Confusion dogs Nigeria Air

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As some Nigerians are celebrating the launch of the proposed national carrier, Nigeria Air, others posit it’s a misplaced priority, waste of meagre funds and the idea should be jettisoned. Another group also questions why the Federal Government would invest so much in it and end up with a paltry 5 percent equity as announced.

However, a significant number of others feel the investment in the national carrier is wise and should be followed through to success. Those in this category make case for the value addition on the Nigerian aviation sector as the over 70 bilateral air service agreements (BASA) routes currently unutilised could be used for, among others, the impact on job creation as hundreds of aviation professionals will be employed, and the forex savings that will accrue when Nigerians keep their money within the country’s economy when flying Nigeria Air.

Could the process have been different? 

Some commentators have said the unveiling was largely hurried as a lot of basics had not been followed. For instance, before the unveiling and even till now, a proper company and management of the Nigeria Air haven’t been constituted. There is neither physical business address nor a functional website that provides basic information – such as frequently asked questions, on the Nigeria Air. Perhaps the physical address, with a minimal management staff that would midwife Nigeria Air should have been put in place, regardless of its management for now. This is critical as the few management staff would also be involved in building the structures; negotiating the aircraft lease and working on the several BASA routes that would be immediately activated by December 19, 2018 when Nigeria Air commences operation.

These commentators express worry that the minister and the national carrier implementation committee were still the only ones directly involved in all the deals on Nigeria Air and discussing with prospective investors. Another issue they raised is that government should have licensed an ALC to precede the national carrier.

The ICRC had also approved the outline business case for the Aviation Leasing Company (ALC) and the Maintenance, Repair and Overhaul (MRO) facility, all facilities that are critical to support the national carrier when established. In fact these approvals came before that of the national carrier.

Industry experts argue that if the ALC was established, through a public private partnership arrangement as proposed in the OBC, the company would be involved in the aircraft lease for Nigeria Air, thus retaining huge sums of foreign exchange within Nigeria. But that in as it now stands, government will have to lease the aircraft through lessors abroad, a situation that would lead to more capital flight than if Nigeria had retained the service. Again for a new airline, the dry leases might be more expensive as the risk profile of Nigeria Air is uncertain.

The Nigerian Civil Aviation Authority (NCAA) is a regulator of the industry yet it is still a member of the implementation committee. This raises concern on the ability of NCAA to do a due diligence licensing and regulatory procedure on Nigeria Air.

Explaining issues on Nigeria Air, the Minister of Aviation, Sen. Hadi Sirika, recently said there is no secrecy in the build up to Nigeria Air as the entire process was guided by the Infrastructure Concession Regulatory Commission’s guidelines/regulations.

He said because it’s a PPP, it has three stages – the project development stage, procurement stage and implementation stage. The project development stage was just concluded with the approval of the outline business case. Once the process gets to the PPP procurement stage, there will be an RFQ, Information Memorandum and RFP bidding process which will be made public, competitive and transparent. It is only after the PPP procurement process that the strategic equity investor will be known,” he said.

He also explained that government was not funding the entire project but providing startup capital in the form of an upfront grant/viability gap funding. Once the strategic equity investor is in place, he will be expected to build on the initial investment made.

“The $8.8m represents startup capital for offices etc required for takeoff. But $300m is the entire airline cash flow funding requirements (aircraft, operations and working capital) for three years (2018, 2019 and 2020). This funding can be in the form of equity or debt,” the minister explained.

On how the funds would be sourced since it wasn’t budgeted for in the 2018 budget, Sen. Sirika said: “Government’s upfront grant/VGF contribution to equity will be funded through either a supplementary budgetary allocation (highly preposterous with the crisis at the National Assembly) or development financial institutions like AFREXIM bank, AFBD, ISDB etc, who have indicated keen interest in funding the national carrier project because of its bankability and profitability profile,” he said.

On how Nigeria Air can be profitable, he said, “As part of efforts to make airlines viable in Nigeria, the ministry is making moves to have the National Assembly pass a fly Nigeria act. This act will require that anybody travelling on a ticket bought with public funds must travel on a Nigerian carrier unless the route is not served by a Nigerian carrier. However, with your private funds you can do as you like. Many countries including America have such as Act.”

He said Nigeria Air is for now a 100 percent government owned company, adding that government will divest majority of its equities after one year of operations and retain 5 percent.

Of course majority of Nigerians are excited about a national carrier but the same Nigerians will not spare the government if the national carrier is not properly set up to be commercially viable.

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