Africa: The state of Aviation in Nigeria, Air Peace, MRO and Airline Profitability issues
Acquiring a commercial airplane costs airlines a fortune. More toxic is the N612 million a local airline must pay for its maintenance every 18 months. WOLE OYEBADE writes.
Deregulation of the local air travel industry in the 1980s opened a new chapter in Nigerian aviation business, and most notable is the birth of the free entry and exit for all-comers.
Unlike when Nigeria Airways, with elephant-crested airplanes ruled the airspace, the new era saw the emergence of several airlines, with incredible fleet expansion rate such as is unknown to emerging airlines around the world.
They shared common trend: the euphoria of a new airline and its ego trip only lasted for a year. By the second year, harsh realities began to set in. One after the other and before the managers knew it, the airplanes were due for routine maintenance overseas. With the corresponding bills came shockwaves and sleepless nights. Aviation business is not a tea party after all.
“Some of the repairs were even more than the cost of the airplanes,” an ex-CEO offered, because the assets were initially purchased at an auction rate typical of buy one, get one free.
So, aircraft started leaving for maintenance course but never return. Others simply retired to local airports’ graveyard within two years of their acquisition.
And so were the airlines that bought the liabilities too. By the fourth or fifth anniversary, many of the airlines were already history. It was the era of easy come, easy go.
The fact is that scheduled maintenance programmes in aviation industry spare no cost at all. Bear in mind that aviation is dollar-denominated, and where $1 equals 306 local currency, the cost of maintenance in naira equivalence would cost an arm and a leg.
Indeed, the mandatory maintenance programme, ranging from minor to complex checks, could per session, and on an aircraft, cost at least $2 million (N612 million) – a financial blowout in the operations of struggling local airlines, with multiple planes in its fleet.
And due to the huge financial burden, a total of 91 commercial aircraft operated by eight surviving airlines have lately reduced to about 67 serviceable planes.
Whereas the financial burden is avoidable by stakeholders’ estimates, overseas repairs continue to drain the lean purse of local operators lowering their capacity, revenue and chances of survival.
A must-have facility
Specifically, a maintenance facility, otherwise known as Maintenance, Repair and Overhaul (MRO) organisation, is an essential requirement in civil aviation, to ensure aircraft are top-notch, airworthy for passengers and cargo without the fear of falling off the sky.
Aircraft maintenance checks are periodic inspections that have to be done on all commercial/civil aircraft after a certain amount of time or usage. Checks range from A to D.
A and B checks are minor routine checks that a team of engineers do perform at an airline’s hanger. C and D checks are more complex demanding expertise at top-range facilities.
For a commercial jet, a C-check is mandatory every 18 months according to the Nigerian Civil Aviation Regulations. It requires the inspection of most of the aircraft’s components and some replaced in a maintenance programme lasting an average of two weeks. D-check is the complete overhaul of an aircraft that may be done every six years.
Some local airlines currently do A and some part of B checks locally. They all fly the aircraft to Europe or few African countries for C-check that has been described as the most burdensome on the overhead of airlines.
Average cost of a C-check is $2million (N612million) or more depending on number of components that need replacement during the repair exercise. This, therefore, explains why aircraft maintenance alone cost about 30 per cent of operating cost of most airlines.
Once upon a time…
The Guardian learnt that back in the days of Nigerian Airways, a national carrier owned and operated by the Federal Government until 2003, all the checks were done locally.
A member of the engineering team, Ayuba Kyari, recalled that the Lagos hangar conducted C-checks on Boeing 737 aircraft type and D-check on Airbus A310 in the fleet of 30 aircraft paraded by the defunct airline. The MRO facility was liquidated with the airline in 2004.
Arik Air acquired the assets of the national carrier at an undisclosed fee, though allegedly at a giveaway price. Part of the deal was to resuscitate the MRO by 2016, after about 10 years of operations.
By 2016, Arik was at the summit of inefficiency, mismanagement and high indebtedness just like the twilight of Nigeria Airways.
With signs of collapse imminent, the Asset Management Company of Nigeria (AMCON), a special purpose vehicle of the Federal Government for the recovery of bad debts, stepped in, sacked the managers and appointed a receiver management to stabilise Arik Air. About two years since the takeover, there is no case yet for an MRO.
Capt. Dung Rwang Pam recalled that the then MRO of Nigerian Airways was a 1977 initiative of the Federal Government to cater for the burgeoning aviation industry.
It was quite unfortunate that 40 years later, despite “bogus contracts in millions of dollars”, Pam said, the facility does not exist nor is it duplicated.
