More airlines’ll cease to exist if …’

Captain Dung Rwang Pam has over 29 years multi-role experience in the aviation industry. In this interview with WOLE SHADARE, he speaks on poor record of Nigerian carriers, the rot that has pervaded the sector and proffers solutions to the myriads of problems confronting the industry. Excerpts:

How does recession impact aviation?

 

It is a problem to the aviation industry, but you need to realise that Nigeria is not the only country that is in recession. Even developed countries are in recession. We‘ve got South African Airways, Ethiopia Airways and Kenya Airways. The industry exists already. Did we know we are going to have a recession? We cannot say we were not aware.

In 2012, the current Emir of Kano who was the Central Bank of Nigeria (CBN) governor then, made elaborate presentations, not just one. He warned about this and he said: If you are subsidising consumption, you are setting up yourself for a major economic disaster, and this is exactly what has happened. Secondly, it is planning. The airlines are private ventures.

There is no more government- owned airlines in the country, they are profit oriented. Of course, safety has to be a major factor to that. When you refuse to plan, you plan to fail and that is exactly what has happened. Again, this may be very uncharitable to the regulator.

From 2006, the regulator had autonomy, which means the whims and caprices of the minister won’t affect the regulation of the industry. If the regulator spots anything, they have got presidential mandate to correct this. The problem is how far has the regulator been able to implement the economic regulation part of the industry? We have borne the brunt of the regulator in the past four years.

 

What should be put in place?

 

These airlines that are temporarily suspending their operations, most of them are doing this because they are unable to send their aircraft for scheduled heavy maintenance normally called the C-Check. There is possibly no need for D-check, which is the heavier check because the operators and manufacturer are to fuse that D-check into C-Check.

Historically, C-check should be carried every 18 months. Every airline owner knows that. Every airline owner is expected to submit a comprehensive business plan that does not only show how he or she will run the operation, but also run it profitably, before they start.

The AOC process is a five-step process that lasts averagely six months to 18 months depending on how ready you are to start business before you apply. The first phase of it is sit down, chat with the regulator where it advises and give guidance to the potential investor on what to do and how to do it right. I think that is a good thing.

It is the first step. It is called the pre-application phase, before you even apply. The next is application phase and you are guided through these processes until tthe final phase, then you start operation. Off the curve, globally, all airlines are advised to make sure they have got plans for route expansion, profitability and you must have funds to run your entire operations for three months minimum without one penny coming in as inflow of capital. These are safeguards that are in there.

There is also economic regulation, which mandates every single operator to send in traffic data, returns on investment, profit margin. Every month, you send a report to the regulator on how you are faring. There is a word called break-even load factor, which is what percentage of your seats you need to fill so that you don’t make a loss. That is critical for all operators to come up with.

 

What is the missing link between two years ago and now?

 

The missing link is accountability. I would say slightly negligence. I won’t say fraud because every aircraft owner who wants to fly commercially, especially with a schedule, has to keep aside what is called maintenance reserve with every ticket you sell, every flight that takes off and land, that is to ensure that C-Check is expeditiously carried out.

A C-check could last between a week, three weeks to a month, depending on what level of work is required. The two airlines that currently said they are suspending operations have aircraft on ground that are unable to go for C-Check. The law mandates that airlines that have a schedule would not be able to operate less than three aircraft.

Who do you blame for that?

First of all, I will blame the airlines themselves. They submitted a business plan, which I assume they did and the business plan spelt out exactly how the business is going to be run. Running the business involves keeping maintenance reserve so that you can do your check. Many times you are expected to lease another aircraft for the one week or two weeks your aircraft has gone for that C-Check. That is a stopgap measure.

The aircraft returns from C-check and you continue operations seamless without anybody knowing. How many times have you heard foreign airlines ground their operations because of maintenance? I would like to add this. Government is complacent in this matter; I won’t say the Nigerian Civil Aviation Authority (NCAA).

The reasons airlines are unable to pay for this C-Check despite the maintenance reserve is that if you look at it, from last year to now on the street, anything you buy in dollar has doubled. The exchange rate, for instance, was officially N197 to N200 per dollar, now, how much is it in the so-called newly formed flexible exchange programme? It is N420 as at two days ago. If you are planning on N200, you now need N400. Then double that with what we have now. Even with the reserve, it won’t work.

That is why I said that government is complacent in all of these. In 1977, Nigerian government decided they were going to have a national hangar, which was going to draw into a Maintenance Repair Overhaul (MRO). We have been operating a flying school since 1963, which was more or less nationalised and run as an entity with an establishment since 1971.

In 2002, the then Minister of Aviation, Kema Chikwe, made a statement that a contract had been given to a certain company and they had started working, clearing the site for the national hangar. It is now 14 years. Where is this national hangar? That national hangar would have been able to take the place Nigeria Airways was building, which was a huge maintenance facility. Right now, we do not have any facility, not only in Nigeria, but also in the whole of West Africa, which is a shame to the Banjul Accord group we belong to regionally; we don’t have a place for heavy maintenance on any commercial jets.

