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By Chinelo Obogo [email protected]
Four years after the Minister of Aviation, Hadi Sirika, unveiled the name and logo of the proposed national carrier at the Farnborough International Airshow, London, Nigeria Air now has a December 2022 launch date.
Sirika had at a media event held on September 24, 2022, in Abuja, informed the public that at last, the Federal Government has selected Ethiopian Airlines (ET) Consortium as the preferred bidder for Nigeria Air.
The 76-year old Ethiopian Airlines is the largest aviation company in Africa and is reported to be one of the most profitable airlines in the world with about 20-25 per cent annual growth. In 2021/2022, it made a net profit of $937 million and generated $5 billion revenue.
Sirika told the gathering that ET scored 89 percent out of 100 as regards the technical bid and 15 out of 20 in respect of the financial bid. The minister said the Request for Proposal (RFP) under the Public Private Partnership (Act), governed by Infrastructure Concession Regulatory Commission (ICRC) regarding Nigeria Air was not yet completed.
As at the time this information was reeled out, what a lot of people didn’t realise was that Ethiopian Airlines was the only bidder that indicated interest in the project and the Federal Government didn’t have other options to choose from. It is also believed that President Muhammadu Buhari gave the approval for the deal to be finalised after he was said to have been convinced by the Minister that the Federal Government would not be making any monetary investments.
Implications of deal for domestic carriers
Though industry stakeholders have been upbeat about the possibility of Nigeria having its own national or flag carrier, eyebrows were raised when Sirika announced some of the modalities for the deal: Carrier would be driven by the private sector and the Nigerian government would retain only 5 per cent stake in it, while ET will have a 49 per cent stake and 46 per cent of the airline would be owned by Nigerian investors (MRS and SACHOL). The government also anticipates raising $250 million from the private sector, while Sirika said 20 aircraft with petrol engines had been ordered for training purposes, nine of which had been delivered.
Since the revelation that Ethiopian airline will have 49 percent stake, making it the largest shareholder, many industry experts have strongly expressed their discontent with the model, saying that having a competitor as a major shareholder in the country’s national carrier would completely annihilate Nigerian airlines from the onset.
It is also believed that the partnership would only help Ethiopian Airlines achieve its target to dominate the African market as it had formed similar agreements in eight other African countries. Experts say the deal will create cabotage and destroy the industry, citing the case of Virgin Nigeria which had a similar model that eventually fizzled out.
President of Aircraft Owners and Pilots Association of Nigeria, Alex Nwuba, who was commenting on the issue during the Global Business Report Programme on Arise TV, said that the partnership with Ethiopian Airline is not beneficial to Nigeria in any way, as according to him, the only reason why Ethiopian Airline is coming in is because it wants to dominate the African market and take advantage of the bilateral air service agreement between individual countries,
“The government already owns three airlines as we speak; Arik Air, NG Eagle and Aero Contractors and they could have converted any of those airlines into a national carrier and that would have overcome the excuse the government is having for Ethiopian Airlines being that if we started a national carrier today, it would have to operate for two years to fly internationally, which is the aim.
“The government also has the option to work with existing private airlines to establish operations for them. Airlines like Air Peace has equipped itself by buying long haul aircraft but it is not able to do that because the Bilateral Air Service Agreement (BASA) under which it would fly is not being pushed by the government for other countries to open up those oppourtunites for Nigerian airlines, whereas other airlines are coming into multiple airports. So, there is not much capacity for the domestic airlines to carry. We should develop our airlines from within, that is what people are expecting.
“There is no benefit for Ethiopian Airlines coming in. The only reason why the airline is coming in is because it wants to dominate the African market, it is not so much to dominate the African market to fly within Africa, they want take advantage of the BASA agreement between individual countries, that is why they are already in a number of countries providing air travel for international flights. I don’t think there would have been opposition if Ethiopian themselves said they would want to enter into the market without government support, then they would operate like any other airline.
“The problem here is that this is a government supported international airline. What would that airline do? Since its mission is to dominate the international airspace, what we would then do is to employ a red ocean strategy, make the domestic market a loss leader, then carry all of the international flights out of Nigeria under the BASA. When that happens and the private airlines are no longer making money, they would exist the market. There is nothing wrong with Ethiopian airline wishing to dominate the African airspace, what we are saying is that Nigeria as a country should aspire to do the same and build internal capacity through a national carrier that would be established via many mechanisms like the conversion of airlines that already exists to national carriers or conversion of private airlines to flag carriers or starting a new airline owned or operated by Nigerians.”
At a recent hearing by the House of Representatives in Abuja, the Chief Executive Officer of TopBrass Airline, Roland Iyayi, who spoke on behalf of AON said it is Ethiopian Airline that would benefit most from the Nigeria Air deal.
