Demise of Nigeria (hot) Air

Perhaps, beyond the hoard of government officials that sat at the room at Farnborough International Airshow in London, on July 18, 2018, very few or no one investor believed in the ‘Nigeria Air’ project being sold to them by the minister of state for Aviation, Hadi Sirika. Perhaps, even the Nigerian delegation who were selling the project did not believe it will succeed in their hearts of hearts but for the estacodes, travel opportunities and contracts involved.

The plan was that Nigeria Air will begin operation in December 2018, with a first set of 5 airplanes that will later be expanded to 30 in five years. The initial start up cost was estimated at N3.168 billion ($8.8 million) and will increase to N108 billion ($300 million) over the next 3 years. In the Outline Business Case (OBC) approved by the Infrastructure Concession Regulatory Commission (ICRC) and disclosed to the public, the airline was to be run as a public private partnership (PPP) with 95 percent share pushed to private investors. The start-up capital of N3.2 billion to be provided by government will be part-payment for government’s 5 percent equity.

Hardly had the plan been unveiled than experts in the industry and on investments generally pooh-poohed the idea as unworkable. Their argument generally is that national airlines are capital intensive projects that are becoming quite unpopular and unattractive to investors; and that the Nigerian Air expenditure will either die a premature death or the government will end up funding the project entirely on its own.

For instance the Chairman of the Airlines Operators of Nigeria (AON), avers that “setting up of National Carrier will cost Nigeria at least N1.08 trillion ($3 billion). A single Boeing 777 as of today costs about N115.2 billion ($320 million)” “Also, the national carrier will need an additional cash injection of N180 billion ($500million) subsidy per year on average for the next 10 years to keep the airline afloat…”

Of course, there were those, who for purely sentimental reasons or for national pride, wanted the ‘Nigeria Air’ project to work.

Ordinarily, investors do not like investing in national carriers. Add Nigeria’s frequent policy summersaults, inconsistencies, notoriety for not honouring contracts and agreements, and the inclement operating environment for businesses, both local and foreign investors are most likely to ignore the government.

True to prediction, on September 19, the government accepted the inevitable and announced the indefinite suspension of the entire project. Although the government said it was suspended for ‘strategic reasons’, industry watchers believed the reason was due to the apathy of investors to the project and government’s inability to single-handedly fund the entire project, especially since the project was not budgeted for.

But not everyone is a loser. Over one billion naira had already gone into the project in the form of business case design, transaction advisory team and the design and unveiling of the logo.

We think it was a frivolous project that had no chance of succeeding at all. National carriers, the world over, with very few exceptions, are becoming unmanageable and huge cost centres for governments. Nigeria has no capacity or will to successfully manage an airline or attract investors to invest in one. If Nigeria wanted a national carrier sorely for prestige reasons, it could have adopted one of the airlines it owns through the Asset Management Corporation of Nigeria (AMCON) than setting one up afresh.

But while we complain and morn over the still birth of Nigeria (hot) Air, some officials may be rejoicing over the money spent and contracts awarded. Perhaps, that may even have been the motivation for the entire project.