Africa: Nigeria can create two strong Airlines today says Olowo of Aviation Round Table
President/CEO of Sabre Network NMC, West Africa and President of the Aviation Round Table, Gabriel Olowo, in this interview with Chinedu Eze, spoke on unfavourable government policies and the harsh operating environment, which he blamed for the failure of businesses in Nigeria, including airlines. Excerpts:
Why do you think domestic airlines fail in Nigeria?
Thirty percent of the failures of the airlines are mismanagement by the owners and 70 percent are from government and the harsh economic environment. I have been in the sector since 1973 and I have seen the airlines failing within a space of ten years they started operations. So, there is a common factor. The business of Nigeria Airways was government business. The problem of corporate governance has always been there. The Nigeria Airways was supposed to be repackaged and become a new carrier but the then President said the government is not buying into the repackaging programme.
The second generation airlines such as Okada Air, Harco, Oriental Airlines, Triax, Kabo among others all meant well. Okada said they wanted to prove to the government that they could do the business and they brought a Boeing B747 but that aircraft never flew but was left to rot. The investment was wasted. He got a promise from then second in command then during the Military regime, which was not fulfilled, so we were looking at the airplane everyday as it parked at the airport rotting. It was initially planned to do Lagos-London-Lagos routes. The aircraft did not operate due to government’s inimical policy. It was the same situation with Okada and Kabo Air.
Recently three banks wanted to take over Etisalat due to the debts it owed the banks but the Nigerian Communication Commission and the Minister of Communication intervened and stopped them, but there was no indication that the Minister or the Nigerian Civil Aviation Authority (NCAA) made any step to save Arik or even Aero Contractors. Why is it so in the aviation industry?
The Nigerian environment is very hostile for business and our civil servants in the Aviation Ministry (now Ministry of Transport) are supposed to see to the advancement of the sector, ensuring that airlines succeed. They are supposed to measure their progress from year to year. They should tell us the number of aircraft in the last one year, the number of airlines that have increased their fleet over the years, the growth rate amongst others. So, if there is no growth, there can be no development. Aviation Ministry, what are you set up to achieve? Where is aviation? How come Ethiopian Airline took us over? How come South Africa Airways took us over? What is that Ministry doing? The civil service is the government. The President will talk through the Minister of Aviation, who is responsible for the ministry, even if the Nigeria Civil Aviation Authority is autonomous.
How has the foreign exchange policy affected the aviation sector?
What I am trying to establish first and foremost is the mortality rate of our airlines. Why has it been ten years, after which they die? Bellview was 14years. 30 percent are caused by owners’ arbitrariness. Success got into their head so quickly and they ignored professional decisions and professional managers. In the government environment, there are a lot of factors. Foreign exchange is one that is highly volatile. It has always been like this in the last forty years. Early 1970s, I remember, the exchange rate was N4.00 to a dollar. During the first coming of President Buhari, we faced the foreign exchange problem and the airlines were running with what was called blended rate. Various banks offered different exchange rates. Foreign airlines were faced with that.
About five airlines left Nigeria. I was working for a Brazilian airline, Varig. I was deputy General Manager. The airline left this country because of foreign exchange. They had naira in Nigeria, but they could not repatriate their revenue due to scarcity of foreign exchange. Iberia left, Varig, Scandinavian Airline amongst others left. Since then a big vacuum was created. During Buhari’s first coming, there was trade with Brazil; we had counter trade with Brazil. Volkswagen Nigeria was relating with Volkswagen Brazil. We had Sakamori, we had telecom from that country, pharmaceutical businesses from Brazil. There was huge economic exchange that time, but since their airline left there is vacuum between Nigeria and Brazil in terms of business interaction. There was huge economic boost between Africa and South America then. Once aviation link is broken, economy is dead. We lost everything.
