COVID-19: Funding bailout key to Nigerian Airlines recovery

Mr. Chris Aligbe, an aviation industry analyst and Chief Executive Officer of Belujane Konzult, in this interview assesses the impact of the COVID-19 pandemic on the nation’s aviation industry and foresees very tough times ahead for the operators unless government aids them through funding support to enable them come out of the operational abyss the pandemic has plunged them into over the past three months.

How would you rate the impact of this COVID-19 on the aviation industry?

The impact is already known. What should we do to make sure the industry does not collapse and that the industry can immediately take up so that we can meet the requirements or expectation after this? The fact of the matter is that we are already having a feeling. Every aspect of the industry is impacted particularly because the revenues in the industry depend on the flights whether it is aeronautical or non-aeronautical. The more flights you have into an airport, the more likely businesses will develop around the airport. The main revenue generation, the passenger sale charge (PSC), the ticket sale charge (TSC) that is the main revenue that is generated and shared among the parastatals, particularly the regulatory bodies that do not engage in business such as the Accident Investigation Bureau does not engage in business  and the Nigeria Meteorological Agency which can engage in business but limitedly. But the Federal Airports Authority of Nigeria engages in business and its business is dependent on a lot of flights that come in; the landing and parking charges, the rentals, and all other businesses whether you are talking about airport charges, whether you are talking about toll gate charges, duty free shops or eateries, restaurants, it all depends on whether the people are coming, it depends on the travelling passengers and more importantly it depends on meeters and greeters. If an airport has a tributary of 10,000 passengers, the meeters and greeters would double that and be about 20,000 and visitors to the airport would be about 30,000 while only 10,000 may be travelling. It is this number that excites businesses around the airport. Now FAAN cannot get that because flights are not coming, all businesses are shut down and more importantly on the side of FAAN, they are losing both aeronautical and non-aeronautical revenues. They have lost it and there is no other place for them to generate any fund.

Why is the case of FAAN very serious like you said?

Why their own is very severe is because they must serve people to run the airports. People must be at the airports, the aviation security personnel must be there, people would be there to maintain the airports to ensure the facilities don’t wear out. Where would they generate the money? And they don’t receive annual budgetary subvention. So, something seriously has to be done, not just FAAN, I just used FAAN as an example   because its case is very severe. The same thing happens to NAMA. NAMA generates funds from overflights and air route charges. It cannot now because there are no overflight charges now, not much of air route charges, air planes are not flying, most countries of the world are shut down. If you realize that much of revenues of FAAN are generated from operations of foreign airlines because they are much more diligent and regular in paying their charges, they pay, they don’t owe much. They pay for all the services offered to them, 60-65 per cent of FAAN’s revenues come from foreign airlines. That’s their aeronautical revenues. Now, the airlines are not there and FAAN before now has been under serious burden – the burden of running the airports. Apart from Lagos and Abuja, other airports are not generating enough revenue to sustain them, to run them. Some airport revenues are not up to 10 per cent of what is required to run them. Abuja generates 18 per cent of FAAN’s revenues; Lagos generates 58 per cent. If you put them together, that is 76. The remaining 24 is generated by other 20 airports put together. Abuja’s 18 per cent is just enough to run Abuja but not any excess to run other airports. So, it is only Lagos that generates all the money that is being used to run other airports and FAAN must keep its staff in all the airports so that the airports don’t deteriorate. How will they cope? What will the government do?  If you look at NCAA, it is the same. If you look at AIB, it is the same. AIB is one area that attracts some little subvention because it is restricted from going into any business because of the nature of its role. So, it doesn’t go into business. It depends on the little shared to it from TSC and any little allocation from the government, particularly for capital projects. So, the entire industry is affected. If you look at it, all the handling companies, NAHCO and SAHCO, there is nothing to handle. No cargo, no aircraft, nothing at all, nobody is going to pay them. Their staff are there, they are not earning anything. The same thing happens with NCAT, there is no training going on, the airlines are all on ground. So, the aviation industry is in dire need of attention.

So what is the way out?

