NIGERIAN AVIATION SECTOR:
CHALLENGES & OPPORTUNITIES
Presented at the 2012 Nigerian Economic Summit - December 3, 2012
by: Mfon Udom
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This brief presentation will aim at reviewing the active aviation
market environment in Africa with focus on Nigeria, and to
demonstrate the challenges and opportunities for the aviation
industry in Nigeria.
African airlines only have 2% of the total revenue of the traffic
between Africa and the rest of the world.
Airline
Passengers*
Fleet
Destinations
Alliance
State
ownership
EgyptAir
South African
Airways
9.517
70
79
Star Alliance
100%
6.634
54
35
Star Alliance
100%
Royal Air Maroc
6.034
55
80
100%
Air Algérie
Ethiopian
Airlines
3.5
42
68
95%
3.344
47
80
Star Alliance
100%
Kenya Airways
3.041
29
54
Sky Team
29.8%
Tunisair
2.443
33
53
0%
Arik Air
2.303
26
29
0%
Air Mauritius
1.133
15
26
(*) Total passengers transported in thousands
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The potential to reverse this situation exists, but will require the
concerted effort of all stake holders to address the infrastructure,
political, technological and manpower challenges that the sector is
currently faced with.
Air transportation has been one of the most important factors
shaping the economy and demographic patterns of the world. That
is why governments all over the world continue to invest heavily in
this sector.
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The 2011 full year revenues of some of the major airlines of the
world tabulated below, clearly attest to the fact that the aviation
industry can contribute a large percent to a country’s GDP.
Airline
Revenue
Emirates
$16.75B
United Airlines
$33B
IAG (BA + IBERIA)
$22B
Ethiopian
$1.425B
South African Airways
$2.05B
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First recorded flight into Nigeria landed in Kano, June/July 1925.
This was a Royal Air Force fighter aircraft on reconnaissance flight
from Cairo, Egypt.
In 1946 West African Airways Corporation (WAAC) was formed by
BOAC and Elder Dempster Lines for the four British West African
colonies of Nigeria (68%), Ghana (then Gold Coast)(28.5%), Sierra
Leone(3%) & Gambia(0.5%).
In 1958 WAAC was transformed to Nigeria Airways after the 3 other
countries set up their own airlines following independence.
After Nigeria’s independence in 1960, Nigeria Airways became 100%
owned by Nigerian government and remained so until it was
liquidated in 2003.
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The Nigerian airline industry was deregulated in 1983, ending the
one airline monopoly of Nigeria Airways and gave way to the
emergence of several private airlines.
Since 2003, the private airlines have provided 100% of the domestic
capacity for air transportation in Nigeria.
In the last ten years 18 licenses were granted but only three airlines
with reasonable capacity remain in full scheduled operation today, a
situation attributable to harsh operating environment,
mismanagement and corruption. A N300bn FG bailout fund has had
no significant impact on the sector and is now mired in allegations
of fraud and diversion.
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Air travel has become tedious, exploitative, unpredictable, fraught
with safety concerns, allegations of regulatory incompetence and
overbearance.
Passengers remain at the mercy of the few airlines currently in
operation and suffer daily due to the uncertainties and inefficiencies
in the commercial airline sector.
2012 estimates indicate over 150 private jets owned by Nigerians
(average cost/jet = $30 million), making Nigeria one of the biggest
market destinations for private jets in the world.
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The present reform process led by the Ministry of aviation has
impacted positively on airlines services and the attraction of
investments for infrastructure development in the sector.
Some recent achievements of the sector:
◦ The ongoing refurbishment & remodeling of the airport terminals and other aviation
infrastructure.
◦ Achievement of the NCAA in attaining FAA Category 1 status (only 9 of 62 African
countries have achieved this).
◦ The domestication of the Cape Town Convention, which has created the opportunity
for Nigerian airlines to lease modern aircrafts to expand their fleet.
◦ Passenger traffic has grown from 4.4 million (2000) to 14.6 million (2011).
◦ Nigerian Airlines have modernized their operations and have continued to support
the development of new routes to domestic, regional and intercontinental
destinations.
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Infrastructure
 Lagos airport not ready for hub operation
 Aged airport facilities
 No maintenance facilities/centers
 Poorly equipped training centers
 Poorly managed/equipped cargo terminals
Government polices: No clear & coordinated polices and strategies
to support airlines and the aviation industry.
