What Arik Air’s Suspension Meant For Nigeria

Arik

VENTURES AFRICA – The transport network of Africa’s most populous nation was left in limbo last week as Arik Air, Nigeria’s biggest airline, suspended domestic flights for four consecutive days. The suspension – which took most aviation analysts by surprise – came just months after the Nigerian federal government attempted to remove petrol subsidies, sparking national unrest that brought roads and airports to a halt.

Meanwhile, Nigeria’s other two main airlines are in dire straits: Dana Air has seen bookings collapse following a June plane crash that killed 160 people, while the former national carrier Air Nigeria has collapsed under a mountain of debt and ceased operations altogether.

The all-pervading chaos in Nigeria’s transport sector is peculiar, given that this is the country which offers Africa’s greatest aviation opportunities. Airline passenger numbers have seen double-digit growth every year for almost a decade and, for newcomers, there is little quality competition among market incumbents, who continue to operate ancient, unsafe and unreliable aircraft.

Ostensibly, this is an environment ripe for growth. But while Ghana – a much smaller and less populous country – now has five airlines, and while South Africa has enjoyed lower fares and higher quality thanks to a huge proliferation of domestic low-cost carriers, Nigeria remains bereft. Open for investment?

Last week’s Arik suspension gives some clues as to why this has happened. On September 20, federal government employees stormed Arik’s main operating base at Lagos Airport and prevented passengers from boarding planes, claiming that the airline owed 18 billion naira ($112 million) in unpaid taxes. According to the BBC, they played Fela Kuti and invoked his music to bewail their suffering.

In response, Arik’s Chairman, Johnson Arumemi-Ikhide, appeared to concede hisairline’s indebtedness. However, he claimed that Arik was repaying its arrears in instalments and that, in any case, most of Nigeria’s other carriers were also indebted to the federal authorities. The Central Bank of Nigeria (CBN)) confirmed that AeroContractors, a small local airline which escaped government sanction, owes $203 million.

Local media sniffed an anti-Arik conspiracy and attacked the Ministry of Aviation for its heavy-handedness. Numerous commentators resurrected the ghost of Sir Richard Branson, the British billionaire businessman who reportedly vowed never to invest in Nigeria again after seeing his airline, Virgin Nigeria, crushed by the weight of government bureaucracy in 2009.

And therein lies the significance of last week’s chaos. Although Arik admits its debts, the federal employees who barricaded the boarding gates at Lagos Airport had no court order and no legal authority. Such overt political interference in the operation of a private company has scared away investors – particularly foreigners – who might otherwise consider significant investments in Nigeria’s booming transport and aviation sectors, which each have a potential domestic market of 170 million people.

Meanwhile, Nigerian consumers continue to pay the price of an emaciated and chaotic transport network. Arik’s suspension last week left domestic travellers with the option of two carriers (AeroContractors and Dana Air) that between them operate just ten planes – far fewer than Egypt’s fleet of 70 and Kenya’s fleet of 120. With roads still in a parlous state and railways effectively non-existent, Nigeria needs a comprehensive air network not just to promote economic growth, but also to bind together its fractious political regions.

Aviation consultancy company, Mango Aviation, which supports start-up airlines throughout Africa, has seen numerous investors deterred from Nigeria. Barring a change of attitude on the part of the federal government in general and the Ministry of Aviation in particular, the start-up of a Nigerian airline is a proposition for only the most intrepid investor.

But for them, the potential rewards are enormous. Following the collapse of Air Nigeria and the steady demise of Dana Air, Nigeria’s aviation sector has become an almost-virgin market. In the last year, average ticket prices have soared by 50 percent, creating margins unheard of elsewhere in Africa. Furthermore, a fast-expanding middle class and increased trade within West Africa means that future growth is almost guaranteed.

From a business perspective, the only real challenges lie in proper airline management and administration. Sustainable commercial and financial management have proved beyond the capability of numerous Nigerian carriers which ultimately failed under the weight of debt, shareholder greed and ill-judged planning: even Arik, with its alleged debts of N18bn, has succumbed to some of these problems.

But these issues could easily be solved by experienced international managers. Elsewhere in Africa, airlines as diverse as South African Airways, Kenya Airways and Ethiopian Airlines have hired foreign experts to successfully restructure their businesses and deliver long-term profitability.

This means that, in Nigeria, the only serious obstacles are political. There are signs that things are moving in the right direction: the Nigerian Senate, noting Arik’s success, proposes to confer national carrier status on the airline, which would give additional route rights as well as lucrative government contracts. But the federal government must cultivate an attractive investment environment for private companies who are willing to invest in Nigeria’s future and support the infrastructural development that its people so desperately need.