Lagos State Government yesterday urged hoteliers and event centres’ owners to embrace the new tax payment system. The government made the call during the launch of a new regulation for the fiscalisation of the Hotel Occupancy and Restaurant Consumption Tax Law, and charged stakeholders in the hospitality industry to embrace the initiative designed to put…
By Louis Ibah
AS President of Aviation Round Table (ART), Mr. Gabriel Olowo heads a think-tank of professionals, investors and critics responsible for providing inputs into how the government runs the aviation sector.
Olowo, an economist and Country Director/CEO of Sabre Network Incorporated West Africa, a US aviation company spoke to Sunday Sun on why local airlines like Arik Air and Aero Contractors are struggling and are being taken over by the Asset Management Corporation of Nigeria (AMCON).
Do you see AMCON resuscitating Arik Air?
I started my aviation career with Lufthansa German Airlines in 1973 and rose to become the Assistant Manager before taking up appointment as Deputy General Manager with Varig Brazilian Airline, and later Executive Director with Bellview Airlines Limited. At present, I am the Country Director of Sabre Network Incorporated West Africa and President of the Aviation Round Table (ART).
First and also personally, I have no hope on AMCON being able to achieve what they say they will do in Arik Air, and I say this because their antecedents in other businesses have not convinced me they can. They took over Aero Contractors and I haven’t seen any improvement subsequently. They removed the CEO of Aero Contractors and sent him to the Nigerian Airspace Management Agency (NAMA); they brought in the Chief Pilot from Arik to go to Aero. All their postings have been haphazard, so I see no hope. But I am praying that AMCON does not kill Arik Air. The airline must not go under. It’s not about paying off the banks; rather it’s about an in-depth understanding of the cause of the problem with the airline. And it is about the foreign exchange allocation to the aviation industry, which has created a lot of problems for airline owners. If there is priority allocation of foreign exchange to some sectors, even religion, the aviation industry is a very sensitive sector for forex allocation too.
If the airline operator has borrowed hugely in forex to do his business and all of a sudden, the exchange rate of the naira to the dollar goes up as we recently witnessed, then there is bound to be problem. And we all know that aviation is a dollar-dominated business. A local airline like Arik charges passenger fares in naira, but when it is time to do maintenance or buy spares for the aircraft, all your expenses are in dollars. For foreign airlines, what they did to survive was that they reduced their flight frequencies into Nigeria and that way they are cutting their expenses. And you also know that their bigger operational bases are not in Nigeria. So, all they do is sell their tickets here and move their money away. So, they know how to handle their problems. But for Nigerian airlines, home is here. They need the sympathy of our government to survive.
But I see no reason why we cannot call the airlines together and find a way to make them strong. For instance, if I have my way, I will merge all the airlines in this country into one strong airline without killing their individual identity. The total aircraft for all the Nigerian airlines flying today is less than 30 and South African Airways has 53 aircrafts, Ethiopian airline has close to 100 aircrafts We can bring our airlines together and do a very robust schedule for all their aircraft put together. That’s one way to make them strong.
What do you think is responsible for the high mortality rate of domestic airlines?
Let me admit that about 30 percent of the failures of local airlines is due to their mismanagement by owners and lack of good corporate governance. However, 70 percent of the airline failures are caused by the government and the harsh economic environment that airlines operate in this country. I have been in Nigeria’s aviation sector since 1973 and I have seen that most airlines fail just within a space of ten years from the date of the commencement of their operations. So, there is a common factor responsible for their failure and it’s the government.
The Nigerian environment is very hostile for businesses 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, and they’re not helpful. They are supposed to measure the progress of airlines anually. They should be telling Nigerians the number of aircraft we have operating in the country in the last one year, the number of airlines that have increased their fleet over the years, their growth rate etc. If there is no growth, there can be no development. That is what the Aviation Ministry was set up to achieve. But you ask the question, where is our aviation ministry? How come Ethiopian Airlines overtook Nigeria? How come South Africa Airways overtook us? 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.
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 the banks, but there was no indication that the Minister of Aviation or the Nigerian Civil Aviation Authority (NCAA) made any step to save Arik or even Aero Contractors from being taken over by AMCON. Why is it so in the aviation industry? The airlines AMCON has taken over what success has it made on them? What’s the objective of taking them over? The job of the receiver manager is to assess your assets and liabilities and help you decide whether you will revive it or kill the company?
All over the world, when a business goes to receivership, the owner 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 behoves on our regulator to find a way to support our airlines having seen how and why they are dying. Richard Branson came here and failed with the Virgin Nigeria project, what are the factors responsible? Richard Branson is doing well in Australia, US and Europe, why did he fail in Nigeria? If 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 with agreements; they cancel agreements. What then is going to be the investor confidence?
How has the weak naira 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 will die? Belview survived for 14years. I told you that 30 percent are caused by owners’ arbitrariness while 70 per cent is by the government. Foreign exchange is one of the factors. It has always been like this in the last 40 years. In the early 1970s, I remember the exchange rate was N4 to $1. During the first coming of President Muhammadu Buhari, we faced the foreign exchange problem and airlines were running with what was called blended rate. Various banks offered different exchange rates. Foreign airlines faced that challenge too and 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 Airlines amongst others left. Since then, a big vacuum was created.
As far back as 1994, the exchange rate was around N22 to $1. Nigerian airlines were selling one-hour flight ticket for Lagos-Abuja or Lagos-Kano at N2, 200 and at the exchange rate of N22 that amounted to $100. Lagos-Abuja was $100 in 1994 and that was about 23 years ago. Today, exchange rate has moved from N22 to N450. Someone in government should raise an alarm over this. Do they want to kill the airlines? If I am in government, I will shut down the airline, because this is showing your desperation for cash flow. Exchange rate will never make you earn the right tariff if people will not be able to buy the ticket.
So, you find a situation where airlines in Nigeria now decide to reduce the price, meanwhile their cost is increasing. 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 or its equivalent in naira as airfare.
The recession, which peaked last year, adversely affected businesses in Nigeria, but it seems to have affected the airlines more.
Airlines borrowed a lot and their borrowing has dollar content and meanwhile they do all their sales in naira. So how can they get the foreign exchange content? You go to CBN for foreign exchange, and the CBN says $1 is N305, and it’s 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 and at a higher rate than the rate they sell their tickets. How do you want that airline to service its debts? Since he has started the business, the owner cannot kill the business, so he keeps on struggling and he gets to a level that all the creditors gang up against him.
What do you think of plans by AMCON to sack workers in Arik and Aero?
If they do this, it will be suicidal. For me, I will make manpower 60 percent priority and money 40 per cent. If you fire Arik workers and make them redundant and you are thinking of establishing a good airline tomorrow, you may be running into problems. Look at the workers in Nigeria’s aviation industry; the people circulating are people that came out of most of the airlines that have gone under. It costs a lot to train manpower in this industry. And manpower is 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 managing an airline. 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.
What’s your take on the proposed national carrier?
I am in haste and I want to see it quickly. I support it but I will not agree it should 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 local 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 local airline officials to negotiate. So, we need a flag carrier.