“Ethiopia will not help you to create an aviation hub when it has one in Addis Ababa. They are building a new airport. It will be very difficult to see how Ethiopia will commit to a national carrier in Nigeria that will be for the benefit of Nigerians. We dare to say, as AON, that if airplanes are brought into the Nigerian market, the first thing Ethiopia will do, as a strategy, is to do a fare cutting strategy for market penetration. When you cut the fares to compete with the local carriers, Ethiopia is awash with cash, they can afford to come to the market and project a six-month fare with domestic carriers.
“I can guarantee you that if they do that for six months, 90 per cent of Nigerian airlines will be out of business. Afterwards, they will now dominate the domestic market through their monopoly. What happens when they increase the fare? Ultimately, Ethiopia will fly international; it will be flying on Nigeria’s designated routes.”
Chairman of Air Peace and Vice-President of AON, Allen Onyema, supported Iyayi’s view, expressing concerns about the survival of Nigerian airlines if the deal with Ethiopian airline is allowed to stay.
Onyema said, “The manner Ethiopia is coming into the arrangement for Nigeria Air could cause existential problems for indigenous airlines. There is a need to carry domestic airlines along in the process. Let us come together as it is not too late to do so. If the kind of support given to international operators is extended to local operators, we would do better. We do not want Ethiopian Airlines to come in and ravage our country.”
Lack of transparency
Other contentious issues which experts say are unethical is the opacity and lack of transparency in the deal. Questions have been raised as to why MRS and SAHCOL, listed as private investors are yet to inform their shareholders via the capital market of their decision to invest in Nigeria Air.
During an online aviation town hall meeting titled, “Nigeria Air: The Solution to Nigeria’s Aviation Problems?” which was hosted by Avaero Capital Partners, industry experts said the current model is completely absurd and could plunge the aviation industry into further crisis if it is not stopped.
The Principal Manager, Avaero Capital, Sindy Foster, also queried the transparency and shareholding structure of Nigeria Air, while Head, Research, Zenith Travels, Olumide Ohunayo, said: “There are vested interests in what is being touted as a national carrier. We should not skew it in favour of some interests. If we must have the national carrier at all, then we should do in a manner that will be a level-playing field.”
The Chief Executive Officer, West Link Airlines, Capt. Ibrahim Mshelia, said Nigeria has the capacity to establish its own national carrier without a foreign airline and asked that the current deal be stopped.
“This proposed national carrier should be stopped. The entity called national carrier is just a game to get what is touted as a national carrier owned by individuals. We have the capacity to establish our airlines. We should not allow ET to do it. Let an Ethiopian investor do it. The deal should be cancelled. It is an insult to our sensibility. We can develop our aviation sector. Some people just want to form a private carrier under the name of a national carrier,” he said.
However, the president of the National Association of Aircraft and Pilot Engineers (NAAPE), Abednego Galadima, told Daily Sun that even though the fears of the AON are valid, the airlines should have been proactive enough to buy shares in the project as a good strategy which would enable them have a say while the bidding process was still open.
“The fears of the AON are valid but I feel it is a case of medicine after death. If this was advertised and they were privileged to know then, I would have thought that they would have been proactive to see how they can key into the project. I am not sure if they were denied the oppourtunity to invest as there is no evidence of that. I feel that they should have invested in the project as a strategy either as a body or as individuals.
“It is a business and everyone was asked to come and participate. Is it verifiable that it was advertised publicly for people to invest in? If the answer is yes, I would have thought they would have bought shares so that they can have a say in how the airline is run. But now that the deal has been done and a core investor has emerged, what do they want the government to do? The concern should be whether due process was followed in the entire process. If there was a breach in the process, then that should be a concern.
“When I became NAAPE president, our union have always insisted that we want due process to be followed. What Ethiopian airline is only doing is to protect its strategic interest in Africa. It is just a matter of understanding and I believe that our airlines can compete. I also believe that the Nigerian Civil Aviation Authority (NCAA) would not give undue advantage to the national carrier and every airline would be given a level playing field,” he said.
Sirika, defended the choice of Ethiopian Airlines, saying that he had held six meetings with Nigerian airlines on the need to buy shares in the new carrier but that his overtures were rebuffed.
The minister spoke virtually at the Aviation Breakfast Meeting which held on Thursday in Lagos, with the theme, “Aviation in Nigeria: What Next?”.
“I begged the airlines to own stakes in Nigeria but they declined. They were not interested, only for them to say things that we do not understand. The AON are scared that the new airline would lower fares. Any decrease or increase in fares would have to go through the NCAA and stakeholders. These fears are unfounded. I told them this airline would not be given preferential treatment.
“None of them can complain that I turned down their request. We are ever ready to support Nigerian airlines to Dubai, etc,” he said.
