Nigeria Eagle: Another Tricky Situation Brews in Aviation Sector

Nigeria Eagle: Another Tricky Situation Brews in Aviation Sector

Nigeria Eagle Aviation
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It has been widely reported lately that the Asset Management Corporation of Nigeria (AMCON) has reached an advanced stage towards launching a multi-billion-naira airline by pooling together aviation assets, especially planes in debt-ridden Arik Air and Aero Contractors Airlines.

The new international airline, to be named Nigeria Eagle, may take to the sky with at least 10 planes as early as June, according to insiders who spoke on condition of anonymity recently because they were not allowed to speak on the matter.

If AMCON is fixed on this plan, then the corporation is about brewing another anxiety in the nation’s aviation sector that’s already walking on volatile grounds. It is believed that the proposed moves will strip the assets of Arik Air and Aero Contractors Airlines and domicile them in the new Nigeria Eagle.

Read Also: Why N4bn Bailout Fund May Not Revive Nigeria’s Aviation Sector

Aviation experts have pointed out that Arik Air and Aero Contractors Airlines have massive liabilities. If these liabilities are backed by asset debenture, how do you strip those assets and domicile them in the new Nigeria Eagle? What of the accompanying liabilities? Is AMCON not preparing grounds for legal battles with the brands involved?

This is also coming at a time the airline business is barely trying to survive in Africa and globally.

The South African Airways is seeking a bail out of about 1 billion Rand. Kenyan Airways was stopped some months ago from trading on the stock exchange because of financial crisis. KLM airlines had to pull out from an initial deal due to unfavourable conditions.

Although the Aviation ministry have repeatedly spoken about establishing a national carrier, is this the best time for AMCON to launch an airline? Recall that, the federal government, few years ago had “launched” a national carrier before it was later cancelled. The cancellation came barely two months after Nigeria unveiled the proposed airline at the Farnborough Air Show in England.

Critics and many industry experts had raised concerns over the project when it was launched, with many suggesting that Nigeria cannot afford it at that time. The economic climate now is even worse. Many analysts are equally disturbed that AMCON is pushing for the idea now.

In 2019, the aviation sector was the fastest growing sector in Nigeria in real GDP terms, up 13.2% y/y to N83.5bn from N73.8bn in 2018. Regrettably, the outbreak of the coronavirus in Nigeria negatively affected the galloping prospect of the industry. Part of policies of the Federal Government’s bid to contain the spread of the coronavirus, just like most other countries, resulted in the shutdown of the Nigerian airspace.

The economic costs of the shutdown of air travel from March 22, 2020 was quite enormous. Nigeria at a time lost conservatively N21bn each month. In addition, data from International Airline Transport Association (IATA) estimated that the coronavirus outbreak would cost Nigeria’s aviation sector US$994.0m (N357.8bn) in revenue, 125,370 jobs would be lost, and the overall economy would lose US$885.0m (N318.6bn) in form of lost nominal GDP contribution from the sector.

According to findings, only 10% of Nigerian population travel. Pretty low compared to the percentage in other countries. This biting period, there would be so many other limiting factors to new investments in the aviation industry apart from this.

Analysts feel some of these limiting factor facing Nigerian airlines, may affect the Nigeria Eagle when it comes on board. Until there are positive changes, whatever model an incoming investor wants to use, it he will meet a lot of obstacles.

The airline, as gathered, will be operating purely commercial passenger services. Most successful airlines in Africa like Ethiopian Airlines combine both commercial passenger and cargo services. That is why one sees Ethiopian Airlines carrying medical items, vaccines, agricultural produce and other goods and generating resources even during the lockdown.

Another important factor is the stability and value of the currency that attracts foreign investors. What is Nigeria’s foreign exchange rate lately and how stable has it been to attract foreign investors right now?

Nigeria is currently in a recession and the nation’s crude oil has been dragging around $40 for some times now. However, it has recently appreciated towards $55 or so, and that gives the CBN governor some leeway to fund the official market and meet the forex needs of the country. Once this can be consistent, the stability that is required will come back to the market and investors will start thinking of areas they can push their resources.

Many Observers feel AMCON should focus more on recovering those high non-performing loans that it was mandated to do, instead of diversifying into aviation business.

The agency should reinforce current commendable steps of linking up effectively with the task force created through the merger of the Economic and Financial Crimes Commission (EFCC), Nigerian Financial Intelligence Unit (NFIU) and the Independent Corrupt Practices Commission (ICPC) to ensure that they get results. Waiting till economic climate improves and normal travelling resumes is advisable, before establishing an airline, for the agency to avoid heavy losses that can bring her into greater disrepute.

Godwin Ayebe

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