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Funmi Fabunmi report mistakes that led to the collapse of Nigerian Airways which Nigeria Air must avoid to survive as a national carrier in the challenging operating environment
Nigeria Airways Limited, once the toast of the Nigerian aviation sector, became a model of how an airline should not be run. Management failure, government interference, and mismanagement of funds, amongst others were identified as reasons for its horrendous collapse in 2003. Those behind the proposed Nigeria Air would need to critically study the rise and fall of Nigeria Airways and avoid the pitfalls that led to its liquidation if they hope to make any meaningful impact in the country’s aviation space.
An investigation into why the airline failed revealed the major reason to be the failure of the airline’s management to address the issues of government interference, sabotaged maintenance and inability to procure component parts for its aircraft due to international airline conspiracy. And if these issues are not dealt with, the current effort by the Nigerian government to establish a new airline would be an exercise in futility.
It is pertinent to note that the benefits of having a national airline cannot be overemphasised as lack of competition from indigenous airlines has resulted in the exploitation of Nigerian air travelers on international routes, who have to pay higher fares than others in neighbouring countries for a trip of the same mileage.
Many believe that ex-president Olusegun Obasanjo made a mistake when he shut down Nigeria Airways in 2003, because he was unaware of the need for international connections to fight foreign conspiracy, without which no airline would survive.
Obasanjo explained that Nigeria Airways’ operations were wound down because it had only an operational Boeing 737 in 1999, even though it had about 32 aircraft when he handed over power to the Shehu Shagari administration in 1979.
At some point, The Nigerian government partnered with a British airline, Virgin Atlantic to establish Virgin Nigeria. Although the intention was good, it was a faulty deal. The partnership failed in no time because there was no time Richard Branson, the Virgin Atlantic chairman would encourage Virgin Nigeria to compete with his brand.
As the government makes renewed efforts to float a new national carrier, the social, engineering, political and economic woes which hampered the operations of defunct Nigeria Airways are still being experienced in Nigeria. For the proposed national carrier, Nigeria Air to make headway, the government must tackle these challenges holistically.
For instance, a Federal Court sitting in Lagos on November 15 granted an interim order stopping the government from selling Nigeria Air shares to Ethiopian Airways. This is an indication that the national carrier may be starting on the wrong foot, meaning the government has not learnt any lesson from past mistakes.
The government has also yet to resolve the issue of payment of the entitlements of retired members of staff of the defunct Nigeria Airways, which has now become a subject of ligation. This would likely hinder the take-off of the new national carrier.
Aviation expert and the Managing Director of Aero Contractors, Captain Ado Sanusi, in an interview with The PUNCH, said, “All operations should be transparent. They would have learnt lessons from Air Nigeria if it is very transparent.”
Nigeria’s government needs to learn from the mistakes of the past.
The former military commandant at the Murtala Muhammed International Airport, Lagos, Group Capt John Ojikutu (retd), while speaking about mistakes the government made with Nigerian Airways, which Nigeria Air must avoid in order to survive, blamed government officials for being part of the reasons the airline ceased to operate.
He said, “Let it be sustained as a national carrier and not a government carrier. Let it be sustained by that national name carrier, not a government carrier; Nigeria Airways was virtually turned into a government carrier that virtually most officials who travel by Nigerian Airways were not paying the real fare for the class they sit. Either they do not pay at all or they do not pay the real fare.
“They will sit in business class, first class, but they will pay for economic class. I have a lot of experience with them. I am very sorry to say without any reservation that these things were done during the military era and it is not going to be different under this political dispensation with the way we are even handling it. That is one aspect of it. Then, commercial agreement, let commercial agreement be commercial agreement.
“Commercial agreements are usually paid. If I am supposed to come to your country 10 times and you are supposed to come 10 times to mine. If you come more than 10 times you pay for it. But when they pay for it, we share the money. So, that is the mistake. And that was what was done with Nigerian Airways, that is exactly what is being done with some of these private airlines today. And today you give them a concession, you give them a subsidy. All these subsidies and concessions should be recoverable. It is not going to be a gift.
“If there is any reason why you lend money, let it be recoverable. Let it not be a gift. Those are the things that can sustain the airline, otherwise, it will die. It will die like most of these airlines are dying. When most of these airlines are given money, at the end of the day, they don’t refund the money. We gave over N200bn to about 6 airlines, how many of them have paid back?”
He went further to condemn the partnership between FG and Ethiopia, questioning the government’s stake in the flagship of Nigeria Air.
Ojikutu said, “Again, I am curious about this partnership where our government has just five per cent on our behalf while the Ethiopian government has 49 per cent on behalf of its people. The majority shares of the remaining 46 per cent belong to one individual foreigner that owns 60 per cent shareholdings in MRS and Mr and Mrs Afolabi who own 78 per cent shareholdings in SAHCOL.
