THE nation’s aviation industry has obviously suffered losses in the face of the current economic recession. In this piece by SOLA ADEKOLA, some key players in the sector said that hope is not lost if the right things are done on time.
THERE is no doubt that the aviation industry is one of the hardest hit as recession pollar, and this is basically due to weakness of the naira against the dollar and other major foreign currencies.
The aviation industry’s entire transaction is dollar-denominated and with the naira taking a dip by the day against the dollar, it is not surprising that the industry has witnessed a downturn in its activities. It is inevitable, therefore, that the managers of the aviation industry will have to adjust their operations to suit the current reality.
The last six months
Since the beginning of this year, the country’s aviation sector has been grappling with various challenges ranging from apparently unpopular government policies, undue distraction of the aviation agencies and corruption, to negligence of the domestic airlines.
These problems have been aggravated by the high cost of aviation fuel and unstable exchange rate which had made it tough for the aviation agencies and the airlines to transact business seamlessly.
While the agencies are finding it tough to perform their roles or train their technical personnel, the airlines are the worst-hit with most of them struggling to survive while those who could not, have left the scene.
Only recently, the oldest of the domestic carriers, Aero, announced the suspension of its flights over what the management called the harsh economic situation, among others. Two days after, FirstNation also announced flight suspension.
Even Caverton Helicopters was said to have reported first quarter loss of over N2 billion due to downward spiral of oil prices with its main customers, the oil firms finding it hard to remain in business which had serious effects on the airline.
Before now, many of the airlines are hugely indebted to the aviation agencies to the tune of N38 billion. This is apart from their indebtedness to the oil marketers, bankers and even their workers. In addition to the unstable exchange rate, the airlines are finding it difficult to carry out maintenance on their aircraft, while some have lost their planes to lessors because they could not fulfil part of their transactions.
Mounting job losses
A typical case of job loss was the fate of the over 1,500 of Aero workers who have been asked to go home indefinitely following the shutdown of its operations without a dime.
Apart from the Aero workers, many workers of other airlines who have been caught up at the centre of the problem have been laid off as a way of cutting cost to survive.
Airlines which did not sack their workers have reduced their salaries, though the volume of the jobs such workers do has not changed.
This is outside of the over 600 commercial pilot certificate holders that are currently jobless following the reduction in the number of airlines in the country, by over 60 per cent of what it used to be some years back.
Before now, the airlines, including the foreign ones, had raised the alarm over the skyrocketing price of aviation fuel in the country which has been adjudged to be the most expensive in the sub-region.
Sadly, following the challenges in the midst of recession and unfriendly environment, activities of domestic airlines in the country are also speedily nose-diving.
Key Players’ Reaction
Many stakeholders in their reactions have expressed their misgivings about the present situation which they argued was as a result of cumulative years of rot.
Group Captain John Ojikutu (rtd), a one-time military commandant of the Murtala Muhammed Airport and now the Managing Director of Centurion Security Services, in his reaction argued that the aviation sector may appear to be worst hit by the present economic recession, but insisted that the sector operators saw it coming way back in 2010 when their debts started becoming a burden and they ‘pleaded’ for intervention funds from government.
These debts, he said, included “those owed to government services providers, fuel marketers, banks, arrears of unpaid staff salaries, etc. “Did they pay these debts? No. These airlines sell tickets not on credit, but on cash and carry basis; they and other operators in the sector make forex earnings which needed to be audited to justify any concession on it from government or the CBN. Unfortunately, these forex earnings are diverted or reinvested in other businesses.
“The problem got critical in the last six months because of scarcity of funds generally and forex in particular, occasioned by low sales of crude oil and the fall of its price in the global market. The industry is in its worst state than it had ever been in its life time in Nigeria.”
Speaking the minds of other domestic airlines, the Chief Executive Officer of Arik Airline, Mr. Chris Ndule, said the economic state of the aviation industry had largely deteriorated adding: “The economic situation as it is today, is suffocating us out of operation.”
According to him, some other airlines besides Aero Contractors would collapse unless the federal government promptly intervened in the aviation sector.
He identified interest rate of 24 per cent on bank loans, worsening exchange rate and multiple charges from various regulatory agencies as the factors militating against sustenance of aviation business in Nigeria.
“There are a lot of economic indicators that have made business more difficult which are now manifesting in the inability of the airlines to continue to operate,” he said.
While lamenting how the airlines had been operating in an industry that had very little (profit) margin, Ndulue declared: “If you have to borrow money and you have to pay 24 per cent, and you don’t make a margin of 24 per cent, it means that you will find it very difficult to pay back the debt. And there is a limit to what you can do in terms of being able to manage the debt. These fundamentals are the things we need to address.
“But, there hasn’t been a bailout targeted at salvaging the airlines or addressing the finances of the airlines. The airlines did not get as much as they wanted in the first place, even for that little reduction in the interest rate. But now, the economic situation has moved from bad to worse. I think the intervention needs to take place to avoid total collapse of the industry. Two airlines have closed shop; there could be more airlines if the trend continues.”
For Mr Emuakpor Francis Ayigbe, a popular aviation analyst, the reality is that all sectors of the economy are undergoing readjustment, the aviation industry inclusive. Ayigbe believe that, workers often become major casualties of reduced operation because in a typical economic recession, job losses are inevitable. “However, workers, just like management must be flexible to make structural changes that can enable them go a longer way through trying times such as this,” he said.