 

Where do all the jets from here go for their maintenance?

 

They go everywhere else, including South Africa, Morocco, Ethiopia and Egypt. Can you imagine that is where we go?

 

It is capital intensive to establish that. What is your take?

 

Yes, averagely it cost $300,000 for a small aircraft, then change that to naira with the current rate. We don’t have an MRO. Government made a decision, they are aware of that, but they did not implement that decision. In 2004, the Nigerian Aviation Safety Initiative (NASI) made a presentation and that was one of the things we brought to the fore.

We need to have an MRO here for two reasons. The first is reduction in the cost of operating airlines and secondly, the transfer of skills. We do not have local engineers who are experienced to carry out a C-Check and that is why I also think that having a national carrier is a futile experiment unless we have two things; One, an MRO established in the country and secondly a type rating training organisation. We don’t have these.

In 2014, the Federal Government published that the Nigerian airlines spend N6.3 billion every year to send pilots overseas for recurrences. That money would have been able to build type rating training organisation. That money would have been able to foot the bill. That is why I said the Federal Government is negligent.

 

Airlines do not exist in isolation. NCAA, NAMA and FAAN regulate them. Many airlines go to Accra to fuel , thereby making Ghana a hub rather than Nigeria. Do you agree with this?

 

No. If you have been reading the report of World Economic Forum, one thing we have done to shoot ourselves in the foot is make it very difficult to start a business. In fact, they reckoned that we have almost deliberately put impediments to starting a business in Nigerian and these are some of the things that are driving away investors into neighbouring countries where there is more stability and there are less barriers into getting to start a business. What is Ghana’s population compared to Nigeria’s? We have a huge market.

For you to know how bad this is for certain foreign airlines to pull out of Nigeria, it must be really bad. Despite the despotic regime of Abacha when Britain decided to ban all Nigerian registered aircraft, Nigeria reciprocated by banning all foreign carriers.

Who came back begging first? The British companies because the Lagos-London is the most profitable route for the UK carriers under the Bilateral Air Services Agreement (BASA). They came back because they were hemorrhaging funds.

When you have a huge market and that market is even growing, but without proper guidance, planning, accountability, self-auditing, we will not know how bad or how good we have done our jobs. And one of the things I hope will happen is for regulators to self-audit themselves on how far they have succeeded in the economic regulation of the airlines.

 

Why is it difficult to put these experts to get the sector out of the woods?

 

They have done things in the past to stimulate the sector, but they don’t carry it through most times. One of the things we commend government for was to remove all duties on importation of spare parts and aircraft. This we recommended in 2004. It was not implemented until two or three years ago. It was partially implemented.

They agreed and removed duties on the importation of aircraft, but on the spare part that you need continuously, they did not implement that. I remember Airline Operators of Nigeria (AON) made a presentation to the new minister of aviation; they looked into the matter and agreed to make sure they have zero duties on both spare parts and aircraft.

I will tell you what happened after, one of the airlines that had two engines that were recently imported and the Nigeria Customs held down these parts and asked for duties despite the minister’s pronouncement and they said it has not been gazetted.

 

Domestic airlines owe N40 billion that have not been settled. Government seems to be interested in a national carrier?

 

What impact would it create in the industry? If government and airlines don’t start thinking, we will cease to exist. Our economy should not be in this current state. We have had almost no single airline that has had longevity without huge support from the oil and gas sector.

Aero Contractors has endured this long and if it is not careful this is the last quarter Aero will exist. Despite government’s intervention years ago with the Asset Management Corporation of Nigeria (AMCON) administrating it, that airline is hugely indebted with unsustainble debts, tax payers’ money, part of BASA funds, was used to make up the airlines’ intervention funds.

How many of those airlines that have received the funds survived? Some of them are almost extinct – Chanchangi, IRS and Skypower, among others. Some of them have benefitted and are not operating, what is going to happen to that money? That is tax payers’ money.

That money should have gone into building schools and hospitals. The airlines that were rescued were not even operating. How many losses should we continue with? We need to change our method. Let us think of what we have done. If we have done this consistently, then we need to change our approach.

 

Why are airlines unable to pay their debts despite the fact that they make money every day?

 

It is poor economic regulation. Normally, most credit facilities go for between 30 and 90 days. Most of the times, most of the airlines default on these payments to service providers like fuelling companies and others. Fuel constitutes approximately 30 per cent of the cost of operation. They default. This should not continue.

The regulator is expected to have a snapshot of this every 30 days mandated. The regulator needs to step in to stop this from becoming a habit because it shows that the airline is not healthy if it is defaulting on contractual agreements and something should be done as deterrent to stop that, not just punitive but also palliative. I said that because out of the fuel being sold, FAAN has a fixed percentage they get from these airlines or from the fuel marketers. These airlines are providing a vital service.

 

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