The trending debate on the proposed new national air carrier triggered by the Managing Director of the Asset Management Corporation of Nigeria, Ahmed Kuru, offers policymakers another opportunity to make the right choices. Kuru had stirred the discussions by suggesting the merger of the country’s two biggest airlines now under its receivership to form the illusory national carrier.
While it is the prerogative of AMCON to restructure the indebted firms it has taken over, including a recourse to mergers, the proposal to confer national flag status on two bankrupt enterprises is a no-brainer.
Ordinarily, such a hoary idea would be dismissed or ignored, but given the repeated attempts of previous administrations and the current presidency of Major General Muhammadu Buhari (retd) to conjure up a new national airline, critical stakeholders in the Nigerian state should intervene to shoot down the latest in a long line of unrealistic moves to burden the taxpayer with another albatross.
The suggestion lacks merit in all ramifications. The idea of a national carrier with significant state ownership has become an obsession with successive Nigerian governments. This is wrong-headed; while a national air carrier is indeed desirable to take advantage of existing Bilateral Air Service Agreements with other countries that give flag carriers landing slots in the most lucrative airports, it need not be a state-owned enterprise. The world’s 10 most profitable airlines listed by Consultancy UK in 2017 were all privately owned, with former SOEs, Lufthansa, Air France-KLM and IAG the products of privatisation in Germany, France, Holland, Spain and the United Kingdom and eventual mergers coming among the top seven. Almost every major Western European national airline has been privatised (although governments retain some stakes) with the UK’s British Airways as the pioneer in 1987.
Alternative Airlines, an industry resource agency, explains that a national carrier or flag carrier airline no longer refers to government-owned, but “to any airline with a strong connection to its home country.” True, there are a number of state-owned airlines that are doing quite well, among them Ethiopian Airways, Emirates and Chinese carriers. However, Nigeria’s experience with SOEs is so terrible that no one should contemplate ever saddling it with another round of state capitalism. Nigeria Airways once had a fleet of 30 aircraft in the 1980s, but by the late 1990s, had piled up debts of $528 million and was left with only one serviceable aircraft by the time it was finally liquidated in 2004.
Many other SOEs have ended up in the graveyard, including the defunct Nigerian National Shipping Line in the maritime sector, where another obsessive desire for a national carrier has been mooted. So many schemes were floated to revive Nigeria Airways and all crash-landed. Concessions and management contracts failed; an agreement with the UK’s Virgin Atlantic also failed, and finally, an opaque privatisation to ill-suited investors ended the airline’s half-century tortured history.
The government and AMCON need to understand that airlines are failing in Nigeria because of an unfavourable operating environment of which funding is only a part. With a population of 200 million and a large territory, investors will move in when the conditions are right. According to the International Air Transport Association, profits in the global commercial airline industry rose from $34.5 billion in 2017 to over $38 billion in 2018; it projected 14 trillion passenger traffic by 2034, $59 trillion Gross Domestic Product and 99 million jobs worldwide. Stimulating growth and the emergence of strong airlines require opening up the aviation and tourism sectors through privatisation and concessions for the airports to attract FDI, improving the ease of doing business, funding latest cutting technology acquisition and strengthening the regulatory environment. A survey by the World Economic Forum in 2014 ranked Nigeria’s air transport infrastructure a miserable 30th out of 37 African countries and 131st worldwide.
Public officials, including the regime’s Aviation Minister, Hadi Sirika, wrongly believe that an airline will survive as the “national carrier” once it has government backing, with full or part ownership. On the contrary, government involvement effectively scares foreign investors and discourages competition. This is evident in the serial failure to attract serious investors for the national airline project.
Arik Airlines and Aero Contractors, the two airlines Kuru suggested merging to form the flag carrier, epitomise how adverse environment and poor management by inexperienced businessmen matter more than state sponsorship. Aero, once vibrant and sought after, succumbed to the unfavourable operating conditions, while Arik was poorly managed in an environment of weak regulation. Receivers said in 2017 that Arik owed AMCON over N300 billion, another N50 billion to local banks and $78 million to IATA. Aero’s exposure to AMCON, though much less, nevertheless has hampered its ability to meet its obligations and upgrade its fleet.
AMCON’s brief is to mop up toxic bank debts and recover as much of them as possible. It should concentrate on this mandate in the best way it deems fit. Its proposal to weld two troubled carriers to be designated a national carrier should be dumped in the trash can. The regime’s economic team, working closely with the Ministry of Aviation, should ramp up the concession of the Lagos and Abuja airports via very transparent processes targeting the world’s most efficient operators and undertake wholesale reform of the aviation and tourism sectors to attract foreign investors, create jobs and provide modern infrastructure. This should be private sector-led. Capable airline operators should be attracted from liberalised climes and the regulatory agencies reformed.
Emerging efficient privately-owned airlines in a competitive environment can then be designated to fly the flag.