Corporate governance takes flight with Nigerian airlines
Nigerian airline business has come a long way and has faced a lot of challenges for survival. WOLE SHADARE writes about key challenges that have weighed them down
Insight
The occasion was at Aviation Round Table (ART) Quarterly Business Breakfast meeting in Lagos. Experts in the aviation gathered to listen to papers presented by some of the best brains in the industry. It was not as if they were saying something new, but hard times airline operators have continued to find themselves made the discussion very apt, considering that many of the airlines are said to be living on borrowed times. But some of the operators have consistently put the frequent collapse of airlines to unfavourable and harsh business climate.
Airlines evolvement
Since 1980s, several airlines have evolved, operate and collapse in Nigeria as a result of unfavourable business conditions.
The major operational issue identified with airlines is incoherent manipulation of the components of their business models in response to competitive pressures and external factors within Nigeria air transportation systems.
Airline business is highly challenging and involves complex and capital intensive operations. Regrettably, the traditional business models (Full – Service, Low – Cost, and Charter Carriers) that have been deployed elsewhere do not adequately address the dynamics of air transport environment in the developing Nigeria economy.
The air transport services in Nigeria has been on the increase since 1980s that has brought about 50 airlines between mid-1980’s and early 2000 including domestic airlines in the likes of Aero Contractors, Afrijet Airlines, Arik Air, Air Nigeria, IRS, Nicon, etc.
Expert’s view
Speaking on : “The Importance of Corporate Governance’, director-general/CEO, Institute of Directors Nigeria, Victor Banjo, identified a link between poor corporate governance and high lack of corporate governance responsible for failure of Nigerian airlines
Banjo, who is a former director at the defunct Virgin Nigeria Airlines, explained that corporate governance essentially addresses measures to manage and reduce financial and operational risks by building the integrity, transparency and accountability of a company’s board and management.
He said it was not unusual to see Nigerian airlines collapse the offices of chairman and managing director in one person. Ditto for having one person as the manager and also a pilot, while wives and children are directors, and some not having board of directors or holding board meetings.
Arik, Aero examples
The take-over of Arik Air and Aero Contractors by Asset Management Company of Nigeria (AMCON) was as a result of the airlines’ management’ failure to effectively run their affairs.
Ninety percent of the N181 billion bad loans bought over by the Asset Management Corporation of Nigeria (AMCON) were incurred by airlines, which clearly indicated that all was not well with the sector.
This has affected the inflow of investments into the sector. Not a few believe that there is the need for right investments in aviation to curb the high rate of airline mortality in Nigeria.
The take-over of Arik Air is not the primary focus of this write up, it is about sorting issues that have made airline operations in Nigeria cumbersome.
Arik was on self-destruct from day one when the carrier was formed because it lacked good corporate governance and was steeped in mind blowing debts.
Anyone with connections with a bank or persons of financial influence in Nigeria think they can run an airline, only to find that it is not that easy.
Airline is a very costly business. You have to be on your A+ game to return profits. The business is not meant for lazy people – from the CEO to the last drop of people who clean the interior of the aircraft.
Once you step in the door of an aviation business, better pull out your best brains left in the bag or be toasted out the perimeter of the enclave. It is that simple!
Government’s support
Not much support is given to the aviation industry, despite its slow returns on investment. The International Air Transport Association (IATA)’s study some years ago revealed that the global aviation sector recorded 0.1 per cent profit in 40 years.
This is a true reflection of the workings in the industry. Government’s sacred responsibility in creating a palatable environment for the industries to thrive cannot be over stated.
Commercial aviation is a critical industry in any country because of the capital and resources generated or lost by it.
The implicit and explicit costs can go each way, only in this case, Nigeria has been at the receiving end of all the losses.
In the developed world, they respond in kind to curb the changing “terrain” in their economic cycles. For instance, key words are regulation and deregulation.
Typical examples as witnessed in the United States of America will tell everyone watching how tactical law makers fight to combat rising and falling economic standards not only in aviation matters but generally for the best welfare of their people.
The huge capital outlay aside,it is a fragile industry that requires expertise, not grandstanding, to operate successfully. The aviation sector is the pivot on which global businesses revolve.
Consolidation
Operating in Nigeria is quite expensive because charges are high and compulsory. Experts have urged the Federal Government to grant the operators waivers on spare parts imported into the country and also help them with the training of fresh hands needed to replace the ageing workforce in the sector.
It is becoming imperative that unless they merge, the carriers would continue to suffer the same fate as Arik. All over the world, strong airlines are merging and consolidating to remain in business.
Let us look back at some of the few most recent airline mergers recorded in the United States alone: US Airways/American Airlines merger in 2012; Southwest / AirTran Airways in 2011; United Airlines / Continental Airlines in 2010 and Delta Airlines / Northwest Airlines among the many listings have consolidated and merged into one airline because the economic state of each airline was unsustainable.
All these airlines were considered one of the biggest 10 airlines in the United States of America. One wonders why then would these airlines merge?
These airlines had good managers who look at the bottom line and once that is not attainable, tactical reasoning come into play.
The search for partner begins. The government doesn’t push them to do this because the airlines realize that if they don’t merge, each will have to face their individual demise.
Government or law makers only give its blessings when the two airlines in question decide to merge, making sure that no anti-trust laws broken in the process.
NCAA’s input
Spokesman for NCAA, Sam Adurogboye, said most of the carriers lack corporate governance because individuals own them. Besides, he said that if NCAA finds out that a particular airline does not demonstrate to NCAA that it has the financial muscle to operate, such carrier would be disallowed.
He said that the NCAA had formulated and implemented sufficient policies aimed at improving safety and efficiency of airlines, noting this can only be achieved if there is good corporate governance on the part of the operators.
He said rather than accuse the aviation regulator of adding to their burden by applying five per cent Ticket Sales Charge (TSC), carriers are the architect of their own misfortune.
His words: “We had to compare what obtains in Canada, United States, South Africa and other places, all CAA are meant to be autonomous and it cannot be autonomous if we are not financially autonomous. We exist because of the safety of passengers and the passengers pay for the CAA to run.”
Last line
Airlines need to demonstrate the capability of running a smooth operation. First, they are not good mangers to start with, let alone the challenges of running a sophisticated business such as an airline.
