National Carrier: Why government did not consider converting distressed airlines as option –Ndibe

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Mr. Paul Ndibe is the National Executive Director of the Chartered Institute of Logistics and Transport (CILT) Nigeria. In this interview with our correspondent in Lagos recently, he takes extensive look at the proposed Nigeria Air, the pros and cons as well as factors that may mar its actual take off. Excerpts;  

The federal government recently announced plans to refloat a national carrier in the aviation sector by December this year and has gone as far as choosing a name and logo for the airline. What is your take on that sir?

I think it’s a useful development economically speaking but the issue might be the process for establishing that. Having said that, we will encourage the government to do more of consultations and more of discussions so that stakeholders and investors will actually know the mind of the government. If as Nigeria citizens and the government is on its own giving information about floating of a company that it is supposed to own about 5% interest, people are bound to ask in whose interest they are acting. One would have expected that government would simply have announced maybe the registration of the Nigeria Air and announce its own equity or interest in the organization and then give one or two other information. If government had restricted itself to 5% equity they are contributing to mean having offices set and initial equipment to start with and leave the rest in terms of the sealing in terms of investments to the investors and not to say it is going to be $300 million or it should be over five years. In saying those things, you are restricting the investment flow into that establishment and that is where people get very confused.

So, the situation would have been for government to restrict itself by saying we have registered this company, we have registered the name, we have obtained the license, we are contributing not more than 5% of the equity, whatever is the equity but definitely, it will have a sealing, even if they are registered to the tune of that $300 million and they are contributing 5% to that and to say that the 5% will be for the initial office, equipment and to take off, then the money will come in but for government to go to the point of saying it is $300 million, it will be generated over five years and all that, it means that government is setting a limit to that. That was why people got worried.

Even at that, government can also encourage investors; leave off the route they will fly because government went to the extent of stating the routes. So, these are the things that really will upset some people. Let the investors determine the routes they will fly, government can advise on quality guidelines for the organization to take off and stop at that. The investors will determine the routes that may be profitable for them, the frequency of flight, the brand, if they want to dominate Africa as a brand or Europe or Asia or whatever.

We understand that some major carriers in Africa, that the government controls major stakes if not all in the airways. Bearing this in mind, one may be tempted to ask why 5% in the case of Nigeria Air?

From indications coming from the Ministry, government was of the view that it was because of the large equity holdings in the previous airlines that led to the collapse of those airlines. They also referred to some African countries where government maintains very large equity holdings and they are having some problems. The issue with equity holding is that when you want to reinvest and you don’t have that financial capacity, it reduces your ability to operate in the sector but if it is given to investors who can risk strategic funds and investing and waiting for it to mature to reap the benefits is always better.

If anybody is expecting government to do huge investment in 2019 that is election year, it is not possible because government will divert greater part of its resources towards the election. So, if it is during that time that Nigeria Air would require reinvestment and government does not have the money, it is understandable but then of course, we would loose the market strength. So, along that line of thought, government may face because the issue of airline borders on security and integrity of a nation. That you still have your flag being flown as an airline is a mark of strength and that means Nigeria should also have its own national carrier. Having its own national carrier is that you now represent government’s interest in terms of diplomacy. It is not necessarily in terms of operation or financing.

For government to have an equity share holding is fine. I am even looking at 10% as ideal but not as low as 5% because if it is below 5%, you don’t have any strength. Having said that, one would expect that government would allow as many investors as possible, credible investors. You can even do private placements for these investors and let those that have the capacity and knowledge and the financial muscles to invest and that would really help the Nigeria Air to grow. If you leave it open for any investor to come, you have multiplicity of small investors, at the end of the day, one person will buy over this investment and then you wouldn’t know, all of a sudden, you have created an empire for single person.

Some persons have demanded to know the identity of the investors in the Nigeria Air so as to avoid a situation where same money bags in the country go around investing in the project with government fund but in their names. Do you think that will be necessary?

Since Nigeria Air like the government said is going to be a public company, of course, information should be made public. I don’t think the government has known the would be investors, it is possible they may be talking to a few people. But if it is a private placement, you don’t make it open, you first of all talk to the people you think would like the investment and will invest. It is only when they fail that you start looking outside but then even with that, government has not done something that is terrible. I don’t think government would have had by now the names and identity of the would be investors, they may be talking to a couple of them but they will look at what is on the table in order to determine who and who are also investing because that would also influence their own level of participation.

If you are a very good investor and you want to invest in a new company like this, you would like to know who other investors are. That would encourage you in the stake you want to take. So, government may be talking to a few of them privately and at the end of the day make a full disclosure because at this stage, it seems as if government is the only promoter and if government is the only promoter, government has its own information. So, it is the much that government release that will be in the public domain.

Government at one time last month travelled abroad to seek for investors in the Nigeria Air, a development which many believed it shouldn’t be the case. How do you react to this sir?

The Farnborough International Air show in London like air exhibitions where they showcase new technologies, new techniques and all that and those who are players in that sector will normally visit such event in order to know greater economies lie. For me, it’s not a bad place to unveil the Nigeria Air and the logo. But in actually talking to investors, that might not just be the only place to look for investors but I think it’s not a bad starting point.

A huge investor in the aviation sector may have other sources of information that appeals to it but not necessarily during a fare. In that case, government will also explore those huge investors and profile their information seeking behavior in order to determine the information channel they may use to get at them. But then, for the public awareness, the Farnborough event wasn’t a bad idea. So, government used that opportunity to talk to those who were available about Nigeria Air and investment opportunity is also not bad.

Would it have been sensible enough for a 5% equity holder to determine the name and the logo of a venture that is jointly held as in the case of Nigeria Air?

