2-IN-1 STORY: Nigeria Suspends National Carrier Takeoff Over Investors’ Apathy

Nigeria’s Aviation minister Hadi Sirika speaks at a press conference at the Farnborough Airshow, south west of London, on July 18, 2018.

• Funding delays application for AOC, recruitments, others

The Federal Government has suspended indefinitely the takeoff of the proposed national carrier scheduled for December 24.

Nigeria's last flag carrier was Nigeria Airways, which collapsed in 2003 under a mountain of debt Image credit: AFP

Though the Minister of State for Aviation, Hadi Sirika, who announced the decision yesterday did not give reasons, The Guardian (Nigeria) learnt that the development was not unconnected with investors’ apathy, ownership structure and funding issues.

The government had in July unveiled the name and logo of the proposed national carrier, Nigeria Air, at the Farnborough International Public Airshow in London, ahead of takeoff in December 24. As contained in the Outline Business Case (OBC) approved by the Infrastructure Concession Regulatory Commission (ICRC), the airline is a Public Private Partnership (PPP) project, with 95% share pushed to investors while the government will own the rest.

To get the new national carrier start off, the government will be injecting ₦3.168 billion (US$8.8 million) as the startup capital. It was learnt that the ₦3.2 billion is part-payment for the government’s five per cent equity in the investment, whose takeoff fund in the next three years of operation has been put at ₦108 billion (US$300 million).

Shortly after the London launch, the airline, however, became a hard sell to quality foreign investors and technical partners.

The Guardian learnt that though several bids were received across the board, they were from carriers that are either struggling to earn profit or those that the Nigeria Air was designed to compete with.

Other investors, who saw prospect in the proposal and Nigerian market, were, however, wary of the government’s credibility and ability to honour agreements, given some antecedents such as the yet to be resolved Murtala Muhammed Airport terminal 2 (MMA-II) concession faceoff.

The terminal, which is the first of such PPP projects in the aviation sector, has been a subject of serious legal tussle between Bi-Courtney Aviation Services Limited (BASL) and Federal Airports Authority of Nigeria (FAAN)/FG almost since inception. Other red flags are the yet to be settled severance and pension packages of Nigeria Airways’ 6000 ex-workers and harsh operating environment that has made it nearly impossible for airlines to survive.

Sources told The Guardian that the last straw that broke the camel’s back was the delay in the release of the initial ₦3.2 billion by the Federal Government. It was also learnt that the setback was not unconnected with President Muhammadu Buhari’s recent vacation and alleged refusal by the then Acting President, Yemi Osinbajo, to approve some requests made by the Minister of States for Aviation, Hadi Sirika.

The non-release of the initial funds also stalled other plans like the application for an Air Operating Certificate (AOC), recruitment of personnel and procurement of assets. Sirika, on his Twitter handle yesterday said: “I regret to announce that the Federal Executive Council (FEC) has taken the tough decision to suspend the national carrier project in the interim. All commitments due will be honoured. We thank the public for the support as always.”

A former Managing Director of the Nigeria Airspace Management Agency (NAMA), Capt. Roland Iyayi, recently said it would be very difficult to attract investors, given the unaddressed issues in the industry. To Iyayi, the national carrier is not a priority for the industry. He said the sector needed to be self-sustained.

“When the industry can grow, then anything you add to it will grow with it. When the industry at this point is being stifled by all sorts of policies and you have not addressed those fundamental issues, and you now want to bring in a national carrier, it is not going to change anything much. It will only create more distortions in the market because I can see a situation where the government is forced to subsidize the national carrier so that it is not doomed to failure.

“When you are using good money to drive bad business, then obviously you are not helping the taxpayers. So, the government needs to address the fundamental problems in the industry which are basically all of these polices negating growth. When you address them, it is easier to now do anything else to add to the sustainability of the industry, but right now, we haven’t done that,” Iyayi said.