“Do we really have a national carrier in this arrangement or structure of five per cent for our government or is it only for those in the administration of our government? What would the board of directors look like? Would the partner that has five per cent be the board chairman, managing director, chief operating officer, or chief accountant; and what positions on the board do those with 49 per cent and 46 per cent take? I am just curious about what we are desperately doing as a national carrier. Is it really a national carrier or a flag carrier if it must fly? Five per cent shareholding will not take our country anywhere, whereas another nation is taking 49 per cent, and three individuals are together having 46 per cent. Where would the rest of Nigerians stand, behind five per cent or the 46 per cent of which a foreigner has about 50 per cent of the 46 per cent? Ultimately, foreign partnership shareholding is about 72 per cent while the Nigerians’ shareholding is about 28 per cent. Do we really have a national carrier or just invest in a foreign airline as we would have done, and in better standing, with BA, VA, KLM or Lufthansa. I am just curious,” he said.
Nigerian writer, Dele Sobowale, in a recent article said that chances are extremely high that we are into another airline deal like Virgin Nigeria which blew up in our faces.
According to Sobowale, “They (the media) all reported that the bid had been closed and Ethiopian Airlines will be holding 49 per cent of NA’s shares, while a consortium of Nigerian investors would have 46 per cent; and the Federal Government of Nigeria, would have five per cent to ensure that Nigerians, at least in the beginning, hold a slim majority of the shares.”
Giving credence to Capt Ado Sanusi’s point on transparency, Sobowale said, “The announcement made no mention of the total share capital to enable readers to know exactly how much all the stakeholders, especially EA, are expected to bring into the venture. For that matter, we don’t know if EA is expected to pay in foreign currency or not.
“But, the first oddities that must strike anyone who has ever been involved in any new business venture are the issues that might also lead to NA crash-landing in a short while – that is, apart from the likelihood that a new FGN might scuttle the whole thing. First, the idea of a five per cent stakeholder taking fundamental decisions about the company, without reference to the holders of a 95 per cent stake is an absurdity which only the Ministry of Aviation alone can understand.
“For instance, the resumption date, the type of aircraft to use, senior staff selection, operational policy, marketing, procedures, banks, board composition – among others – have never been decided by a minority shareholder. Meanwhile, it is an established fact that the ministry must send a report of the bidding process to the Federal Executive Council for final approval after the closure. It is never guaranteed that the FEC will approve the selection – even when there is one bidder. On many occasions in the past, the FGN had turned down a ministry’s recommendations and ordered the exercise to be repeated. Quite often, this has occurred when one of the rejected bidders raises fundamental objections regarding the integrity of the selection process.
“Despite the presumed closeness of Hadi to the presidency, due process demands that the minister must wait until approval is given to move forward. Instead of applying caution on this vital matter, the minister is moving ahead to get NA started at all costs before he leaves office. But whether he likes it or not, there are several issues to be settled before NA can take to the air.”
Aero MD, Sanusi in an interview with our correspondent said, “Jimoh Ibrahim took over Nigeria Airways and changed the name to Air Nigeria and it had so many problems. “One of the biggest problems they faced was lack of corporate governance. There was no proper vote. Of course, they entered into a strategic partnership with Ethiopian Airlines but because of the lack of a structured company where you have the MD reporting to the board and are given targets, so they entered into a financial crisis and ended up closing the airline completely. Most of the problem was corporate governance and lack of transparency in the entire process of running the airline and that created financial issues.
“Now, what will Nigeria Air learn from Air Nigeria is that they should be more transparent. They should imbibe corporate governance and stick strictly to it, especially now that the government is involved. The board must be constituted as quickly as possible, where the MD reports to the board and all this should be transparent.
“If it is very transparent, then they would have learned lessons from Air Nigeria, which I believe one of the reasons it was closed down was because of financials and what caused the revenue to dwindle is lack of corporate governance, lack of transparency in processes that they do in the airline. I believe Nigeria Air will learn a great deal if they look at not only Air Nigeria, but if they look at other airlines, Arik Air, Aero Contractors, Carbo, and the rest of them.”
He said the government would see a lot of the mistakes that were committed in previous partnerships and correct them in Nigeria Air.
He explained that because the government has a strategic partner, which is also an investor, which is ET, there is a need to exercise some caution.
Sanusi asserted, “There was a strategic partner in Virgin Nigeria which we thought was a very strong and reliable name just like ET, that is Virgin Atlantic, but unfortunately, this was a failure because of lack of transparency and the sincerity of purpose. If you look at what happened in Virgin Nigeria, all of the Virgin brands, 90 per cent of them succeeded and they are also doing very well. Some failed, but most of them succeeded because the Virgin brand is doing so well. But it didn’t work in Nigeria.
“One of the things that Richard Branson said was the cause of this failure is corruption and lack of transparency and lack of keeping to basic terms of the contract and the MOU signed. So, Nigeria Air can learn from that. They have to stick with the MOU or the agreement or with the concessions and make sure that their strategic partners are comfortable with what was agreed in the beginning.”