The duty of the Federal Ministry of Transportation particularly the Minister of State Aviation is like he is representing the government who is the promoter of this Nigeria Air. It is supposed to be our national carrier and as such, federal government is the promoter and that promotion is being done through the Honourable Minister of State, Aviation and because he is the promoter, he is the one saying this is what we want to do and this is how we want to do it and asking people to come and join, even he owns 1% share, he is not at fault, it is not wrong because if you like what he is offering and you like to buy in, you buy in. When you buy in, the share capital according to what you are investing will accrue to you.

So, for him being a promoter does not necessarily mean he has to have 100% share or 50% share. However, in some other establishments, people may fully establish a company, when they want to disinvest; they can now sell to other people who would want to invest in the same venture. In that case, they will drop but in this case, government said we are floating this and asking people to bring in their money to have the initial investment. So, either way, I don’t think it is wrong.

There are some insinuations in some quarters that once Nigeria comes on stream, government officials will be mandated to take that airline and government on the other hand has said that it is not coming up with Nigeria Air to stifle existing airlines. Is this not ironical?

If government is floating an airline and it is paying for people to travel by air, it is not out of place if government encourages the public servants who government is paying for their air fare not to patronize the Nigeria Air. It will be illogical because Nigeria Air can accommodate as many passengers as possible according to the capacity it has. With five planes we are looking at might not be enough to say you are closing the market for others but rather you are diversifying and increasing the capacity of people to operate. What does that mean? It can translate into aggressive marketing.

So, if government is paying for its civil servants to fly any airline and it says we are paying for you to fly but you have to fly Nigeria Air, by that, they are also bringing market for Nigeria Air. In this case, whatever other airlines might not be able to get in the meant time; Nigeria Air will be getting it provided they will not compromise on service. It is not wrong if government is producing a product or offering a service and it denies itself the use of that service, that will be illogical. So, government should be the first to patronize the service that it is providing in other to know whether it is helpful or not.

Would it have been better for government to convert an existing airline into a national carrier than starting all over with a new one? Which is more economical?

It might not be absolutely correct for government to convert any airline to its own national carrier. First, those airlines would have had their own names, its directors, its own vision and mission as well as its own brand, for government to convert it will amount to conflict of interest in terms of brand.

Even with the ones that AMCON is managing currently?

The duty of AMCON is to ensure that the loans or facilities that they obtained, their interests are protected. So, AMCON is doing that strictly for the interests of the investors but that is not the same thing as when government is acquiring it. If Arik Air or any other airline is up for sale and government acquires it does not mean it has to use that particular name. Government reserves the right to change the name.

So, if there is a problem with those airlines and they are about to be liquidated, government can acquire. If government does that, government reserves the right to change the name, change the management staff, change the logo and do all that but it might not be appropriate for government to acquire it while it is still under the control of AMCON for the purposes of protecting its net worth and investors’ interest, that will not be right economically.

So, but for government to now establish the Nigeria Air means someone wants to subject itself to ordinary market competition other airlines are also subjected to. So, if airlines are complaining of taxes and charges and government is not listening, now that government is trying to invest it, government will also have an experience to know whether those complains on charges and tariffs are real or not. That will even help for a better competitive market. So, if government is a player, government is more informed unlike when government is not a player.

So, my thinking is that coming on stream of Nigeria Air will enable government to understand more of the nature of competition in the aviation industry. But one more thing, for the fact that government has been off the business for over fifteen years, many things could have changed, therefore, government requires enough time to study the current realities in the industry before it takes any major step because if government acquires any of those airlines under AMCON, who knows, maybe those airplanes are due for renewal. It means government floating entirely new airplanes. If government is going to float entirely new airplanes, then why not do it under a new name and then start off on a clean slate instead of acquiring old ones that you have to re-fleet and then you have to addressed may be loans that have accrued on them. I think that it is important that government should not go into that, float a new one, have a brand new aircraft and then with investors, thy start anew without any debt overhang.

Do you see Nigeria Air coming on stream by December as government projected?

I am aware that planes require long period hours of flight before they can start carrying passengers. If those planes are in now and they have started flying in order to attain that minimum flight time before they start carrying passengers, then that will be in order and government requires also adequate and set up offices, do the recruitment or even get investors. Government can do the initial 5% recruitment for people to start off and then have a consultant that will recruit for them alongside with the investors. As soon as investors start putting in their money, they will already have a schedule of where the money will go rather than setting aside money for paying landing charges and all that. Fund is a critical thing, if there is sufficient fund for them to pay; they can even order for planes, by that December, more planes will come.

Finally sir, where is the place of the former Nigeria Airways in all of these more so as they were insisting that the airline would not be allowed to come on stream unless their entitlements were paid?

It would be wrong if the entitlements of the staff of the Nigeria Airways have not been liquidated up till now. Government recognizes that it is a liability and if it is a liability, it has to be liquidated. It would have been worse if government had taken up Nigeria Airways again. It means these staff that would have been off for fifteen years would automatically become staff of Nigeria Airways but now that it is Nigeria Air, and then a new name, new planes new management, new staff structure and all that, the former staff of Nigeria Airways may not have direct entitlement whatsoever in Nigeria Air.

That brings me to your last question, if government acquires Arik Air and others; it acquires all the assets and liabilities. What if the liability in terms of gratuities and pensions of staff are still there and you acquire the airline, you acquire it along with the assets. So, that may be one thing government did by not acquiring the airlines under AMCON.

So, back to your question, one would expect that government recognizes that these people have not been liquidated and factored it in in their arrangement for a new national carrier. Once it is government owned national carrier, the staff of former carrier have a duty to protest but whether they would be able to frustrate government’s establishment of Nigeria Air, I wouldn’t know but it is important that their voices should be heard and government should attend to that need.

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