The suspension of the project has also attracted more reactions, especially on the social media. A commentator on the Minister of State’s twitter handle, Kelvin Igwe, said: “After spending millions of naira for logo and all of that, weren’t all that in consideration before the London unveiling event, and you lied that an order has been placed ahead for new aircraft?”

Dr. Jaliyyah Bello said: “Kai Oga this is very disappointing. I was very optimistic. Though. We shall continue with British Airways and co. I hope they resolve whatever is causing the delay.”

Ayobami said: “So, you wasted ₦1.6 billion on your ego trip. It could have been funny if not for the money you wasted”. Jibrin Ibrahim said: “Why did you plan poorly and refused to consult widely? You were resolutely on the path of failure.”

Meanwhile, the Economic Management Team (EMT) chaired by Osinbajo yesterday said it did not give the go-ahead. A presidency source, who did not want her name in print, disclosed that the EMT recommended that government should not set up a national carrier with public funds.

According to her, EMT wants the ministry of transportation to, instead, accelerate the search for a strategic investment partner who will finance and manage the new airline. “In the absence of a borrowing plan for government participation, the president ruled against spending money that is not in the budget. “Promoters of the idea of the new national carrier were, therefore, asked to work towards 2019 budget if any government investment is to be involved,” the source said.

Anger Over National Carrier Launch Suspension In Nigeria

AFP reports that Leading figures in Nigeria's aviation industry voiced shock and anger Thursday after plans to relaunch a national airline, 15 years after the collapse of a former flag carrier, were placed on hold.

The government in July announced at a glitzy presentation at Britain's Farnborough Airshow that Nigeria Air would begin operation at the end of the year.

The new airline was to replace Nigeria Airways, which collapsed in 2003 as a result of government interference, inefficiency, mismanagement, debts and corruption.

But on Wednesday Aviation Minister Hadi Sirika said the plan had been suspended for strategic reasons, without giving details.

A presidency official who asked to remain anonymous told reporters the delay was due to funding.

"The Economic Management Team (EMT) chaired by the vice president (Yemi Osinbajo) did not give the go-ahead," the official said.

"(The) EMT recommendation is that government should not set up a national carrier with public funds. EMT wants the ministry of transportation to instead accelerate the search for a strategic investment partners who will finance and manage the new airline."

He said there was no provision for the project in this year's federal budget.

"In the absence of a borrowing plan for government participation, the president ruled against spending money that is not in the budget," he added.

Online, Nigerians reacted angrily to what they perceived as waste of money on launching the project, which the government had said would be "private sector-driven".

The government pledged to cover start-up costs of US$300 million (€256 million).

Many commentators demanded to know how much had already been spent on the launch and branding at a time when the economy is recovering from recession.

- Industry disappointment -

In the last 35 years alone, more than 40 airlines that have actually got off the ground have gone bust in Nigeria while domestic travel is dogged by delays and cancellations.

Foreign airlines dominate the most popular international routes to Europe, North America and the Gulf.

The general secretary of the National Union of Air Transport Employees, Olayinka Abioye, described Wednesday's suspension as "very sad" and "unfortunate".

"An airline flying our flag would have been a symbol of national pride and prestige. It would have created jobs for our people and brought in needed foreign investment," he said.

"The initial concern was that the private sector which was to be the driver of the project was not carried along," he said, saying it was wrong to have launched the project overseas.

Supo Atobatele, editor-in-chief of Air Transport Quarterly and a former spokesman of the Nigerian Airspace Management Agency, said a national carrier was still necessary.

"Nigeria is a regional aviation hub because of its huge population, leaving a yawning gap in air travel," he said.

"The coming of a national carrier will boost competition, improve services and reduce air costs."

He said rather than being the financier, government should partner tested local and foreign investors to manage the proposed airline.

Bids should be advertised for investors and the process should be fair and transparent, he said.

"The mistakes of the past should be avoided. We should not go back to those things that caused problems for Nigeria Airways."