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Chinelo Obogo
Obi Mbanuzo is the Chief Operating Officer of Dana Air, one of Nigeria’s leading airlines. He speaks on some of government policies hindering the growth of Nigeria’s aviation sector, and listed taxation, cost of jet fuel and over- regulation of the industry by government. He also proffers solutions to the challenges. He also gave reasons why many domestic operators closed shop adding that without sound economic policies, the sector may not achieve its full potential.
Excerpts:
How AON is taking NAMA’s 30-days ultimatum to its debtors
We discussed the matter at out recent meeting but not as a very urgent issue because the fact remains that airlines and most businesses will always owe service providers. We do not pay cash as things happen. Before we fly, a provider can come and fill the aircraft with fuel without the managers paying cash at that moment. Most airlines operate with the marketers maybe on a seven to 10 -day notice, so in essence, we owe most service providers, whether it is NAMA or petroleum marketers or FAAN that collects landing charges. So when service providers make such statements, airlines don’t take it as a very urgent issue unless there is a specific operator or airport that is really delinquent in payment.
For instance, in Dana, we have payment plans with all our service providers and when airline operators met, it was not because of NAMA’s notice, it was the regular quarterly meeting that the domestic operators usually have. Most times, the notices are usually targeted at certain private or state government owned airports. Every airline is indebted at different levels. Someone might owe N5,000 and another person will owe N20,000 and another N100,000, so where does NAMA strike a balance? At Dana Air, we are not worried about that because we are in constant dialogue with them all the time and we always find a solution.
The Federal Government’s Executive Order exempting airlines from VAT yet to be gazetted
That is one of the issues we discussed at the meeting we just had. Sometime last year, based on the discussions airlines had with the government, we believe that the discussion held at the Federal Executive Council (FEC) level to exempt domestic operators from paying VAT. But after that was done, there had to be further action taken on the side of the Ministry of Aviation and Ministry of Justice to gazette it and to enable the Federal Inland Revenue Service have a backing to implement it. So, we are still waiting for that final step to be taken.
There is no VAT charged on any mode of transportation in Nigeria except air transport. When you buy your bus, ferry or train ticket, or pay for Okada, there is no tax added to it. The bad thing about this is that international operators are exempt from paying VAT. In fact, there is an agreement that IATA, the world
body for airlines, has made with all countries worldwide and that is why even if you buy a ticket from here to Cameroun, your ticket won’t have tax on it. But when you buy a ticket from here to Maiduguri, the tax will be reflected. So, the question is why is tax system so unfair to local operators? This is one of the reasons the airlines have been working with the government to try and remove it because it is not charged anywhere in the world.
Are we expecting any increase in fares?
In line with the increase in VAT to 7.5 percent in the new Finance Bill, every airline will make its own judgment call. Some airlines may absorb it but for Dana Air, we have our fares in line with the new VAT and we have added it to the ticket which is one of the reasons we are telling the government that this isn’t good. Our pricing based on the new Finance Bill increased very slightly and took effective on February 1 and we have different categories. So, basically, we have taken it into account in our fare structure because if the executive order removing VAT from airfares had been implemented, the price of tickets wouldn’t have increased to that level.
Every airline makes choices on what to do. We have different fare levels and they depend on many variables like the day of the week the ticket was booked and how busy the route is, that is why we always advise passengers to buy their tickets as early as possible so they can get the cheapest prices. If passengers buy their tickets very early, they are likely not going to feel the impact of the increase.
Routes expansion after acquisition of two new planes
Definitely, we are looking at opening up the market. Some places where we used to go once a day might now get a twice a day flight like Lagos, Abuja and Port Harcourt.
The Minister of Aviation, Hadi Sirika, recently said on air that our domestic airlines do not have the capacity to compete with foreign operators. He said that opening up more routes for foreign airlines to operate does not stop domestic operators from increasing their market share.
The minister is an aviator and those who follow history and understand what happened in the past would know that the airline operators have always lobbied to put a professional on the job, so, we are happy that he is one of us and he understands where it pinches us. But I also have issue with some of the things he said. Nigerian airlines can and do compete when the field is level. He mentioned multiple designations but what the government would not say is that the trader in Enugu would not want to come to Lagos before he travels to China to buy his goods. A foreign airline can come and tell the government to give it permission to fly directly to Enugu and the government would be looking at how to make it easier for the traders, so I clearly understand government’s thinking.
