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Survival of local airlines

Newspaper reports that the local airlines in Nigeria may collapse within the next five years if urgent steps are not taken to improve their performance has brought to the front burner the current poor performance of most domestic airlines in the country and the need for urgent steps by the government to safe the aviation industry from imminent collapse.

Local airlines in the country currently operate domestic and regional routes, but they may find it difficult to operate further because of stiff competition arising from the open skies initiative now gaining ground across Africa. The open skies agreement which liberalises air services in Africa was signed in Yamoussoukro in 1988. The resultant deregulation of air services and the promotion of regional air markets brought in its wake transnational competition among airlines in Africa, thus creating a palpable fear that most airlines, especially the weak ones will eventually collapse.

The Yamoussoukro declaration is expected to take effect within the next five to seven years. But before the agreement goes into effect, some local airlines in Nigeria started experiencing operational difficulties which almost grounded their operations. They were bailed out by the federal government a few years ago. Unfortunately, some of the airlines that took the bailout are yet to fully pay back, thus creating a bad image for the aviation industry and making it difficult for the government to extend lifeline to them again.

Consequently, experts are warning that in the ensuing competition the weak airlines would collapse, thus giving way to the strong ones to survive.

For Nigeria, many local airlines may not be able to compete favourably in the next few years and operate regular flights for a number of reasons. First, less than 20 of the 47 registered local airlines in the country have good insurance policy and without good insurance policy, they might not be able to effectively operate and compete both in the local and in the regional market.

Also, most of the local airlines have poor business plans and bad aircraft holding structure. They also operate multiple aircraft types and have poor maintenance history, bad crew and aircraft management system. It is also instructive that for many of them, the bailouts they received from the federal government some years ago are yet to be fully repaid, for some others, their aircraft holding structure cannot sustain their flight schedules.

In addition, most of them have poor corporate governance in running their airlines. Some have fat pay for foreign pilots and staff and meagre pay for local pilots and staff doing similar jobs. Added to this are rampant corruption, fraud and conversion of operations money to personal use by many owners of local airlines. Worse still is the nonchalant attitude of some of the aircraft owners to the state of affairs of their airlines.

The way forward is for the strong airlines to streamline their aircraft holding structure for better performance and be ready for the stiff competition ahead. In addition, the airlines should adopt realistic business plans that can make their airlines survive the tough competition ahead.

The option of mergers and acquisition should also be vigorously pursued by airline owners. In doing this, some of the big airlines should merge to form mega airlines, or acquire the weaker ones. Where the airlines are unwilling to merge, the government should come up with a survival plan that would make them merge just as it did some years ago the Central Bank allowed many banks in the country to merge to meet the N25 billion minimum capital base directives set for the banks.

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