President Buhari’s administration has pledged to look into the re-establishment of a new national carrier for Nigeria. The subject has been one that conjures up, memories of costly, previously failed attempts at national airlines. With this in mind, I also recall the famous quote by George Santayana: “those who fail to learn from history are doomed to repeat it”. That’s the last thing we want, in terms of us ending up with another failed national carrier. To be clear, the establishment of a national airline in the country is something I believe with my whole heart we should do. But, it’s also important this time around to examine the fundaments and rational reasons why we need to establish an international airline in the first place. To truly understand what it takes to successfully develop and launch a world class airline, let’s think back to what a national airline carrier should be all about in the first place, and then identify a viable business strategy that will lead us towards a sustainable and very profitable national airline. I researched a dozen airlines currently operating profitably all over the world. This included international airlines originating or operating successfully in Africa at the moment. They all have one thing in common at the core of their operating philosophy; they are first and foremost, a business, and a means of making money for their shareholders. Everything else, tied to the notion of a national airline was secondary and purely emotional. From British Airways, to Lufthansa to Ethiopian Airlines, to Emirates and many more; they all (as stated in their shareholders earnings reports), focus on establishing a safe, profitable business that carries passengers, goods and freight around the world for a fee; a fee that after operating expenses, makes the company a decent profit. This important criteria; making money for the shareholders, either private or public, is the one thing that our previous national carriers failed to consistently deliver on. The cost of operating these loss making airlines in Nigeria eventually killed off all international airline ventures in the country. If profits and dividends to shareholders are not going to be at the core of any new airline we establish, then we are doomed to make the same mistakes of the past; it will only be only a matter of when it happens. So, what to do? We agree emotionally that we need to establish a national airline to safely ferry Nigerian passengers (primarily) and others, including their goods and services around the world, for official business, corporate and vacation purposes. From a revenue generation standpoint for the country, think about the significant amount of foreign exchange reserves we presently loose from the country paying foreign airlines to ferry us safely to our international destinations worldwide. All the international airlines currently operating in Nigeria get to convert the Naira to dollars and remit these funds abroad. As we don’t have a national air carrier; we don’t have an opportunity to earn or keep any foreign currency equivalent abroad. If we cannot present a solid business case whereby the proposed new national carrier can ferry passengers and goods from Nigeria safely to and from their global destinations for a competitive fee then we have no business offering such a service in the first place. On the other hand, if the aviation industry professionals in the country can develop a clear business objective, including identifying the optimal cost structures, revenue margins; as well as, identify viable new air routes around the world that will give this new airline a competitive advantage to the business shareholders and then, assemble the right private sector management team to run the airline efficiently and profitably, then and only then, do we have a case for the establishment of a new national air carrier. The Role of the Federal Government in Establishing a New National Carrier Any government directly or indirectly running another national air carrier in Nigeria is a recipe for disaster and we all know it (past examples are strewn all over our aviation history). With that said, the government does have a significant role to play, but it is not managing the day to day operations in the new airline. Based on previous experience and case studies around the world, I envision the role of our government in the startup of a new airline to be one where the government facilitates the obtaining of start-up capital, (as loan guarantors), in exchange for a specific and agreed to non-voting percentage stake in the new privately held airline. The government will specifically help secure and negotiate terms of financing for the airline based on obtained loans from international lenders such as, Exim Bank, ILFC, IFC and other international aviation related financing institutions worldwide. To be clear, the government’s role at this point is to be the loan guarantor for the new airlines and not to directly own and operate the new airline. The new airline should be a privately held business startup, with government shares in the company. As stated earlier, the national carrier must be run and operated as a for-profit business (just like our banks, insurance companies, telecoms firms or retail stores). The airline’s management team must be professionals with firsthand experience in running a large private sector business (with Profit & Loss accountability to shareholders). Just as you can’t ask or expect an unqualified pilot to successfully fly a plane, you cannot have someone with no previous, large business, P&L bottom line management or operating experience to run a privately held company. The new airline’s management team will be accountable to its shareholders (in this case, the loan guarantors, the Nigerian Federal Government and private investors)
Government’s Exit Strategy The new management holding company of the new airline is also expected to raise initial seed capital to start the new airline (separate funds from aircraft procurement costs obtained via the financing loans). The Federal Government will serve as loan guarantor to help with the establishment of new air routes and help negotiate legal international air rights, bilateral agreements, certificates of airworthiness, landing rights and reciprocal fee approvals in foreign countries etc. The Federal Government is not expected to advance the new company any direct cash funding (this is where it will become messy if the new company accepts funds directly from the Federal Government, in exchange for an equity stake in the new airline). Last time around, these kind of soft loans and loose repayment terms from the Federal Government, became barter exchanges between the airlines and the government and translated into free flights for government officials and other bottom line perks that cost the airline and the travelling public dearly. Once these terms and conditions are established and the airline is fully operational, the new national carrier should list on the Nigeria Stock Exchange (after the requisite waiting period) and allow the new airline raise additional funds to operate independently from the Federal Government. There is a proven and very successful support role by governments to private sectors, all over the world. The British Government helped relaunch British Airways in the 1980’s and most recently, the US Government bailed out the American auto industry. Once the funds are secured and raised, the respective governments took a “hands off” approach to the running of the airline and auto industry respectively, and let the experts run the businesses for a profit. It was this profit that allowed British Airways and the US auto industry, pay back the loans with interest to their governments in record time. For Nigeria, the new airline should be floated on the Nigerian Stock Exchange after the required number of years in operation, so that the public can obtain information on how well run this airline is and what sort of returns they can expect for their investment. Funds raised subsequently on the stock exchange go towards the leasing of new aircraft (please note that I said leasing of new aircraft not the purchase of new aircraft, as most airlines today prefer this option; it involves less capital or cash outlays, especially for a new startup operation).
The Operating Bottom Line We as a country should look into the relaunch of a new national carrier, but its business plan must be first and foremost designed to make money for its investors. The government can help clear the way for the, startup new airline securing new air routes, and international financing and ensuring that all local regulatory requirements for the establishment of the new national carrier are met. In return, the government must be paid a handsome dividend in terms of interest and shares of profits from the airline, just like other governments have been paid back elsewhere in the world. Finally, the new venture must be transparent for the shareholders; i.e.; the Nigerian people to see and understand where their money is going and for them to enjoy the return on investment in the form of a well-run profitable airline for the country; one that will carry its citizens all over the world in safety and competitively for a profit. We look forward to the government’s recommendation and viewpoint on this opportunity.
About The Author
Nigel Sonariwo is General Manager and Chief Operating Officer at C&F Porter Novelli Nigeria Limited.
More on the topic of a national airline in Nigeria can be found on the company website at: www.candf.com.ng ©Copyright 2016 C&F Porter Novelli, all rights reserved