As far back as 1994, exchange rate was around N22 per dollar. Nigerian airlines were selling one hour flight ticket for Lagos-Abuja or Lagos-Kano at N2, 200 and at the exchange rate of N22 per dollar that amounted to $100. Lagos-Abuja was $100 value in 1994, which was about 23 years ago. Today exchange rate has moved from N22 to N450. Today, an airline sold ticket for N16, 000, which amounts to 30 dollars. Someone in government should raise an alarm over this. Do they want to kill us? If I am in government, I will shut down the airline because this is showing you desperation for cash flow.
And they call it promotion. What kind of promotion? Exchange rate will never make you earn the right tariff because people will not be able to buy the ticket. So, you decide to reduce the price; meanwhile, your cost is increasing. The airlines in Nigeria currently are not charging the right tariff after 23 years. If people cannot fly, then do not kill them. If I am NCAA Director General, I will shut any airline that charges less than $100 for one hour flight ticket.
The recession, which peaked last year, adversely affected the business in Nigeria, but it seems to have affected the airlines more?
The airlines borrowed a lot and their borrowing has dollar content and you do all your sales in naira, how can you get the foreign exchange content? You go to CBN, CBN sells dollar at N305, which is not available. You spend so much on training, maintenance, so much for distribution. You have to pay dollars for virtually everything. The dollar is not available so, the operators have to go to the black market to get dollars at a higher rate than the rate he sold the ticket. How do you want that airline owner to service his debts? Because he has started, he cannot kill the business, so he keeps on struggling and he gets to a level that all the creditors gang up against him.
The airlines AMCON has taken what success has it made of them? What is the objective of taking them over? A job of the receiver manager is to assess your assets and liabilities and make up your mind on whether you will revive it or kill the company? All over the world, when a business goes to receivership, he might decide to say since the company is bankrupt; they will keep the business running and make sure the business does not die. They can set all the debts aside and say when the business picks up, they can attend to other things. I do not think we have bankruptcy law in Nigeria and if that is the case, it behooves on our regulator to find a way to support our airlines, having seen how and why they are dying, which is as a result of direct and indirect contribution. If Richard Branson came here and failed, what are the factors responsible? Richard Branson is doing well in Australia, in US and Europe, why did he fail in Nigeria?
The Ministry of Aviation, NCAA and all stakeholders should consider this. If Richard Branson failed in Nigeria, then do not blame Nigerian airlines at all. When Branson was leaving, he said Nigerian politicians are carrier destroyers. They do not follow through an agreement, they cancel agreements. What is going to be the investor confidence? The NCAA and the Ministry which are supposed to be government agents and decision makers should not have allowed AMCON to do what it did. They will ask AMCON their objective. An airline that went from 30 aircraft to nine and your eyes are wide open.
Did the bad economy of the airline happen in one day? The aircraft would have been going for maintenance and not coming back. They are supposed to monitor the economic health of the airlines on a daily basis. The airline fills the forms and the NCAA has the right to make sure it is correct. When you are talking about capitalisation in this sector, it is not like the banks. Capitalisation is not liquidity. Our NCAA must be ready to see how liquid the airlines are. If they are not liquid, they must find out why and you must account for his problem of liquidity and where he can account for it. When you realise that revenue is not covering cost; you have a job to do.
Nigerians are watching to see the development in the new management of Arik Air. What is the hope that they will be able to revive the airline?
Personally, I have no hope on AMCON because antecedent has not convinced me otherwise. The way they have been moving in the last three to four weeks, I see no hope. They took over Aero Contractors and I haven’t seen anything after that. They removed the CEO of Aero and sent him to the Nigerian Airspace Management Agency (NAMA) (Captain FOla Akinkuotu), they brought in the chief pilot from Arik to Aero (Captain Ado Sanusi), all their postings have been haphazard, so I see no hope but I pray that they don’t kill the airline. The airline must not go under. It is not about paying off the banks but it is an in-depth understanding of the cause of the problem. If there are priority allocations of foreign exchange to some sectors, even religion, this is a very sensitive sector for FX allocation.
