Futility of government’s bailout to airlines

 

There is no doubt that COVID-19 has hit aviation industry very hard. The Federal Government is planning a fresh round of bail-out funds for struggling airlines. The problems of the airlines go beyond intervention fund. Give them N500b, the signs that they would collapse is visible, writes, WOLE SHADARE

Worsening crisis

Airlines face unprecedented international crisis in the wake of the coronavirus pandemic. The International Air Transport Association (IATA) estimates that global airlines will lose over $300 billion in 2020.

Many airlines are cutting are cutting up to 90 per cent of their flight capacity. Nigerian carriers have considerably reduced capacity, sacked, furloughed workers and are not sure of their survival post COVID-19.

In many years before COVID-19, the country’s carriers have struggled. They are barely surviving, no thanks to the operating environment that has threatened their survival.The aviation industry in Nigeria needs total overhauling and not necessarily funds that could go down the drain again if not properly managed. The sector needs a reform. That would guarantee not only the stability of a struggling sector but their survival.

It is no longer news that Nigerian airlines were before now struggling to survive as the carriers had cut their operations by over 30 per cent but the advent of COVID-19 has seen cut their capacity by over 70 per cent or more.

Looming extinction

Investigations show that many carriers may not return to operations while others are planning a hike in air fares and cutting down on in-flight services among other cost cutting measures.

At a webinar meeting held last week in Lagos, the country’s flag carrier airline, Air Peace painted a grim picture of the sector, saying it reduced its operations to 42 flights in a day before the lockdown, adding that so many airlines stand the risk of liquidation post COVID-19.

Managing Director of Air Peace, Mr. Allen Onyema, said, “COVID-19 is more devastating more than 9/11, adding that a lot of measures have to come to place to counter the effects on our business”.

He further disclosed that his airline has decided to stop in-flight catering as it has decided to downsize workforce by 60 per cent.

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His words: “This Covid-19 has brought a lot of new normal, it will affect the entire value chain, passenger figures are going to shrink, a new set of regulations will emerge. And this is not about individual airline, we need to shun unhealthy competition, airlines need to stop serving food onboard, Air Peace will not serve meals again. We are going to downsize because the passengers will no longer be there, we are going to deploy four out of the 7 B737 aircraft and six out of the Embraer fleet.”

 

Unfolding bailout plan

The Director-General of Nigerian Civil Aviation Authority (NCAA), Capt. Nuhu Musa unfolded government’s plan for the entire aviation sector.

NCAA DG said Aviation Minister, Hadi Sirika, presented the situation to the Federal Executive Council (FEC).

Other beneficiaries, according to him, are aviation agencies, ground handling firms and other aviation related bodies.

“We have made consultations and we are still consulting, we have consulted with airlines, we plan to have another consultation with them and the ground handlers, we are developing a programme for an economic stimulus package, all inclusive, all the heads of agencies were recently locked up in a hotel in Abuja including the Minister to map out ways of getting stimulus for the sector. The minister presented a very good case on this with the vice president,” he said.

He urged stakeholders to see the period as an opportunity to re-invent the sector, adding that the aviation industry has changed forever.

Managing Director of Aero Contractors, Capt. Ado Sanusi, called for mergers and acquisitions, saying this is one of the way forward for the sector.

“There will be code-sharing, I believed that acquisition and mergers will usher in an industry that will weather the storm. It may not be exactly the same as in the banking sector, but we may go this way. It is time for us to reflect”, he said.

Mismanaged bailout fund

In recent years, particularly in 2011, the Federal Government released N120 billion intervention fund. The money had since vanished. The money was released by the Central Bank of Nigeria (CBN) as part of a N500 billion intervention fund.

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Air Nigeria, re-christened from Virgin Nigeria, was the highest beneficiary, receiving N35.5 billion, which was supposed to be monitored by the Central Bank of Nigeria (CBN), as well as the Bank of Industry (BoI).

Other airlines that benefited included Aero, which received N20 billion, Arik Air got N15 billion, Kabo Air got N6.66 billion, IRS and Chanchangi Airlines got N3.4 billion each.

Some of the least beneficiaries included Dana Air, which accessed N618 million, Caverton Helicopters got N1.348 billion, Overland Airways got N805 million and First Nation Airways got N271.7 million.

Ten airlines benefitted from the fund through loans with a tenure of 10 to 15 years. The beneficiaries were Arik, Aero, Air Nigeria, Chanchangi Airline, First Nation, Odengene, Dana, Overland, IRS, Kabo among others.

Chanchangi,Odengene, Air Nigeria and IRS have folded up with tax payers’ money gone down the drain. The loans were not collateralized.

Arik, Dana, Aero, Kabo, Overland are ones still in operation. To cut the long story short, the fund was allegedly diverted.

The airlines have not applied the intervention fund judiciously, which made the status quo to persist. After years of government aid, it is appropriate to ask what has been accomplished. Was the bailout truly necessary, or did it simply ignore the economic realities of the airline industry? Has the aid merely propped up weak and inefficient firms at taxpayer expense even though they will eventually fail?

Senegal, others show fate

Senegal announced $128 million in relief for the Tourism and Air Transport sector in the face of coronavirus pandemic.

Other ountries that have chosen to bail out their airlines include Angola, Botswana, Chad, Egypt, Cote D’ Ivoire, Ghana, Jordan, Kenya, Morocco, Oman, Qatar, Saudi, Senegal, South Africa, Tunisia, UAE.

The sector  also seen a number of relief measures in terms of Airport and ANSP charges from ASECNA (ANSP covering 17 states in Central West Africa and Madagascar), Namibia Airports Company (8 airports), Ghana Airport Company (6 airports), Seychelles, Oman airports, AMM airport, DXB & DWC airports.

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Five international air transport and tourism bodies launched an appeal to international financial institutions, country development partners and international donors to support Africa’s Travel & Tourism sector.

The major stimulus from governments combined with liquidity injections by central banks would boost the economic recovery once the pandemic is under control.

Experts’ views

An aviation expert, who preferred anonymity, faulted plans to rescue carriers through a fresh round of bail out, stressing that bail-out can come in mode of tax holiday, reduction of charges and cutting down of multiple charges by aviation rather giving airlines money to be diverted into their private pockets.

According to him, “I am asking for the immediate reduction of all charges and taxes; deferral of any planned increases in charges and taxes for 6-12 months; and the creation of funds to help airlines restart or maintain routes. Without such measures, many airlines will go bankrupt – leading to the loss of routes and damage to the economy, as well as thousands of job losses.”

 

A former Commandant, Murtala Muhammed Airport, Lagos, Grp. Captain John Ojikutu (rtd), said he did not support bail out for the airlines in the form of handing them cash or tax payers’ money, saying the carriers need to account for the ones they took in 2011.

He said: “How much has government collected from the over N120b they gave to the airlines? Those that collected should not be entitled for another bailout fund if they have not finished repaying the ones they collected. They should not give them money other than for them to pay their staff. They must make sure that their balance sheet is clean with Nigerian Civil Aviation Authority (NCAA).”

Last line

Almost every challenge in aviation requires team effort to solve it. Today, the sector faces the biggest challenge in commercial aviation’s history. Restarting an industry that largely has ceased to operate across borders is a herculean task.

 

Wole Shadare