How domestic airline can to fly from Enugu to China
You would find out that those airlines given those designations are struggling to get passengers and that is why an Air France will fly Paris, Abuja, Port Harcourt because flying Paris-Port Harcourt by itself is not profitable, so they are clubbing routes together to make it viable for them. Turkish will want to do Istanbul-Abuja-Port Harcourt and the government tells them that they can’t club routes, that means that they would have to bring a small aircraft if they are not allowed to club.
If you look at history, you would realise that Turkish started bringing in 737 which recently created a scenario where people were coming without their baggage. People were asking why they would bring a smaller aircraft but it is because a larger aircraft would not have been viable for them.
For instance, Air Peace chairman has been shouting about how difficult it was for him to go into Ivory Coast. He went in there and found out that the Ivoirians were charging $10,000 as landing fees but what does our government do for us? We are supposed to reciprocate and make it difficult for them as well. Nigeria is the most powerful country in West Africa and our domestic airlines are more powerful than any airline you can think of in West Africa. Ethiopian is a world class airline but it has history. It is a government owned airline but the government does not intervene. Nigerian airlines are ready to compete with any airline in West Africa anytime.
Sirika also pointed out that most domestic airlines have very few aircraft in their fleet which are usually old that is why they can’t compete.
Aircraft are delicate machines, the older it gets, the more expensive the spare parts get. No airline advertises safety because safety is a given. The question I would like to ask is that why do Nigerian airlines do that as he said? Is there something wrong with our financing? If you go to other countries, airlines have access to low interest funds long term. The Emirates of this world do not purchase 100 percent of their aircraft and they have over 200 airplanes. Out of this number, maybe about half are owned by Emirates and the others are gotten through finance lease and after a certain time, they hand them over the aviator. But we do not have such facility available to us here and it is not our fault. As an airline COO, if I walk into a bank and I am given a 20-year facility with five percent interest, I would be very glad and would immediately go and get a brand new plane and fly for 10 years then hand it back as it happens everywhere in the world.
We want the government to make it easier for us to do business in areas they can directly affect. For example, I know that last year, the minister was talking about launching a leasing company to make it easier for airlines to get loans. A new airplane uses less fuel, needs less maintenance and has better CO2 emissions for the environment and passenger comfort. So why do we not get those? It is because of some of the factors I stated.
Aviation minister alleging many domestic operators lack competence to run the business. Do you agree with him?
I would say no and I would give examples. I worked in Virgin Atlantic Airways, which is one of UK’s major airlines and the founder, Sir Richard Branson was a record producer before he started the airline. But what did he do? He got professionals to run it. So, the fact that he wasn’t an aviator didn’t hinder the business from doing well.
Another factor that affects airlines is the economic environment in the country where the airline is operating. The fact that someone in Nigeria doesn’t know anything about an airline doesn’t mean he can’t set up one. There are factors that hinder growth. In Nigeria, do we get professionals and allow them to run the business? Or do we want to keep running it from our high chair?
The second factor is the environment. What is the regulatory environment like? One of the issues that we haven’t discussed is the issue of a national carrier. I was at a place where we were discussing if the government of Nigeria can give birth to a national carrier and totally hands off. Business men would want to put their money where they think that they will get returns. Sometimes the failure of an airline may be because of the personalities controlling it and sometimes, it may be because of external factors like regulatory interference. One or two airlines in this country started out well and if one or two people in the government don’t like you, they would just shut them down.
What are your fears about a national carrier?
Most countries do not have national carriers, what they have are flag carriers. If we have national carrier like we had Nigerian Airways, the domestic carriers would want to know if there would be a level playing field. Would there be benefits accruing to the national carrier that would be at a disadvantage to others? We don’t know yet, so let is watch and see.
What should we expect from Dana for 2020?
We are still focused on our domestic operations. International long hauls like here to Ghana, requires a very robust domestic market. This year, we are launching two new aircraft and we would spend the next two years in strengthening and expanding our domestic routes. Many people are wondering why we haven’t started flying to states like Jos. But if you look at the passengers per daily trip, how many people travel from Lagos to Jos daily? Many airlines will usually ask; where is there enough demand and supply? If one airline flies to Jos and there is only a minimum of 60 passengers on a daily basis, it means even with a small aircraft, we would fly to Jos half full and the other airline will also fly half full and both of us will suffer losses.