If the airline operator has borrowed with huge FX content, and FX has gotten to such an alarming rate, then there is a problem. For foreign airlines, they reduce frequencies, they are cutting their expenses, their operational base is not in Nigeria. So, all they do is sell here and move their money. So, they know how to handle their problems. The Nigerian airlines’ home is here. Somebody needs sympathy for them and that sympathy should be from our own government, our NCAA and the Ministry. I see no reason why we cannot call the airlines together and find a way to make them strong. If I have my way, I will merge all of them into one without killing their individual identity. The total aircraft for Nigerian airlines today is less than thirty. South African Airways has 53 aircraft, Ethiopian airline has close to 100. We can bring our airlines together and do a very robust schedule for all their airlines put together.
I will draw a roster; the first airline for flight one; the next flight will be used as flight two.
If the first airline does not go for any reason, the second airline can go, while the third airline can be used as flight three. The schedule will be maintained. So, you will be competing to do your flight because you are on the schedule and I will do 1000 flights using all the aircraft. I will use technology. If they can grow their fleet, they will continue to grow it to make it efficient. If you are going to position the aeroplane, we must have a standby. If you cannot position it in 30 minutes to take off, then the airline on standby will move in.
The issue is policy. The NCAA just needs to ask for the airlines’ airworthy aircraft; we can have two strong competitors. This is to reduce competition and improve standard because NCAA will not take rubbish from any airline. That is what Imo Air is trying to do. Imo Air operated by Dana Air that is the concept. It is done all over the world. If you go to the United State that is what is done. American Airlines operated by different operators. American Airlines has robust schedule and it is not operated by American Airline aircraft but aircraft under the supervision of American Airline.
There are reports in the industry that the new management of Arik may have to dispose 70 percent of the workforce. What do you think will be the effect of this, considering the size of Arik?
If they do this, it will be suicide. I will make manpower 60 percent and money 40 percent. If you fire the Arik workers and you are thinking of a good airline tomorrow, you may be running into problems. Look at the workers in the industry, the people circulating are people that came out of most airlines that have gone under. Manpower is the key and if AMCON is serious about managing the airline, it should just retain manpower now. Keep the manpower because it is even the least costly. In Nigeria, each time there is crisis; manpower is the first they will cut, which is not supposed to be so. Manpower should be retained because we need it again and again. When we were planning the restructuring of the now defunct Nigerian Airways, we realised it had 6,000 workers but just one aircraft.
We said to ourselves, let us keep some of this 6,000. So we looked at all the assets of Nigeria Airways, which include the engines, the catering department, water department, maintenance department, amongst others. After we did the forensic audit, we knew that from all the assets, we should be able to get six brand new aircraft. We said we would call Boeing and Airbus and offer them all the assets in exchange for six aircraft.
We would put four for domestic and West Africa and two for international. Then Nigerian Airways would complement other indigenous airlines and we would not have too much competition in the domestic market. We then looked at the world average with regard to workforce per aircraft. In some countries, you need 50 to 100 workers per aircraft, in some airlines we have between 150 to 300 workers per aircraft.
So, we did an average and arrived at retaining 200 people per aircraft. Since we would be able to get six aircraft from the assets, that would give us 1,200 workers from the six aircraft. So, we bloated it and said we would take 2,000 out of the 6,000. So, our recommendation was to retain 2,000 out of 6,000 because we are going to start a new airline and we wanted to go to the Nigeria Stock Exchange where we would float a company for the Nigerian people and it would be the people’s airline. The owners would be qualified, chosen from the Nigerian people and serious managers would be in charge, home and abroad. A Nigerian is the Director of Engineering in American airline. The man manages 800 aeroplanes. Unfortunately, all we said was not implemented and we learnt that the airline was shut down. So, manpower is the key.
What is your take on the national carrier proposed by the Minister?