Fierce competition from foreign airlines
 European and USA mega carriers
 Dominant Middle East & African Airline
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Low utilization of aircraft/ low productivity
 No in-house heavy maintenance facility
 Security issues(limited night operation)
 Inefficiency in the industry value chain
 Customs slow clearing processes
 Aged airport facilities
 Non-integrated International and domestic terminals in
Lagos
 Power disruptions
 Limited economic scale and scope
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Aircraft and spare part import tax/duties/hassles
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High labor cost(expatriate pilots and engineers)
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High fuel costs(COO $.94/ltr/Lagos $1.06/ltr)
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High insurance costs(+100%)
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No financing/high interest rate/short term
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High lease rates
 About 20% higher than industry(due to poor credit risk)
 7.5% with holding tax and 5% VAT
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High maintenance costs
 No in-house heavy maintenance facility
 Excessive ground time abroad
ADC Airlines (1984–2007)
Nexus Aviation
Afrijet Airlines
Albarka Air (1999–2007)
Nigeria Airways (1958–2003)
Nigerian Eagle Airlines (2009–2010,
rebranded as Air Nigeria)
Nigerian Global Airlines (this airline was
launched in 2003 but it never operated)
Bellview Airlines (1992-2009)
Okada Airlines (1983-
Capital Airlines (2003-2009)
RiteTime Aviation
Chrome Air Service (1990–2007)
Selcon Airlines (1993)
Dasab Airlines (grounded 2007)
Sky Executive Airlines
EAS Airlines (1983–2006, to Nicon Airways)
Falcon Airlines
Skypower Express Airways (1985–2007)
Slok Air (ceased operations 2004, to Slok Air
Gambia)
Fresh Air (grounded 2007)
Sosoliso Airlines (1994–2007)
Merchant Express Aviation
Space World Airline (grounded 2007)
Virgin Nigeria Airways (2005–2009,
rebranded as Nigerian Eagle Airlines
Air Nigeria (2010-2012)
)
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Nigerian Airlines operate at higher cost than airlines from
Europe, USA, Middle and Far East
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The private sector alone cannot build the aviation industry
that “Nigeria deserves as economic power”.
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The Nigerian government has to lead the development of a
dynamic & world class aviation industry without further
delay.
A government led transformational strategy that will bring
government/private sector/foreign direct
investment/strategic partners to rapidly transform the
Nigerian Aviation Industry
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Strategic changes should be made in airline and airport ownership
structure.
Review requirement for airlines to be designated as a flag carrier: such a
company must be a public limited company with individual shareholding
not to exceed 10%. This will ensure that no individual has an
overbearing influence on the management of the company so that the
airline can be run professionally and profitably.
Adopt PPP model for development of airports
Modernization and expansion of aviation training facilities: Massive
development of young Nigerian talents in all areas of the aviation
profession. Encourage young Nigerians to pursue career opportunities in
the aviation industry by adopting the approach used in the 1960’s and
1970’s whereby young Nigerians were trained to become loyal,
dedicated and skilled aviation professionals, under full sponsorship of
government and corporations in the industry.
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Immediate waiver/avoidance of aircraft and spares import customs
duties and hassles
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Fast process of BASA requests
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Transit visa/visa on arrival at Lagos airport.
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Waiver of aircraft lease withholding tax &VAT, corporate tax (for at
least 10 yrs), & value added tax on aviation services(ticket sales,
airport charges, handling charges).
Low cost and long term financing for aircraft purchase and
maintenance facilities.
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Protection of Nigerian Airlines against foreign carriers
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Investment in airports
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Review airport ownership structure – e.g. PPP with a view to creating
viable airports.
Renovation of existing terminal buildings and structures (already in
progress)
Construct new and modern terminal buildings in Lagos
Integration of international and domestic terminals in Lagos for
smooth transfer of passengers.
Refurbishment of existing runways and construction of new ones
where necessary.
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Improvement of Navigation and Landing Aids
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Provide steady power supply at all airports
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Changes in policies should be discussed with all stakeholders and
implemented in a manner that will create least disruption to the
industry.
The CBN should empower the commercial banks to create a window
for long term low interest funding for direct lending to aviation. The
industry will require at least N500 billion for this purpose.
An aircraft leasing company with an initial investment of $10 billion
over five years, should be setup by government to acquire modern
aircraft direct from aircraft manufacturers and major aircraft lessors,
and lease on to qualifying Nigerian airlines at preferential rates. This
will help in the reduction of operating cost and improvement of
efficiency and competitiveness.
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Government to review downwards all taxes and charges relating to
airline operation. This includes:
◦ Cancel import tax/duties on aircraft and spares
◦ Significant reduction of stamp duty on aircraft purchase/lease
agreement
◦ Waiver of aircraft lease withholding tax &VAT
◦ In addition government should grant a corporate tax holiday for at
least 5years .
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Government should take appropriate measures to reduce cost of
aviation fuel. This should include urgent resuscitation of local
refineries .
Reduce Insurance premiums paid by domestic airlines by
empowering Nigerian insurance companies to form a local aviation
pool that is able to negotiate better rates in the international
insurance market for Nigerian airlines.
Urgent step should be taken to provide MROs capable of handling
maintenance of various aircraft types operating in the country up to
D-Check. In the interim government should fast-track the
completion of the MRO facility at the Akwa Ibom International
Airport and upgrade of the maintenance facility in Zaria.
AIRLINE
COMPANY
AGE
FLEET
SIZE
AVERAGE
AGE OF
FLEET
DESTINATIO
NS
Ethiopian
Airlines
66 Years
42 aircraft
9.9 years
74 (57
International
& 17
Domestic)
Kenya
Airways
34 years
30 aircraft
8.9 Years
50 (41 within
Africa)
Royal Air
Maroc
54 Years
58 aircraft
10.2 Years
75
Destinations
South
African
Airways
77 Years
52 aircraft
9.2 Years
37
Destinations
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Despite all the improvements and innovation accompanying the
deregulation and privatization of airline services in Nigeria, there are
some challenges still prevalent in the system which have to be
addressed.
A holistic approach has to be adopted to resolve the numerous
issues militating against the growth of the industry
To catch up for lost time, there is need to consider the publicprivate ownership model for airlines in Nigeria, where the
organization is led by the private sector and the shares held by the
government can eventually be sold to the Nigerian public when
stability returns to the sector.