Nigeria Air’s profit will not cover for the capital cost of the project — Rewane

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Bismarck Rewane

Respected economist and Chief Executive Officer (CEO) of Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, has joined other financial experts in criticising the Federal Government’s plan to establish a national carrier for the country.

Rewane made the criticism in his Lagos Business School (LBS) August 2018 presentation obtained last weekend.

Specifically, he argued that the expected profits from the national airline project would be insufficient to cover its capital costs.

The Federal Government, unveiled the national carrier christened, “Nigeria Air” at the 2018 Farnborough airshow in London last month, ahead of the project’s expected take-off on December 24.

The Minister of State for Aviation, Hadi Sirika, said that the Federal Government was not fully funding the airline, adding that the government opted for a Public-Private Partnership (PPP) to deliver a national carrier that would be world class in operation and management.

He revealed that Nigeria will receive the first set of five airplanes for the airline on December 19 and own 30 aircraft in five years.

Hadi Sirika, Minister of State Aviation

Besides, he said that the airline is designed to operate on at least 91 routes, out of which 41 are international.

According to Sirika, the proposed airline, which is expected to gulp $8.8 million preliminary cost and $300 million as take-off cost, will make profit three years after commencing operations.

But describing the national carrier project as another bridge to nowhere. Profits are insufficient to cover the $300million capital needed for Nigeria Air, Rewane contended.

“Airlines in world over (including Nigeria) account for only 3% of after tax profits in Q1 18.”

He pointed out that recent data shows that only 1 in 10 national carriers are profitable. Specifically, the FDC boss stated that out of five national carriers such as South Africa Airways, Kenya Airways, Swiss Air, Alitalia, and Ethiopia Airlines; only Ethiopia Airlines is profitable.

The CEO of FDC Limited suggested that instead of the government establishing a national carrier, it should focus on ensuring that the country has a functional commercial Aircraft Maintenance, Repair & Overhaul (MRO) centre as well as a flight stimulation centre.

Noting that these measures will result in massive cost saving for the country as well as the airlines. Rewane equally backed calls for airport concession, which, according to him, will also reduce the government expenditure.

Although the government continues to insist that it has learnt from the collapse of the country’s defunct national airline, Nigeria Airways, which was liquidated in September 2004 after it slipped into heavy indebtedness after 46 years of operation.

Noting that steps should be taken to ensure that the new national carrier does not suffer the same fate, he said financial experts and industry stakeholders do not seem to be convinced.

Some months ago, a former World Bank Vice President, Oby Ezekwesili, had predicted doom for the new national carrier.

Oby Ezekwesili

On March 28, three months before the new airline was unveiled, Ezekwesili said on Twitter that the proposed airline must fail for the sake of the country.

Specifically, she said, “for the sake of the country, it must fail. A national airline, which disclosed details raise more questions than they answer. Their plan for it must fail to save the poor of this country, the colossal waste of limited public resources that should be invested in sectors that would help lift the poor out of poverty. FG has no business going into the business of airlines. The evidence is strong.”

She dismissed the explanation by the government that it would have only 5 per cent stake in the venture while the private sector would control 95 per cent.

“Which private sector, please? What is the push factor for FG’s haste in rushing a ‘deal’ it has not found the rest 95% ‘owners’?”

Also, the Chief Executive Officer of African Aviation Services Limited, Nick Fadugba, had been reported as saying that despite the positives of the Nigeria Air project, it is still clouded in a lot of uncertainties.

“With Nigeria Air coming on board while Arik Air and Aero Contractors are already under the control of the Asset Management Corporation of Nigeria (AMCON), a Federal Government agency, it means the government owns three airlines and I don’t know any country in the world where such exist”, Fadugba said.

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