American commercial jet manufacturer, Boeing, made a rare appearance in Lagos a fortnight ago. The venue was the United States Consul General’s resident in Ikoyi, and the attraction was not the proposed national carrier, but a local operator, Air Peace.
Air Peace airlines currently occupies the pole position of the Nigerian aviation sector, with over 35 per cent of the local market share and a fleet size of about 27 airplanes. Among the aircraft are two state-of-art Boeing 777 airplanes, and four more still been expected, to open London, Johannesburg, Sharjah, Beijing, Dubai and Houston Texas routes before the end of 2018.
At the end of the brief meeting in Lagos, and apparently convinced by the prospects of the airline, Air Peace and Boeing struck a deal to acquire 10 new Boeing737MAX aircraft.
For the Chief Executive Officer of Air Peace, Allen Onyema, it was a dream come through, describing it as “another first in West Africa, putting us in the same league with world leading airlines.” Indeed, it was a new day for the Nigerian aviation.
Against the odds
Air Peace’s foray into commercial end of air transport business less than three years ago was at a very challenging time. Virtually all the operating airlines were gasping for breath in an industry that has one of the highest mortality rates in the world.
Since 2001 when the apex regulator, Nigeria Civil Aviation Authority (NCAA), was established by the Act of parliament and till date, no fewer than 50 registered airlines had collapsed. Very few celebrated the fifth anniversary.
Chief Executive Officer of Med-View Airlines PLC, Muneer Bankole, said the problem is more of the harsh operating environment that had almost made it impossible for any airline to survive than the low capacity and small fleet size often blame.
Bankole, who also recently welcomed a Boeing777-200ER into Med-View’s fleet, said airlines in other climes are better-off given the healthy and business-friendly environment.
“The truth is that doing business is tough and anyone that is managing to survive should be given the credit,” he said.
Specifically, aviation business is high capital intensive yet has low profit margin. If just five per cent of net investment is declared as industry’s success standard, then the chances of failure is higher.
The Nigerian context is peculiar with the odds staked against the airlines. With Nigerian policy makers still seeing air travel as a luxury for the elites, the local sector is heavily surcharged with a total of 35 sundry taxes and charges. At the end, about 40 per cent of revenue goes to multiple taxes. Aviation fuel, at an average of N250 per litre, also gulps 30 per cent of the revenue. Therefore, other critical obligations like the mandatory routine maintenance, overhead and aviation support services are left to contend for the balance of 30 per cent.
Against this end, “there is no room for profit, not to talk of acquiring new aircraft to enhance capacity. It is just convenient for the public and our regulators to call the airlines small and weak, but where is the avenue for a better alternative?
“Yes, Air Peace is doing well and we all should congratulate and support them to succeed because, it takes a lot of courage to venture that high. But my own worry is the right airport infrastructure for such type of aircraft and capacity. It is good for our industry, but if you ask me, we don’t have such support infrastructure yet or the requisite technology to process traffic just because the government and our regulators have all failed in their responsibility to create an enabling environment,” an airline’s top executive said.
Nigeria has at least 26 airports scattered across the country out of which those in Lagos, Abuja, Port Harcourt, Kano and Kaduna are considered to be viable, operating 24 hours. Others, without the lightning facilities, are sunset airports; already closed to operations by 5:30pm. The implication is that active duration is reduced to about eight hours with attendant underutilised aircraft that cost both the airlines and the sector a lot of revenue.
Chief Executive Officer (CEO) of African Aviation Services Limited, Nick Fadugba, observed that activities especially connectivity at hub airports, are indices of measuring growth of the industry and contributions to the economy. Unfortunately, he said, the Nigerian hubs at both Lagos and Abuja airports have dropped in capacity and frequencies lately.
From the NCAA’s estimates, Murtala Muhammed International Airport, Lagos, had total capacity of 115,919 in 2012 but 90,014 in 2017. Total frequencies also plummet from 811 to 603 in the five-year period.
Nnamdi Azikiwe International Airport, Abuja, had total capacity of 54,600 in 2012 dropped to 50,520 in 2017, whereas total frequencies fell from 413 in 2012 to 392 in 2017.
This happened while other major airports were on the growth path. For instance, Addis Ababa Bole International Airport, in Ethiopia, grew total capacity of 100,900 in 2012 to 181,547 in 2017. Frequencies of 614 in 2012 also rose to 1,005 in 2017.
Jomo Kenyatta International Airport, Nairobi Kenya had total capacity of 111,883 in 2012 to 117,234 in 2017, while total frequency grew from 983 to 1,060 in the five-year period.
Kotoka International airport, Accra, Ghana, also grew total capacity from 35,794 in 2012 to 45,108 in 2017, while total frequencies of 280 in 2012 rose to 351 five years.
Lessons from Ghana
Ghana, unlike Nigeria, has one international airport that is currently jostling to be the hub in West Africa. It would be recalled that the Ghanaian government in 2016 slashed the cost of aviation fuel by 20 per cent to attract West African-bound international airlines to come to Kotoka International Airport to refuel. Today, it is not unusual to see legacy carriers pick passengers in Nigeria, stop by in Ghana to refuel before departure to their hubs.
To complement this, the country will next week open the new modern Kotoka Terminal III, built at the cost $275 million – a loan from the African Development Bank. And to commemorate the feat, Emirates Airlines has concluded plans to open the new terminal with its flagship double-decker Airbus380 airplane.
Chairman of the Airlines Operators of Nigeria (AON), Captain Nogie Meggison, said with the level of infrastructure development happening in neighbouring countries like Ghana, Ethiopia and even Rwanda, available facility in Nigeria is fast looking ancient and not in the class of what modern aircraft or airlines need.
While the current administration had only mouthed a solution in airport concessioning, there are other lessons to learn from partnership. The global air transport regulatory body, International Civil Aviation Organisation (ICAO) and Airport Council International (ACI) recently gave five key planning and implementation priorities to help governments address the quite specific financing challenges facing aviation infrastructure and capacity development.
In the first place, airport operators must be attentive to the concept of value – both for investors relative to overall infrastructure development costs and for the proposed facility’s end-users and other customers.
Secondly, States can deliver tremendous support to airport operators looking for investments by taking pragmatic measures to realise transparent, stable and predictable regulatory climates, whether for direct investment, business reform, private finance initiatives, or public-private partnerships (PPP).
The third priority is for airport operators, in coordination with States, to clearly demonstrate where financing is required. This can be accomplished through gap-analyses of forecast demand, future capacity needs, and current infrastructure deficiencies.
A fourth important development objective for airports is in relation to how States and airport operators should design their associated operations and projections in respect of ICAO’s policies on airport charges and taxation. The fifth and final priority in this area is that due focus must also be placed on investment in so-called ‘soft infrastructure’ such as human capacity development.
Yes, Air Peace is doing well and we all should congratulate and support them to succeed because it takes a lot of courage to venture that high. But my own worry is the right airport infrastructure for such type of aircraft and capacity. It is good for our industry, but if you ask me, we don’t have such support infrastructure yet or the requisite technology to process traffic just because the government and our regulators have all failed in their responsibility to create an enabling environment.