The challenges are there. The sole objective in any economic downturn like the kind of crisis we have here is to make sure that the sector does not collapse. The aviation industry is so critical because that is the first means of long range transportation of people. You know what our roads are and carriage of goods. The first thing that should of great concern is how do we ensure that the industry does not collapse? What you have to do is to make provision for them so that the organizations would have fund. That fund can come in terms of grants. It is not only for the parastatals but the airlines, the handling companies, just to realize that these are components of the national economy and that they contribute immensely to the economy in terms of employment, taxes and whatever they offer contribute to the GDP. They are contributors to GDP. So when things happen like this, you don’t say these are private organizations. It is important to have a grant that would keep them afloat. When I say grant, I am not talking about loan, they would look at it, look at the size of each organization and what they have in order to give them grant to stay afloat so that they don’t sack their staff and create unemployment.

What about the parastatals, the aviation agencies that mostly depend on the ticket sale charge and the cargo sale charge to survive?

For the parastatals, you need to have allocations for them, allocations that will keep them running, keep their staff engaged, make sure they are not abandoning their schedules and particularly for FAAN, to make sure the airports don’t deteriorate because like your house, if you are not using it, it will start deteriorating. The airports will deteriorate. But this is the time to make sure that every facility is maintained, from runway light, the conveyor belt, toilets, the airports must be kept clean, must be in a state of readiness to resume operations and funds have to be provided for it. So, a lot of allocations should be made to place like FAAN to accommodate this, keep the staff, keep the airports running and make sure they have funds to maintain the airports and ensure that facilities don’t deteriorate. So, for the parastatals, allocations should be made for them. For the private sector, airlines and handling companies, grants should be given to them at the first instance to protect employment, protect the facilities.

Based on your experience in the industry, what do you think could be done to grow the industry after the Coronavirus pandemic?

Yes, coronavirus will come and go, the industry will have to not just continue, but the industry will have to grow. It should not be left to stagnate. If the industry stagnates, its contributions to economy will stop. For the industry not to stagnate, it has to do with our airlines. While they keep growing, the next thing to do is to grow employment. This is why I will come to the point people have talked over time about national carrier and all those things. Yes, government doesn’t have money but luckily what is being programmed is not a government-funded or government-owned national carrier. Government is just to put in something to kick-start the airlines’ operations. But in a situation where government says, we can’t make budgetary allocation for this, for the airlines including the existing domestic airlines and the proposed national carrier, let there be a loanable fund, an intervention fund, soft loan of very low single-digit interest rate and long term – between 10 and 15 years maximum- and it should be a loan that should not go through the banks that they would now inflate it with their own charges. It is the Central Bank that would provide this loanable fund, an intervention kind of fund that is available to be taken by the airlines and at a determined interest rate by Central Bank.

How easy it is to start a national carrier?

I say this because for our present domestic carriers it will take them about two years to come out of the present downturn even with all this assistance before they can begin to pick up again and start growing to create more employment. But the national carrier, a new floatation, would be in a position to immediately create employment and begin to expand the industry. That is why for the purpose of employment creation, we need to think out of the box on the national carrier but the way to think out of the box, government says they don’t have money, but Central Bank should have this kind of fund that can be taken from, you can call it soft loan with tenor of over 15-20 years, that would help in setting up because with about 15 aircraft, most of the time you find that airlines, depending on their level of technology and the kind of aircraft they are using, it is usually between 90-150 staff per aircraft. So, if you have a mixture of 15 aircraft on the national carrier, you are sure of about 2,225 staff that is direct employment before you start having the trickle down, those who would do catering services and all that. So you find that kind of expansion. For the purpose of employment creation, it is very, very important, very mandatory that we push the issue of national carrier, but then drawing fund from the intervention fund that would be available, that is in case government says they don’t have money to give. But luckily it (the national carrier) is not going to be funded by the government. Government is just going to give it a push and then the attraction from investors and technical partners. So, we must do something to make sure the industry does not collapse, start a grant to the private sector operators, from airlines to handling companies and other critical stakeholders. But we need this assistance for them to programme to return. Once the COVID-19 is over, it will take the airlines 12 to 18 months to fully return. So, within that period, it is also very possible, quite easier for the floatation of a new carrier which I think the Minister is driving which would immediately create employment and pull the industry up.

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