Aviation analyst, Alex Nwuba, had said, “Nigeria Airways, just like Emirates and Ethiopian were worthy ventures. It allowed the Ethiopian to become the centre of connection for Africa to the world and in the case of the Emirates, an opportunity to become more of a centre for connecting to the world. And in the process of connecting, it created an opportunity for you to also see Dubai. That allowed Dubai to grow, to become the magnificent city it is today, meeting the needs of the millions of people that go on Emirates to their destinations. So, these are some of the good ventures.
“It brought business to Dubai when its airport became a centre. Then everybody can meet there. And meeting there creates an opportunity to create a point of connection to the rest of the world. So, that is why the travel industry for business and leisure, has concentrated conferences, etc. in Dubai because of convenience. Every week there is an actual conference in Dubai because it is easy to get in and out.
“And then businesses were established in Dubai because it is a good place to connect to everywhere in the world. Imagine if Nigeria had a viable international airline that went from Nigeria to everywhere in the world. Nigeria business will boom because of the convenience of basically just saying anywhere you want to go in Africa at least come there via Nigeria. You would get there easily within a few hours’ connections. So, in that process, everybody can converge in Nigeria to do their business in Africa, which is not the case today. So, these kinds of network hubs are very good for business, the hospitality industry, the medical industry, and every kind of business.
“The fair fact that you’re accessible brings development. If you look, for example, the development of cities that have airports such as Lagos, Abuja, Kano, Port Harcourt, etc., they are far more progressive than those that don’t have airports.
He noted that the mistake they made was making it a government baby. “Government officials flew Nigeria Airways and didn’t pay. Government agencies flew on Nigeria Airways, they didn’t pay. They delayed flights to accommodate government officials. The key thing was the money to run it was not coming in, and that is where Ethiopian Airlines and Emirates have done it differently,” he further explained.
“These airlines are independent of the government. You pay to fly. You have no special privileges. They don’t foist it under the convenience of the government. It’s allowed to operate independently. And so that is one of the things that Nigeria Air must ensure that it has. In addition to that, as we have been advocating, if it becomes part of Ethiopian Airlines, none of these things we are talking about will happen because obviously, Ethiopia will continue to try to route all the traffic throughout this to continue to sustain its economic hub, its business hub, remembering that it is a government airline.
“So, their bid is while they work for the business of government, they remain independent of government. So, this is the crucial mistake we must avoid. Coming under someone else because of our need to create our own independent hub, I mean, if you look at it today, all these airlines come here, but it hasn’t benefited us.”
He claimed they just come to take people, take them to the country and onto another destination.
“So, repeating that mistake in the name of partnership doesn’t do that, and not having this airline as a hub for Africa is curtailing the opportunities that are available for Nigeria,”
The effort to establish a national carrier for the country after the liquidation of Nigeria Airways in 2003 started when Virgin Nigeria commenced operations on September 28, 2004.
The Virgin Group signed an agreement with the FG to launch a new airline for the country. The agreement had it that Virgin Nigeria Airways would be owned 49 per cent by Virgin Atlantic and 51 per cent by Nigerian investors. The airline took its first flight on June 28, 2005.
Its maiden flight was an Airbus A340-300 which flew from Lagos to London’s Heathrow Airport.
Virgin Nigeria, within its first two years of operations, flew more than one million passengers and carried over four thousand tons of freight. In 2006, it won Airline of the Year in the THISDAY Awards and was nominated in the same year for ASATA’s African Airline of the year.
At its peak, the airline was running around 14 aircraft, ranging from the tiny Fokker 50 to the Boeing 767-300ER and the Airbus A340-300.
Things began to turn bad for Virgin Nigeria in 2008, when the Nigerian government demanded it moved its domestic operations from the international terminal to Terminal 2, in Murtala Muhammed Airport, Lagos. Despite Virgin Nigeria’s protest against the move, the directive was enforced, leading Virgin Atlantic to question whether it was right to continue to be associated with this airline.
Virgin Atlantic began to step back from the airline immediately, and it announced it would be ending its long-haul services to London and Johannesburg on January 27, 2009.
In September 2009, Virgin Atlantic removed its brand from the Nigerian airline.
The airline later metamorphosed into Nigerian Eagle Airlines. The newly named airline would focus on domestic and regional services, although it did promise to expand into Europe and the USA in the future. Virgin Atlantic retained its 49% stake in the airline, but not for long.
In June 2010, the new chairman of the airline, Jimoh Ibrahim, acquired a controlling stake in the company and announced it would be rebranded. This time, it was called Air Nigeria Development Limited, branded as Air Nigeria.
Two years later, in 2012, Air Nigeria was grounded by regulators over safety concerns. In September of that year, it was reported to have fired all its staff for disloyalty. As a result, it had to suspend all its operations. In November, its AOC expired, signalling the end of the airline.
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