HOW AIRLINES FLY OUT OF EXISTENCE

Bellview Airline editAircraft belonging to some extinct domestic airlines. It is no longer news that the Nigerian domestic carriers are shrinking in number with the likes of Okada Air, Afrijet, Bellview, Virgin Nigeria and Capital Airline, among others, going under while others still flying are struggling to stay in business.

The spate of rapid business failure among airlines in the country with no fewer than a hundred ‘crashing’ within a period of four decades prompted a research which revealed that close to two dozen factors have been responsible for frequent airline failure in the country. The research, undertaken by the Chief Instructor at the Nigerian College of Aviation and Technology, NCAT, Zaria, Mr. Emmanuel Onwuka, revealed that in four decades, no fewer than a hundred brand names of airlines have gone under due to lack of well-articulated business model, non-existent branding and brand dynamics, managerial incompetence, wrong use of over aged airplanes and poor maintenance culture, among other reasons.   Also dire need of working capital, poor economy, lack of technical expertise, bad business practices, draconian government policies, heavy debt burden as well as rivalry between local and foreign airlines were found to be responsible for airline failure not only in Nigeria but in other nations of the world.

The research, titled Flying into Failure, also listed poor airport facilities, poor organisational strategy, lack of adequate feasibility studies or what is called product planning, owner/manager syndrome, regulatory and/ or over regulation of domestic operations as factors for frequent failure of airlines worldwide.

There is no doubt that Nigerian airlines, in recent times, have come under the impact and effects of the global economic recession especially in the areas of leasing of aircraft and sourcing of credit to run them profitably. Onwuka said profitability is not the only factor for the survival of airlines as profitable airline companies such as Australia’s second largest carrier, ANSETT founded in 1935 became that nation’s most high profile aviation failure and one of the largest corporate collapses ever. Before running aground in 2001 due to a change in administration, it flew for six and a half decades during which it ferried a total 14 million passengers annually and with an annual turn-over of $13 million.  In the same vein, the Malaysian Airline went into the path of collapse after two major accidents: the disappearance of its Flight MH 370 in March 2014 and the loss of another aircraft operating Flight 17 the same year over the disputed Eastern Ukraine’s territory, both without survivors.  Aviation experts have spoken of the curious liquidation of QANTAS, the parent company of New Zealand Airline, despite the claim that it was one of the world’s safest.

In the words of Kate Schneider: “There are the hugely powerful and glamorous airlines that soared into the heart of the public only to be plunged into despair and grounded forever.”

According to another aviator, Don Sexton, “PanAm and TWA, at one time were well known and successful airlines. PanAm Flight 1 circled the globe. TWA seemed to have been everywhere. Neither is still in operation. What happened? Many factors led to their demise but among them was the erosion of their brand. People knew their names – their brand awareness was high – but as their corporate lives ended, potential customers did not seem to associate much that was positive with them. As the airline descended into failure they had less cash available and on and on ended up in a vicious spiral.”

There has been a controversy over the liquidation of the Nigeria Airways Limited, NAL,  with politicians arguing that corruption and mismanagement by successive managements as responsible for its illiquidity while aviators stick to their guns that the case of the erstwhile national carrier was not irredeemable; all that needed to be done was to repackage and reposition it for commercialisation.

In some other instances, owner/manager syndrome has been held responsible for the demise of airlines. Starting an airline business, according to Onwuka, may be easy if one has all it takes to do so but making it successful is the hard part because the intricacies are terribly complicated and the industry is heavily regulated. For instance there are owners who retire or declare bankruptcy and hop onto something else unmindful of the pain inflicted on those whose lives have been permanently destroyed by the demise. There are other instances whereby companies fade away or are sold to competitors and former Chief Executive Officers move on with life unaffected by the demise of the once glamorous airline. In Nigeria efforts were made in the past by the regulatory agency, the Nigerian Civil Aviation Authority, NCAA, to midwife a merger of the small carriers in the country but such moves have been rebuffed by ego driven airline CEOs who would rather prefer to remain at the helm of affairs of airlines with a small fleet than playing a second fiddle in a mega carrier.

Also the cost of maintaining wet/dry lease agreements entered into by these small airlines is another factor responsible for the high mortality of airlines in the country. This is essentially due to the fact that aircraft parts are not manufactured locally while the cost of these parts is denominated in hard currency. The situation is further worsened by the recession in the global economy coupled with the absence of maintenance facilities in the country. Other factors enumerated by the NCAT Instructor responsible for airline failure especially in their first five years of their operations, include failure to meet regulatory requirements, misappropriation of government bail-out/intervention fund, sky-rocketing cost of one hour domestic flight, incessant flight delays and cancellations and ignorance of Time critical dimension of airline operations.

In the recent past following the global economic meltdown, the government of the federation intervened to ameliorate the hardship of airlines through the provision of what government called intervention fund. Money made available under the scheme had been misappropriated by both government officials and airline operators. In fact transactions have become subject of litigations and being resolved in the court of law.

One vexed issue is the high cost of aviation fuel popularly called Jet A1 in the country has been responsible for the hardship of domestic airlines. The cost which was N105 per litre at the beginning of the year is now N172; the highest in the world. Cost of fuel constitutes about 40% of operational costs.  The situation is such that foreign airlines now make stop-over in neighbouring countries in order to take advantage of the availability of Jet A1 at cheaper prices thus depriving the country of a hub status either in the West African sub-region or the African continent where we have advantage of human resources hence a large market to sustain the flying business.

It is no longer news that government has not done enough to keep the domestic airlines in business by granting foreign airlines multiple entries into the country and not protecting their own.

Government policy tilts towards multiple entries for foreign airlines. One that comes to mind is the case of a Middle East airline that benefited from the government largesse and operates to Johannesburg in South Africa and which had to interline with five South African based airlines.

The interline agreement is offering passengers easy access to other South African destinations following arrival in Johannesburg. The question that comes to mind readily is: Would those SA carriers have benefited from that revenue stream if that airline had multiple entries into South Africa?

On the contrary, in Nigeria, we give away more frequencies and capacities and collect royalties otherwise known as BASA funds. To date Nigeria is into no fewer than 70 of such agreements with nothing to show for it in terms of growth of our local aviation. It is no secret that our economy is heavily dependent on the government which is the biggest spender at all levels and as such our local airlines have often fallen victims of inconsistencies in policy formulation thus leading to their early demise.