“Instead, spirited efforts by private individuals, corporations and state governments have elicited no support from the Federal Government,” he said.
Unbearable cost of going overseas
Today, most local airlines in commercial operations fly to France, Germany, Lithuania, South Africa, Kenya and Ethiopia among others to do C-checks. Arik Air, for instance, currently patronises a MRO facility in Lithuania, a country of 2.8 million population.
Currently, eight airlines operate in the local airspace in Nigeria with at least 91 aircraft in total. Air Peace has over 30 aircraft. Arik Air, in its heydays had 28, with about nine now serviceable. Aero Contractors has 10, with about five currently in use. Azman Air and Med-View have four apiece. Dana Air, five, Max Air three and Overland Airways has seven airplanes. In total, the airlines spend N41 billion on C-checks alone every 18 months.
For reasons not unconnected with the huge cost of maintenance, only 67 out of the 91 are in operations. The Guardian learnt that the inability of two domestic carriers to pay the bills has left some of their aircraft stranded overseas like it happened in the past.
Air Peace airlines has the lion share of the total fleet size in the country. Ditto for its over 30 per cent share of 10.1 million local air traffic recorded in 2017, according to Nigerian Civil Aviation Authority’s (NCAA) harmonised figures released in June 2018.
By the traffic estimates, Air Peace perhaps made over one-third (N31.2 billion) out of the N93.6 billion the airlines generated from ticket sales in 2017.
With about 30 aircraft operating both local and regional routes, it implies that Air Peace spends N18.4 billion every one-and-a-half year, which is over 60 per cent of its revenue in 2017.
Given other critical obligations like multiple charges, fuel, staff salary and other forms of maintenance, it is easier to see why airlines hardly last more than five years in Nigeria.
The spokesperson of the airlines, Chris Iwarah, said notwithstanding the maintenance cost burden, safety is their priority and the airlines would stop at nothing to give their customers the best.
Iwarah reiterated that the aircraft were not only maintained at some of the best facilities in the world, but the airline also has a reputation for spending millions of dollars on each C-check exercise to ensure the assets were in top shape because of the premium it placed on the lives of its customers and crew.
The carrier added that in line with its strict maintenance and safety standards, it had retained the services of BCT Aviation of the United Kingdom for its routine maintenance programme at its base in Lagos, 24 hours a day throughout the year.
Airplanes and dangerous delays
Indeed, there are several reasons airlines fail in Nigeria and one of them is the poor utilisation of capacity. This is either caused by old inefficient aircraft or because of multiple delays that slow airplane operations down.
Managers of airlines around the world understand the economics of maintenance programme, hence, the policy to keep the fleet young. For instance, carriers like Singapore and Emirates maintain fleets with airplanes that are not older than five years on the average.
An instructor at the Nigerian College of Aviation Technology (NCAT), Zaria, Ibrahim Michael Hirse, explained that the logic is not different from that of automobiles. The newer it is, the cheaper its maintenance cost.
So, by the fifth year, when major maintenance is about due and value cost still high, the aircraft are traded off to airlines in second and third world countries like ours.
Some of the aircraft resume to flight delays due to poor route planning. The fact sheet of the Nigeria Civil Aviation Authority (NCAA) showed an average of three out of every four flights was delayed in 2017. That is, out of the 48,319 flights operated by eight airlines, 30,214 were late, while 872 were cancelled.
The breakdown shows that Aero Contractors has 66.5 per cent delay rate, Arik Air 61.8 per cent, Azman Air 66.4 per cent, Dana Air 64.2 per cent, Med-View Airlines PLC 71 per cent, Overland 70.1 per cent, First Nation 35.8 per cent and Air Peace 58.2 per cent.
In the first six months alone, no fewer than 19,323 delays were recorded by NCAA. According to data released recently in Lagos, domestic airlines posted 16,880 delays while their foreign counterparts accounted for 2,443 issues during the period under review. In local operations alone, it means over 90 flights delayed per day.
A retired pilot and former Managing Director of the defunct Virgin Nigeria, Capt. Dapo Olumide, reiterated recently that aircraft are meant to be flying and not parked at the apron. Each time an airline takes the latter option, it is losing money, while paying higher for maintenance.
Olumide said the operating airlines really don’t understand the full implication of aircraft maintenance, which is why a lot of them park the airplanes when it is time to do C-checks.
He explains: “A Boeing 737 aircraft, the stable aircraft in the industry right now, has a flight-cycle flight-hour ratio, (which is, how many hours you fly it in relation to when you start the engine and switched it off at the other end) of 1.5 hours. Which means if you fly your aircraft for one and a half hours, your maintenance reserve cost, when C-check is due, is about $500 per hour. But when your flight-cycle flight-hour ratio drops to 0.6 or 40 minutes flight, your maintenance reserve cost goes up from $500 to almost $1000 per hour. So, your cost has doubled.
