Continuous debate over merger of domestic airlines
Mon, 4 Jun, 2012
One thing that has been giving aviation stakeholders sleepless nights is the dwindling state of Nigeria’s domestic airlines which has made if very difficult for them to break even as a result of the economic climate where they operate.
Based on this reason often time stakeholders who are bothered by the challenges the domestic airlines are facing have put forward the idea of merger between airlines in the country so that they can withstand the challenge posed by international airlines operating into the country.
However, merger itself is not a problem but how to merge them together and whether process will consolidate their positions.
The suggestion by aviation stakeholders for domestic airlines to merger may not be on connected with successful mergers in the banking and insurance sectors in 2006 and 2007.At that time Nigerian saw banks merging with other banks to shore up their revenue base, while some banks acquired others to become a bigger bank.
Though this discussion on domestic airline has been on for long, the debate re-echoed again at an aviation meeting organised by the League of Airports and Aviation Correspondents (LAAC).
At the August gathering stakeholders, professionals, aviation analysts contributed to the domestic airlines merger debate.
The matter was further made worse when the Director of Airworthiness and Safety Standards, NCAA, Mr. Patrick Ekunwe, who represented the Director General of the regulatory body, Dr Harold Demuren, disclosed that all the airplanes in the fleets of all the Nigerian airlines put together do not equal those of either Easy Jet or Jet Blue, all low cost carriers in Europe.
“These are small operators in Europe and the United States respectively,” he stated.
Ekunwe argued that if a policy that makes it mandatory to have at least 50 aircraft before operating an airline were enacted, the operators would be forced to come together.
According to him, “We want the airlines to come together. The airlines should be magnetized. Air France-KLM jointly operates 27 weekly frequencies into Nigeria. If you don’t have plenty aircraft, there is no way you can develop a very good schedule. You know that an aircraft could be grounded for maintenance if you don’t have a good safety record”
Taking the argument from there, the Managing Director of Belujane Konzult and former General Manager, Public Affairs, liquidated Nigeria Airways Limited (NAL), Mr. Chris Aligbe, while contributing to the issue pointed out that the problems with the airlines not progressing and not considering merging was the owner-manager syndrome which has pervaded the industry over the years.
He further argued that for Nigeria domestic airlines to survive they must be delivered from the hiccup of owner manager syndrome m, because failure by the operators to look inwards has made it impossible for the airlines to record accelerated growth and development of the industry.
The Belujane Konzult boss also threw his weight behind the idea of a consolidation, adding that it has become imperative, as the need for government to by way of legislation and policy create a platform that will bring about the consolidation of domestic carriers.
He posited that examples abound all over the world on how government policy has accelerated the growth and sustenance of the airline industry.
On his part, President of Sabre Networks Nigeria, Mr. Gabriel Olowo appealed to the Federal Government to make legislation that would force airlines to merge as their current strength cannot aid them in the coming years.
Olowo argued that the right policy should be in place, through government supported consolidation and that this would help domestic airline operators pull their aircraft together to form a strong carrier.
He said that when this happens, there will be sufficient airplanes for strong carriers to emerge, through what he described as “Magnet approach”.
Olowo further posited that if the Federal Government starts by putting in place a policy which states that airlines needed at least 30 aircraft before they can operate in Nigeria, it would make the serious ones come together at all cost to survive.
His presentation was not limited to how the creation of a level playing field, will bring about four strong carriers out of the 22 carriers on the list of the Nigerian Civil Aviation Authority (NCAA), as continuous injection of funds into the carriers without proper consolidation will ruin the industry.
The Sabre boss lamented the rate at which domestic airlines were going with their businesses, adding that they were heading towards doom, just as he said that stronger airlines in the world have begun to merge forming a truly global business because the industry cannot survive long with all the impediments.
On the way forward, Olowo said the NCAA has an important role to play to by driving the process, suggesting that the regulatory body can start by developing regulations that require airlines to have a minimum of five aircraft before getting an Air Operator Certificate (AOC) with a further requirement to meet a scheduled growth level of 10, 15 or 20 aircraft every five years.
He also suggested that the NCAA just like the Central Bank of Nigeria(CBN),who has the power to fire managing directors of banks, should be empowered by law regulate the excesses of managing directors of defaulting airlines to ensure safety, discipline and professionalism.
An Ethiopian aviation consultant, Zemedeneh Negatu in a gathering in Lagos put up a module on how airlines can survive, through mergers but he stated that airlines especially in Nigeria are reluctant.
According to him, “Look at what is happening in the global trend; this past year British Airways and Iberia merged, BA is the second or third largest airline in the world, multi-billion dollar revenue and they just woke up and said we are too small to compete globally when they are already providing billions of dollars in revenue. Last year Continental and United Airlines merged again, and they said they are too small even as they are making billions of dollars, and they say we are too small to compete.”
He continued, “So bring that to Africa and as I showed you, the three biggest airlines in Africa are one-third the size of an Emirates Airlines. One Emirates Airline! It is very difficult; you know how much an aircraft cost, a 777 cost, it cost more than a $100million. How could a small airline compete if safety gets compromised, quality gets compromised and the network is bad? So you understand what I mean. Where is the global trend?
He said that Africa airlines need to collaborate and start with code sharing but that it is capital intensive, adding that Ethiopian airlines for example has reached a critical mass and that the plan of the airline is to have 90 aircraft in its fleet in the next few years.
In his words, “We need the collaboration, you can start with code sharing but eventually, it is a capital-intensive business. Ethiopian Airlines has reached a critical mass and the new plan is to have 90 aircraft in the next few years, they have like 45 jets on order and they have 45 already. So they are reaching a critical mass where they will be a major player but Nigeria as big as Nigeria is people are reluctant to collaborate. But these are facts staring them in the face and maybe they will say you know what let’s do this because it is one way of ensuring survival.”
Chief Executive Officer, Mish Aviation Services Limited, Captain Ibrahim Mshelia, however disagreed with other stakeholders that merge between airlines will rescue the airlines from their current situation but instead opined that merger will be a disaster in Nigeria.
According to him, “I believe even a Government owned national carrier is 100 times easier to create than to merge Arik and Aero for instance or Air Nigeria and Arik. Can you begin to see the joke as I mention the examples? Merger is capital no!!! And will never solve or grow any airlines in Nigeria. It will only kill them”
Mshelia pointed out that one of the major problem in the sector is that some so called professionals are misleading the government.
“Name one airline in Nigeria today that is doing well enough without struggling against all forms of negative business issues; strangulating government policies, debt profile, high interest rates, poor staffing, bad regulatory agency, bad management principles , heavy unnecessary air traffic delays and exorbitant charges” he lamented.
“If you merge 2 or 3 sick people, it will only mean 3 people who had one different type of decease are now ending up with 3 diseases each. We have a cultural problem that will not allow for merger. It cannot work in Nigeria otherwise soon; even the epileptic service we have will disappear. Imagine a nation as Nigeria without at least manageable air transportation.”
A Principal staff of the Nigerian Airspace Management Agency (NAMA) Engr. Muyiwa Adegorite, who represented the Managing Director of the NAMA, Engr. Nnamdi Udoh, while contributing to the debate, said that the multiplicity of unviable airlines would not take the aviation industry in the country far.
“If you see mega carriers like KLM and Air France working together, they have the market. We have to look in that direction. It is better you own one percent of a billion naira than have 100 per cent of N100, 000.”