operations are heavy capital-intensive investment, with thin profit margins, and typically require short-term and long term planning for present and future cash flows before entry.