“So, while we fly 737 on 50 minutes routes or delaying them most times, we are not utilising them properly and your maintenance cost is doubled compared to what your competitors are paying.”
The struggle for homegrown solution
Both private and public efforts to revive the essential facility in Nigeria lately have not yielded the desired result. The Akwa Ibom’s state government about two years ago completed its state-of-the-art MRO complex with the hope that both local and foreign investors will be attracted to complement it with more capital-intensive equipment and expertise. None has been seen till date and the hangar lies fallow, The Guardian learnt.
However, Aero Contractors, early 2018, made a breakthrough in aircraft routine maintenance programme for Boeing 737 classics types.
The facility, domiciled at the Lagos airport, cuts the cost of overseas repairs by half. At the official opening a year ago, the organisation already had aircraft on maintenance queue to last its engineers the entire year. It was though a small facility compared to the huge demand, the effort again demonstrated that such investments are not beyond Nigeria, where there is a will.
The Managing Director of the Nigerian Airspace Management Agency (NAMA), Capt. Fola Akinkuotu, was once of the view that MROs are stand-alone businesses and often independent of airlines globally.
Akinkuotu said the onus is, therefore, on the public and private sectors to invest in the profit-making venture for a win-win regime for the investors, airlines and the economy.
Akinkuotu, a former Managing Director of Aero Contractors, added that the local MRO is a must for a vibrant, competitive aviation industry, yet not beyond the country.
He estimated that Nigeria could have a functional MRO at the cost of $37 million (N11.3billion), which is less than one-third of what the airlines are spending on C-checks every 18 months.
He said given the readily available market in Nigeria and West African region, a loan of $37 million at about nine per cent interest rate is payable in less than 10 years. Should the facility make $6.7 million (N2 billion) a year, it will have $60.3 million (N18.4 billion) in just nine years of operations.
The President of the National Association of Nigerian Travel Agencies (NANTA), Bankole Bernard, said the Federal Government must put proper policies in place that will allow local airlines to grow, and one of it should prioritise homegrown MRO facilities.
Bankole said no airlines could survive with fuel and sundry charges taking 60 per cent of revenue, while overseas maintenance and overhead compete for 40 per cent balance.
“That way, airlines are doomed to go bankrupt. What policies have we put in place to support the local carriers? It all boils down to our policies. How far have we gone with MROs, a critical facility? What developments do we have now or aspiring for? We must be able to answer all these.
“We need to get our MRO plans off the ground and also increase the level of infrastructure at our airports. Let us give support to our local carriers with some forms of concession. It does not have to be bailout funds but basic concessions that give them comparative advantage over other foreign airlines that operate in our economy,” he said.
Indeed, Nigeria is not alone in the critical infrastructure deficit. None of the West African countries has a MRO, conceding the MRO hubs to Johannesburg, Nairobi and Addis Ababa, Ethiopia – all of which have national carriers that are dependent on Nigerian market for traffic.
The dominant MRO players on the continent can be divided into African and non-African operators. Local MRO providers include South African Airways Technical (SAAT), Ethiopian Airlines Maintenance and Engineering, Kenya Airways Technical, Air Algerie Technics and Tunisair Technics.
Non-African operators include Air France Industries KLM Engineering & Maintenance (AFI KLM E&M), Direct Maintenance and Sabena Technics. There are also joint ventures such as Air France Industries’ and Royal Air Maroc’s Aerotechnic Industries.
Experts are unanimous that the MRO market is fast enlarging, though with it too is the politics.
Aviation Week’s MRO Forecast estimates that airlines in Africa spent about $2.5 billion on MRO in 2016. The spending is expected to be more with the influx of new aircraft. In other words, the MRO market is fast expanding.
Former Acting CEO of South African Airways, Musa Zwane, puts the current number of airliners in Africa at roughly 1,300, with approximately 1,000 new aircraft deliveries due over the next 20 years.
The politics is that engine and component services are still dominated by the original equipment manufacturers (OEM), which are fast becoming an ever-bigger threat to MROs as they enter the aftermarket with total care and support packages.
Zwane, however, believes partnerships are the solution to many of Africa’s MRO problems.
He said: “Joint ventures and collaborations will certainly provide this continent with the much-needed economies of scale. Partnering through aviation can lead to economic growth for this entire continent. Now is the time for African aviation to take the lead in propelling this region as an emerging economy.”
By Wole Oyebade