‘Harsh economic environment is the major factor behind airlines’ failures in Nigeria’
Recently the Nigeria Civil Aviation Authority disclosed that since year 2000 till date, the airlines in its register reduced from 150 to nine. Also the takeover of Arik Air by the Asset Management Corporation of Nigeria (AMCON) has made operators and stakeholders in the industry to finger poor regulations and harsh economic environment. In an interview with Ifeoma Okeke, Gabriel Olowo, the president and Chief Executive Officer, Sabre Network NMC West Africa and President of the Aviation Safety Round Table Initiative, speaks on how Nigeria’s harsh economic environment has contributed to over 70percent of domestic airlines’ failures.
Why do you think domestic airlines fail in Nigeria?
Thirty percent of the failures of the airlines are mismanagement of the owners and 70percent are from government and harsh economic environment. I have been in the sector since 1973 and I have seen the airlines failing within a space of ten years they started operations. So, there is a common factor. The business of Nigeria Airways was government business and the problem of corporate governance has always been there. The airline was supposed to be repackaged and become a new carrier but the then president said the government will not buy into the repackaging.
Can you give some instances to buttress your point that harsh economic environment killed some of the airlines in the past?
The second generation airlines such as Okada airline, Hak air, amongst others all meant well. Okada said they wanted to prove to the government that they can do the business and they brought a new Boeing 747 and that aircraft never flew but rot at the airport. Investment was wasted. He got a promise from the vice president then but we were looking at the airplane everyday positioned to do Lagos-London-Lagos routes. That was on the side of government and this was the same situation for Okada, Hak Air, amongst others. The Nigerian environment is very hostile for business and our civil servants in the aviation ministry are supposed to see to the advancement of that sector. They are supposed to measure their progress from year to year. They should tell us the number of aircraft in the last one year, the number of aircraft that have increased their fleet over the years and the growth rate, amongst others. So, if there is no growth, there can be no development. Why is it that after ten years, airlines die? Belview existed for just 14years. 30percent are caused by owners arbitrariness, for economic environment, there are a lot more factors. What is the aviation ministry set up to achieve? How come Ethiopian airline and South Africa airline took us over? What is that ministry doing?
What has been the impact of shortage of foreign exchange on the aviation sector?
Foreign exchange is one that is highly volatile. It has always been like this in the last forty years. Early 1970s, I remember the exchange rate was four naira to a dollar. During the first coming of President Buhari, we faced the foreign exchange problem and the airlines were running with what was called ‘blended rate’. Various banks offered different exchange rates. Foreign airlines were faced with that. About five airlines left Nigeria. I was working for a Brazilian airline then of which i was deputy general manager. The airline left this country because of foreign exchange. They had naira in Nigeria, they could not repatriate. Iberia left, United airline also joined amongst others. Since then a big vacuum was created.
How do assess the impact of the vacuum created by the exit of foreign airlines as a result of foreign exchange scarcity?
During Buhari’s first coming, there was trade with Brazil, we had pharmaceutical businesses from Brazil. There was huge economic boost between those two continents then. Those were the efforts of Buhari’s first coming that was wasted. Once aviation link is broken, economy is dead. We lost everything. As far back as 1994, exchange rate was around N22 to a dollar. Nigerian airlines were selling one hour in Jet for Lagos-Abuja or Lagos-Kano at N2,200 and at the exchange rate of N22, that amounted to 100dollars. Lagos-Abuja was 100dollar value in 1994, which was about 23 years ago. Today exchange rate has moved from N22 to N450. Today, an airline sold ticket for N16,000, which is amounting to 30dollars. Someone in government should raise alarm on whether they want to kill the airlines. If I am in government, I will shut down the airline, because this is showing you desperation for cash flow and they call it promotion. What kind of promotion? Exchange rate will never make you earn the right tariff because people will not be able to buy the ticket. So, you decide to reduce the price, meanwhile your cost is increasing. The 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 100dollars.
How true is the assertion that foreign exchange plays significant role in aviation sector?
The airlines borrow a lot and the borrowing has dollar content and you do all your sales in naira, how can you get the foreign exchange content? You go to the central bank and it says N305, which is not available. You spend so much on training, and maintenance with foreign exchange. 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 at a higher rate than the rate he sold the ticket. How do you want that airline to service his debts? Because operators have started, they cannot kill the business, so they keep on struggling and they get to a level that all the creditors gang up against them. The Asset Management Corporation of Nigeria (AMCON) have taken over, what success have you made on them? What is the objective of taking over? All over the world, when a business goes to receivership, he 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 something aside and say when the business picks up; they can attend to these 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 which are as a result of direct and indirect contribution.
What role did harsh business environment play in the premature exit of Richard Branson, the founder Virgin group, from Nigeria?
If Richard Branson came here and failed, what are the factors responsible? Richard Branson is doing well in Australia, in US and Europe, why did he fail in Nigeria? If Richard Branson failed in Nigeria, then do not blame Nigerian airlines at all. When Branson was leaving, he said Nigerian politicians are career destroyers. They do not follow through agreements. What is going to be the investor confidence? If the NCAA and the Ministry who is supposed to be government do what they are supposed to do; they will not allow AMCON take over Arik. They will ask AMCON their objective. An airline that reduced from 30 aircraft to nine under NCAA did not happen in just one day. They are supposed to monitor the economic health of airlines on a daily basis, the airline fill the forms and the NCAA has the right to make sure it is correct.