I am in haste and I want to see it quickly. I support it but I will not agree it be called a national carrier. It should be called another flag carrier. If the kind of consolidation I am suggesting for the existing ones happen, we will have two big players to face a British Airways. With the kind of players we have, we cannot face a British Airways or a Lufthansa. We cannot even compare with Ethiopia Airlines. Commercial discussion here is not a joke, while our people in the Ministry will go without the airline officials to negotiate.
What is the level of collaboration between private sector and government when it comes to issues that affect aviation?
Aviation Round Table is an NGO, which is made up of concerned people in the industry. The best we can do is to talk and send the communiqué to the government to see. We discuss the issues and recommend the best ways to go about the issues. The communiqué goes to the President, the Minister and the media. We have reflected on almost every issue in the last one year, it is left for government to implement some of the solutions we have proffered. What is driving us is to know how aviation can advance? What is making Emirates big? We are celebrating Ethiopian Airlines to Kaduna but where is our own to celebrate? This is very sad. Ethiopian came to run Air Nigeria for us and now Ethiopian is on top.
What do you think should be the average number of aircraft by Nigerian airlines in your own estimation?
In the Nigeria of my dream an operator must start with an equivalent of a South African Airways, which is 50 aircraft for one operator. We must do equal services to the countries of all the foreign airlines. If Lufthansa does three flights, I will do three to Germany. BA will do seven and I will do seven. You will not let them do 21 and ask me to do 21 because they already have the market. I am going to deliberately reduce their market and give it to my people. I must make sure that our airline has what it takes before I will go to Britain to negotiate. They will tell you Heathrow is not available, then, I will tell them Lagos is also not available.
You have to give my own people Heathrow Airport, London for me to give you Lagos. I won’t do open sky because I do not have the muscle yet. The muscles the foreign airlines have are stronger than mine. What kind of nationalism do I have? I went to negotiate air traffic in India for the defunct Bellview because Nigeria said we cannot do London and other lucrative routes, I wanted to prove that we can do it as we have aeroplanes and pilot to do it. We had Airbus 300 and A800, which was the biggest at the time, sold for $52million.
Those in the Ministry said if we go to London we would disgrace the (Nigerian) flag; they didn’t believe us.
So they asked if we could go to India and we agreed, but unknown to us, we didn’t know what they meant was for us to go and die. Stupidly, we took the business. When I went to negotiate Bilateral Air Service Agreement (BASA), the Indians I met were real experienced aviators. They said we should not come to India because they did not want to come to Nigeria. They held our aircraft at some point, which they found drugs, so they put all the bills down and they asked us to pay the bills if we want to come to their country. So, we agreed to settle the bills. They went on to tell us that inside our aircraft, they will give us 100 seats and we will be selling as Air India. Those are commercial negotiations.
How will you go and negotiate for Arik and you will not take Arik official with you? What kind of Ministry is this? When they take Arik officials, they tell them they are observers, they are not supposed to talk, we are the Ministry and we should talk. Is it the Ministry that will fly? Our industry is dead. They were selling Air India but it is inside my aeroplane. They were making money, doing nothing. That is commercial agreement. How can a Ministry go and do commercial agreement without an airline? Going forward, we need someone who understands the economics of the business. As the minister of Aviation, you should understand where the money is coming from.
There are reports in the industry saying foreign airlines are taking some of our best hands, meanwhile we have pilots with fewer experience that do not have anywhere else to go. Do you think it is a plus?
It is plus for us. What will a pilot do if there is no aeroplane to fly? If my aeroplane reduces from 30 to nine and my pilots are sitting down, they cannot fly. That was why they picketed Landover because pilots were rostered and there was no service for them. They are very delicate specie because if you want to hire them you have to be very careful, especially if you don’t have sufficient hour for them to fly. Let them go and get experience and the day I need them, I will go for them. The day we have strong two players with 50 aircraft each, then we will get there. Then, a Nigerian pilot will be cheaper; a Nigerian engineer will be cheaper. If a give a Nigerian pilot house in Ikeja, an expatriate will say he wants a house in Ikoyi, with security.