State of emergency?
The National President of the National Association of Nigeria Travel Agencies (NANTA), Mr Bernard Bankole, in his own reaction called on the Federal Government to declare a state of emergency in the aviation industry in view of the crisis rocking the sector with the latest effect involving two domestic airlines; Aero Contractors and FirstNation Airways suspending operations in quick succession.
“What is happening in the aviation industry is an eye sore and alarming. It calls for a state of emergency in the aviation industry. We don’t have to let the industry collapse before we do that. The industry is nose-diving every day. Aero Contractors suspended operations and while Nigerians were still talking about Aero Contractors, FirstNation also suspended its operations. The Federal Government must take action immediately,” he said.
He added that unlike other parts of the world where shopping malls and supermarkets are springing up at airports, in Nigeria, kiosks are all over the place at our airports, wondering if the managers of Nigerian airports are in touch with modern trend in aviation.
Foreign Airlines relocating
Prior to this time, many of the foreign carriers had complained about doing business in the country citing the expensive aviation fuel and policy somersault as part of what is responsible for the unfriendly environment.
Even before now most of the mega carriers had for long jettisoned the country’s aviation fuel for the one sold in Ghana which they buy at cheaper rates.
Asides the expensive Jet A1, the unstable foreign exchange in Nigeria is one of the reasons the foreign carriers are shifting their patronage to Ghana and other African countries.
Obviously, with the economic crisis and other challenges rocking the sector and the airline sector, Ghana in particular is cashing in on Nigeria’s poor foresight and inefficiency by reducing the cost of aviation fuel by 20 per cent which has greatly snatched the foreign carriers away from Nigeria.
Many of the foreign carriers, while cutting their flights into Nigeria, are increasing flights to Ghana with some relocating their operational offices to that country.
Already, some of the foreign airlines are said to be planning to fly from Ghana to pick passengers in Nigeria and conduct their other businesses in Ghana.
These airlines according to information prefer Ghana because they are comfortable with the favourable working environment provided by the authorities.
Air France which is presently not contemplating to increase its flights into Nigeria will from February 28, 2017 begin flight operations between Paris and Accra, with three-weekly flights to Accra from Paris’s Charles de Gaulle Airport.
Even South African Airways is not left out of the carriers presently shifting patronage to Ghana with the latest announcement made by the Ghanaian Minister of Transport, Mr. Fiifi Kwetey that SAA would begin flights between Accra and London.
Kwetey said the granting of three rights to SAA, including a right to operate Accra-New York flights was part of government’s moves to make Ghana an aviation hub with many airlines operating to different parts of the world from Accra and in line with the Yamoussoukro Decision, of which the country is a signatory.
Many of the foreign carriers operating into the country have either cut their frequencies or refused to ask for additional ones while they shift patronage to Ghana and other sister African countries where they believe there are more favourable policies.
Effect on Nigeria’s economy:
Though the foreign carriers have been described as fair-weather friends, it has been argued in some quarters that the impact of their decisions on the economy would be low as aviation contributes less than 1 per cent to the GDP. However, in technical terms, low earnings in almost all the public and private sectors of the nation’s economy would reduce the mobility of about 8 million air travelers and that has started manifesting in the low passenger traffic at the airports.
For another school of thought, it would be in the interest of the country for the foreign carriers that have left to return. For this group, the government can quickly revive the Warri refinery as it is reported to have the capacity to refine aviation fuel, for if and when this is done, Nigeria will become the hub of lifting fuel for airlines again.
It is generally believed in the sector that in spite of the passengers’ low traffic and relocation of the mega carriers presently, Nigerian airports within the sub-region is where the market is. Therefore, the airlines will come back as soon as things begin to stabilise. Their relocation has proved once again that domestic operators must be encouraged as they are the bedrock of the economy.
One obvious point is that if government fails to revive the sector urgently, the efforts made to make Lagos airport a hub in the sub-region may be lost to Ghana which ordinarily is no match to the Nigerian huge market.
According to key players one of the solutions is to concession not only the international airports but also the domestic airports. The domestic airports, stakeholders advised, should be improved for night landing so that the domestic airlines that are not on international routes could diversify their business. However, the concession should not include the aviation safety and security infrastructure and systems which generally are the concern of International Civil Aviation Organisation (ICAO) especially the aviation security system which is part of the national security architecture.
Government has also been urged to consider reductions in the number of multiple landing destination given to the foreign airlines and restrict each of them to either Lagos or Abuja and one or two others while no foreign airline should be given whatever concession to fly Lagos and Abuja, but they could fly as many frequencies as they wish to the assigned airports.
On the domestic scene, no operator with aircraft fewer than five should be given licence for domestic operation; operators wishing to go into regional operation in addition to domestic operation should have minimum of 10 aircraft and any operator wishing to go into intercontinental operations in addition to regional and domestic operation should have a minimum of 20 aircraft.
Finally, experts have suggested that the Nigerian Civil Aviation Authority (NCAA) should be allowed to function as an autonomous agency just as it is provided for in the Nigerian Civil Aviation Act without any political interference. The agency should be allowed to carry out its oversight functions on the public operators as it would on the private operators. Above all, strategic thinkers should be allowed to have access to run the industry.