Airlines’ low lifespan points to poor management, maintenance cost
Poor business management by domestic airline operators and heavy cost of aircraft maintenance have been identified as reasons airlines have lifespan below 10 years in Nigeria.
BusinessDay’s checks show that since the establishment of the Nigeria Civil Aviation Authority (NCAA) in 2000, domestic airlines on the register of the authority have reduced from 150 to eight today.
Some of the airlines that show prospects but went under within a space of 10 years include the Nigeria Airways Limited, Okada Air Limited, Oriental Airlines Limited, Pan Africa Airlines, Chanchangi Airlines Limited, Sosoliso, Allied Air Limited, Bellview Airlines, Hak Air Limited, and Skyline Limited, among others.
Airline operators have been accused of diverting funds realised from ticket sales to other businesses, and when aircraft maintenance is due, they struggle to pay the cost, which range from $600,000 to $1.5 million, depending on the type and age of the aircraft.
John Ojikutu, member of aviation industry think tank group, Aviation Round Table (ART) and chief executive of Centurion Securities, told BusinessDay that poor management structure killed airline business in Nigeria.
“Airline operators that flew the Economic Community of West African States Monitoring Group, (ECOMOG) flights made more than 2000 flights to Liberia and Sierra Leone. For the smallest aircraft BAC 1-11, government was paying $50,000 per flight, for Boeing 727 government paid $80,000, for Boeing 707, $100,000, and $120,000for a Boeing 747.
“Government never owed these airlines any more. For all these flights, the airlines were not paying landing and parking fees but the airlines fizzled away,” Ojikutu said.
He explained that Okada had a lot of aircraft like Arik Air and Air Peace, but when it got to C-Checks (a heavy maintenance check done by airlines every 6-8 months), it became very difficult.
“Airlines make all the money now when the aircraft are new. They think all the money is their profit. One singled C-check on aircraft is enough to wipe out one-year profit. A c-check is about 600,000 to 1.5million dollars,” he said.
He noted that as long as domestic airlines have single ownership and are not listed on the Nigerian Stock Exchange (NSE) and it becomes easy for them to divert fund to other businesses, thereby making it difficult to carry out the aircraft mandatory maintenance checks.
For the past two years, major African airlines have made losses amounting to $1.2 billion -about $700 million in 2015 and $500 million in 2016, according to the International Air Transport Association (IATA) 2016 report.
The continent’s airlines are expected to post $100 million losses in 2017, according to an IATA estimate. The expected losses for African airlines are in line with the $0.1 billion total losses they incurred in 2016.
“African leaders and investors need to re-evaluate their policies and come up with strategies on how to move the region’s aviation industry forward, or they will continue to lag behind as international airlines make headways into the region’s airspace,” says Nick Fadugba, the CEO of African Aviation Services and former secretary-general of African Airlines Association (AFRAA).
Gbenga Olowo President, Aviation Safety Round Table Initiative (ASRTI), hints that beyond the poor management structure of airlines, government’s policy is also a factor.
“Going back to almost 40 years, Nigeria Airways failed, Pioneer Private airlines such as Okada, Kabo and so on failed. The Third generation airlines: ADC, Bellview, Chanchangi, Sosoliso and others failed. Fourth generation airlines: Richard Branson’s Virgin Nigeria, Air Nigeria among others failed. Believe me, given the same Nigeria operating environment the National carrier yet to be born will fail,” Olowo said.
He said business and government are permanently at variance, cost is permanently higher than income, tax overburden and infrastructural deficit erodes revenue steadily, adding that deliberate policies that will enhance performance are not implemented.
The takeover of the nation’s biggest airlines, Arik and Aero airlines by the undertaker, Asset Management Corporation of Nigeria (AMCON) over N300billion debt may have exposed some management lapses in the private sector.
Ken Iwelumo, chairman CKX Partners Ltd says that “both Arik Air and Aero were established by very autocratic and hands on founders who in the case of Arik Air made horrible mistakes early on in the history of the airline and in the case of Aero a series of missteps along the way.”
Iwelumo listed some of Arik’s missteps to include “starting off its international services with the gas guzzling ultra-long range Airbus A340-500s literally guaranteeing losses on its relatively short range services to London, South Africa, New York and Dubai. It also bought 10 of the relatively cost inefficient Boeing 737-700s used mostly by short haul, low cost airlines like Southwest Airlines. It only has four of the more efficient and versatile Boeing 737-800s suitable for high capacity routes such as Lagos to Abuja and Lagos to Port Harcourt as well as regional routes to West and Central Africa.”