Domestic airlines in free fall

Aero-737Aero Contractors’s decision to close shop “temporarily” came as a rude shock to the Nigerian public on Wednesday, particularly their customers already on the queue to board Aero 737 at Murtala Muhammed Airport II (MMA2), Lagos.

The pride of Nigerian aviation sector, as the airline is called, was in fact selling tickets to Abuja and Sokoto passengers when management took the hard decision. It was the second oldest airline in the country after the defunct Nigerian Airways and about the first to shutdown operations without a crash.

Shock snowballed into anger at the airport on the afternoon. Fares were immediately refunded at the counter to calm nerves. About 1600 staffers with decades of experience proceeded on indefinite leave of absence. And everything came to a halt just a-day before Aero was officially due to shut operations on scheduled services.

But not many in the aviation sector were surprised at the turn of event. They said it was the sign of the times, though none could have foretold where the cookie first crumbles and who is next.

First Nation Airlines had shutdown operations in the last two weeks without a word from the management. Palpable fear hung in the air that more airlines will cave in under the current atmosphere where everything appears skewed against the airlines.Passengers are not unaware that it is more difficult flying from one state to another these days due to aviation fuel shortage. A flight of 40 to 55 minutes can now take two days or more. Unknown to most of the passengers, some of their preferred carriers are operating just one or two aircraft.

Aero for instance once had more than 10 commercial aircraft on its fleet, running scheduled services to 12 states, including Ghana. In the last couple of weeks, the airline operated two 737s, out of which one was functional, servicing the Lagos-Abuja/Sokoto route until Wednesday. At least six of the aircraft owned by Aero are grounded in Lagos, awaiting mandatory maintenance checks.

Maintenance is indeed the soul of aircraft globally. No less than 40 per cent of the total operating cost of an airline goes to routine maintenance – A to D checks. C-check, one of the major maintenances, is done on airplanes overseas every 18 months at a cost in the neighbourhood of $500,000 to $1 million.Multiplied by the current exchange rate of N420 to one dollar, it therefore cost about N420million to conduct C-check on a plane, if it must fly for another 18 months.

Chief Executive Officer of Aero Contractors, Capt. Fola Akinkuotu, had recently explained why some domestic airplanes went for maintenance overseas, and never returned because “operators have no money to pay.” At least two of Aero’s aircraft are stranded abroad due to the operators’ inability to pay for maintenance after C-check services.

Besides maintenance, another huge challenge is aviation fuel, which gulps another 40 per cent of total operating cost. Jet-A1, aviation fuel is called, is 100 per cent imported into the country. Daily supply requirement in Nigeria is in the neighbourhood three million litres and cost N660 million at N220 per litre.Chairman of the Airline Operators of Nigeria (AON), Capt. Nogie Meggison, confirmed that domestic operations had reduced by 50 per cent due to flight delays and cancelations since fuel shortage resumed about three months ago.

“Till April this year, I bought Jet A1 fuel for N105 a litre. About a month ago, the price jumped to N145. Two weeks later it rose to about N200 a litre. Today the price has skyrocketed above N200 a litre. This has greatly increased our operational cost. “For instance, considering that the cost of fuel accounts for about 40 per cent of the operational cost of most airlines, the colossal rise in price of the product by over 100 per cent has equally increased the operational cost astronomically. In the light of this, our feasibility studies and financial projections are greatly threatened thereby putting the airlines in a dangerous and difficult financial position,” Meggison.

The implication is that most of the airlines are now struggling to pay salaries, which accounts for about 15 per cent of the operating cost. On the side is huge indebtedness to the government and banks with no sign of recovery, says Asset Management Corporation of Nigeria (AMCON).AMCON, a government’s stabilising tool for ailing organisations, observed that the airlines remain critical to the economy and “it is key that the airline continues to fly and fly safely.”

Managing Director/Chief Executive Officer of AMCON, Ahmed Kuru, said they recognised the fact that some of the airlines have security implications. “We support aviation because it is a strategic sector, if for instance, Arik decides not to fly, it will affect so many things in Nigeria. There was a time they went on strike, many businesses had to leave Abuja even though they are not connected with aviation, so we had to support it.

“Aero is one of the strongest airlines in Nigeria, even today, because it has a maintenance facility and a culture of self-check, and it is a very strong brand.  We got to a situation where we had to decide; is it our money we want or is it to sustain the airline to continue to operate? At a time they had three aircrafts with 1600 workers on its payroll. That is a problem.”

Industry watchers are of the view that government and operators alike need to be more proactive if the industry must survive the consuming turbulence.To some, it still boils down to government’s policy that has turned a blind side to critical sector like aviation; particularly in the new flexible foreign exchange policy and attendant hike in naira to dollar rate.

Top official of one of the airlines told The Guardian on condition of anonymity that it was unfortunate that aviation, which is 100 per cent dependent on foreign exchange, has not enjoyed such privileges accorded to manufacturing sector.He said: “We do almost everything in foreign exchange (dollars) — maintenance, spare parts, fuel, trainings, landing and parking charges and so on. The only thing accrued to the airlines is from ticket sales and that is done in Naira and the prices has not changed since a dollar was N165. So, how will airlines survive this free fall? Or is it that they don’t know that there is no aviation without airlines?

“It might interest you to know that when America was in recession, the U.S. government gave priority to the operating airlines. The government owns none of them, but they have to survive first because of the huge workforce and role in keeping the entire economy moving. It is not any different in Nigeria, except how our authorities are responding to such situation. It is Aero today. It will be another airline tomorrow because none of them is too big to go under,” he said.

President of the Aviation Round Table (ART), Gbenga Olowo, is an advocate of systematic operational merger among the airlines and he has offered same prescription for this time. After all, why not rather be a director in a formidable alliance than be a MD/CEO of a disaster waiting to happen?

Olowo said: “Truth be told, the airlines, as we have it today, cannot be described as strong schedule players. All the existing seven operators should pool their resources together, operate under one AOC, harmonise their schedule and stop the ongoing unhealthy competition among themselves. Then we will be having two near-strong players,” Olowo said.



2 Comments
  • real

    of course the government doesn’t help, however most people and business in Nigeria knows that. That is why it is important that businesses begin to take control of their survive. is there any reason why the airlines haven’t banded together to purchase long term supply of fuel at favorable rate. southwest airline became profitable and effective by hedging fuel for 10-15 years. so they were using fuel at favorable price when the other airlines were purchasing fuel at very high price. maintenance, there is no reason this same airlines can’t build a world class maintenance facility in Nigeria, where they can do the necessary inspection, maintenance and repairs. This would reduce their need for forex, reduce delay and cost. Have this airlines thought of investing in modular refineries that would produce their jet fuel. which they can then purchase at cheap price and even export to other countries.
    our government doesn’t seem to have the capacity or the ability to fix any problem, so it is time businesses and average Nigeria begin to fix problems themselves.

    • Daniel Ekpo

      In fact, you couldn’t have said it any better. Businesses must take control to survive especially in this harsh business environment businesses find themselves in. Like in the case of AERO where internal and external environmental factors that have made it difficult for the foremost airline to continue its scheduled services. Its management had to take the decision of temporarily halting its scheduled operations to restrategize for there is the need for realignment to reposition the airline and return it to the part of profitability.

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