Executive Director of General Sales and Solution, GSSM, Mr Babatunde Adeniji, in this interview, disagrees with the notion that a national flag carrier is the solution to the challenges rocking the airline sub-sector.

The aviation management consultant argues that the structure of the industry is the bane of Nigerian carriers, calling for an overhaul.

Background

In a complex world of various competing worldviews and models, it is wise to avoid the use of absolute statements when seeking or proposing solutions that should drive growth and progress.

The assumption that a national flag carrier is a magic bullet to solve the problems of the airline sub-sector simply ignores certain realities—we live in an interconnected world of complex systems. The aviation system is a subsystem of the larger global and national economic systems, just as the airline sub-sector itself is a subsystem of the aviation system.

The view that private airlines are the problems of the sub-sectors is as unsound as the other extreme that a national flag carrier is the only solution. It reads like a classic case of wrong diagnosis leading to the wrong treatment. We know for a fact that structures drive behaviours in systems. However, airline structures may well be just a small part of the whole structure that needs reviewing.

Aviation industry system

The economic needs or demands for air travel are met by civil aviation’s principal product—airlines. While the aviation ecosystem is wide, and diversified but interconnected, sales depend on the airline industry and its financial health. However, its fragile health is sadly the weakest link in the tightly coupled aviation value chain. The aviation value chain consists of a diverse set of sectors in terms of size, structure, and performance. In order for an airline to get the right seat, to the right customer, in the right class, in the right condition, at the right airport, at the right time, and at the right fare, all the actors in over 10 sub-sectors must work together to create an impressive network that enables passengers to travel safely and efficiently across its routes. These actors include but are not limited to manufacturers, lessors, insurers, fuel suppliers, handling companies (NAHCO, SAHCO plc), caterers, airport managers (the Federal Airport Authority of Nigeria, FAAN), Air Navigation Service providers (Nigerian Airspace Management Agency, NAMA), regulators (Nigerian Civil Aviation Authority, NCAA), and others. The tragedy of this structure is that the airline is not just the worst impacted in the event of any service failure from these suppliers, but it is constantly exposed to the highest risk and makes the lowest return of all the actors. The airlines rarely make enough to cover their cost of capital; a case of monkey works, baboon eats. In short, the set of air transport activities resulting in useful service to passengers at a price that they are willing to pay, given the perceived or actual benefit of the service, is difficult if not impossible to deliver in the most cost-effective way to ensure profitability. This is because there is rarely any value left for the airline to extract for itself out of what it created for the entire industry, due to its weak bargaining position relative to its suppliers and customers.

On corporate governance/b>

In referring to what I understand to mean weak corporate governance of our airlines rather than a complete absence of it, if we agree without conceding that this may be true, is this not worse with government owned agencies? Can this not be improved? The biggest corporate governance failure in the industry is the absence of Governing Boards in most if not all government aviation agencies. This should be a bigger cause for concern. Meanwhile one wonders if there are no agencies set up specifically to address these governance issues? Again, If there is no due diligence by or on airlines as alleged, we should ask if these airlines operate on their own authority or are granted approval to operate via the air operator certificate, AOC, process for commercial transport purposes. If they are indeed authorised by the NCAA, then any failure in diligence is an indictment by the regulator. Regarding standards, many of the current Nigerian operators have attained the highly rated IATA/IOSA safety audit and retained it consistently. These achievements should be deserving of applause and not derision.

Tough macroeconomic policies

We may hold various beliefs about the difficulties of operating in Nigeria, but the sad economic reality is that every sector is operating in a challenging business environment. Airlines are badly affected, being highly sensitive to external macroeconomic factors both on the revenue and cost side. As the economy grows, demand for air travel increases, which in turn drives up airline revenues. Conversely, during economic downturns, demand for air travel decreases, leading to lower revenues and profits for airlines.

Best airlines fail

It is difficult to understand how one can experience the unmitigated disaster of the government's management and ownership of Nigeria Airways and still champion public ownership as a panacea. We hear about the various charitable assistance Nigeria Airways gave to Ethiopian Airlines and many other airlines and governments yet failed to save itself nor turn a profit before it was liquidated. Is this the glorious past we are seeking for our future? The truth is that even in the most progressive climes, the best airline managers have failed or had to be bailed out at one time or another. It is the nature of the industry structure. National carriers fail all the time too.

Building hub

Building a hub is a collaborative, all-hands-on-deck project usually championed by the airport owner/operator. The flag carrier or hub airline mainly contributes by basing and betting its network to operate out of the hub. The airport operator or owner, the city, and agencies, among others, all have a role to play in building a hub. Even in the United States, where airlines are involved in owning, investing in, or building airport infrastructure, they never go it alone. If they do, they will fail without the needed collaboration. Let me ask the same question asked of the airlines about our airports. Which one is built to operate a hub? Which is profitable? Which is highly rated globally? What is good for the goose should also be good for the gander.

Why Nigerians don’t need a national flag carrier

The travelling public probably needs a safe, punctual, convenient, hassle-free, and cost-effective service in a model that will deliver this consistently and sustainably. Nigeria has experienced and continues to experience poor services and unprofitable ventures from government-owned and operated organisations almost without exception. The telecommunications firms have heralded a new age in communications and showed us clearly the differences between private sector operators and owners can deliver where governments have failed.

Dangote has built the largest refinery of its kind in less than half the time it has taken the nation’s oil company to refurbish its refineries. We have tried various experiments of getting a foreign airline to invest in but failed. Even the last process that resulted in Ethiopian Airlines, ET, as the winner was a colossal failure since no serious airline agreed to take part (even after personal visits by the former Aviation Minister, as reported by him). We ended up with ET because they were the only ones who agreed to play. No serious player applied. We need to move away from the flawed thinking that the rules of economics do not apply to government or that government is the Messiah with unlimited resources to match unlimited needs, and we forget that it also has various needs and wants to compete against one another. Currently, the government itself is in a dire financial situation made far worse by the current volume of debts and suffocating repayment obligations. As regards claims about failure of airlines to raise capital from the stock market, I beg to differ. Several airlines raised capital from the stock exchange in the past, although they were beset with various problems later. The issue really is not about capital structure but assurance of adequate returns regardless of how it is sourced.