Consolidation as key to a robust aviation industry

In the last 30 years, no fewer than 30 airlines in Nigeria have collapsed, a situation that has been a cause for serious concern to aviation stakeholders and professionals. Airlines in the country have consistently struggled to remain afloat in business. They, for instance, currently grapple with high cost of aviation fuel, custom duties on spares parts and aircraft importation, high insurance premium and leasing cost, managerial problems, among others.

The last eight months have witnessed a plethora of crisis in the sector, ranging from labour issues to lack of operational funds. Air Nigeria, the nation’s third largest commercial carrier, stopped operations over insolvency; Chanchangi Airlines fleet depleted from 10 to one aircraft; while First Nation Airways, a relatively new entrant which people relied upon at that time, operated for few months.

As at today, only seven indigenous airlines are afloat. These are Arik Air, Aero Airlines, Med-View Airline, Dana Air, IRS Airlines, Chanchangi Airlines and Overland Airways – with less than 70 fleets. Though current carriers are taking advantage of the growing demand and capacity shortage by adding services, the sector is dominated by Arik and Aero Airlines due to their large capacity.

Accenture, a global consulting firm, in a review of Nigeria’s aviation industry, said a combination of consolidation, public listing, provision of maintenance facilities and local refining of aviation fuel will reduce the risk of the airline business in Nigeria. Stakeholders in aviation industry have before now recommended consolidation as the antidote to the collapse of aviation business in the country.

Nigerian airlines are in the lower rung of the ladder in terms of revenue in Africa, and with the business climate shifting from the West to Africa, the continent’s carrier may be caught napping. A cursory look at the sector shows that Nigerian and African airlines may face serious challenges if they do not embrace merger and consolidation soon. The combined revenue of Africa’s three leading airlines – Ethiopian Airlines, Kenya Airways and South African Airways – is a third of annual revenue of Emirates Airlines, from Dubai, United Arab Emirates. African airlines’ share of the global market is a paltry 4 percent.

Across the globe, most airlines are merging and consolidating their operations in a bid to remain in business. For instance, British Airways formed an alliance with Spain carrier, Iberia Airlines, which brought their fleet to 398. Other mergers are Air France/KLM (586); United Airlines/America Airlines (699); Delta Air Lines/Northwest (over 700); among others.

In Africa, Kenya Airways has 49 percent of Precision Air; in Ethiopian (ET)/ASKY, ET has 40 percent stake in ASKY; while in Ethiopian/Air Malawi, ET has 49 percent stake in Air Malawi. In Nigeria, on the other hand, the airlines are yet to key into this trend that will save many jobs and companies from crashing.

We believe that mergers would enable growth, increase market shares, value to customers, credit-worthiness for airlines, as well as enhance market perception of the airlines.