Nigeria Air: Bringing Nigeria Closer to the World, but is it Time?

Monday, December 06, 2021 / 12:32 PM / by CSLResearch / Header Image Credit: Premium Times Nigeria

At the last Federal Executive Council (FEC) meeting,the Minister of Aviation, Hadi Sirika, among other things, announced that thecountry's delayed national air carrier, Nigeria Air, is planned to launch on orbefore April 2022. In terms of the ownership structure of the proposed airline,the government will have an equity stake not exceeding 5%, Nigerians will hold46%, and the remaining 49% will be reserved for strategic equity partner(s),including foreign airlines and financial institutions, etc. The proposedairline was initially planned to begin in 2018 but plans stalled.

Once upon a time, the Nigerian aviation activity wasnever in the news without mentioning the defunct Nigeria Airways, which used tobe the country's national carrier and at some point, was the only airline inthe country. However, the once bright Nigeria Airways abandoned the skies dueto poor corporate governance and mismanagement, leading to a financial crisis,which made it cease operations in 2003. Following an extended period without afunctioning national carrier, it dawned on the government to encourage privatesector participation. This led to the joint venture partnership between theVirgin Group and local investors in 2004, birthing Virgin Nigeria Airways,which replaced the former Nigeria Airways. Amidst changing names from VirginNigeria to Nigerian Eagle Airlines and, finally, to Air Nigeria, thepartnership was unsuccessful due to persistent government interference, leadingto a collapse in 2012.

To a large extent, the news to float the proposedNigeria Air can be considered positive, given that the national carrier standsto serve the continent's most populous nation. At a time when the AfricanContinental Free Trade Agreement (AfCFTA) has been implemented, it bodes wellfor the country to facilitate a faster flow of goods and services to otherAfrican markets. Beyond that, the proposed national airline also adds Nigerianairports as a hub to serve as central points for passengers catching connectingflights.

That said, from an investor's perspective, providing acompelling business case during the procurement stage will be needed to get themuch-needed investments considering the history of failure that has trailedprevious national flag carriers. In essence, investors will be keen tounderstand the extent of government participation and regulatory clauses in theproject. While the Minister did not state the estimated cost of the proposedairline at the FEC meeting, we recall that the initial financing requirement ofthe delayed new airline was estimated at US$300m in 2018. It is safe to assumethat the capital outlay should be higher currently.

The timing of the project, however, appearsinopportune, as the emergence of the Omicron Covid-19 variant is already ignitingtravel bans across the world. This will possibly dampen the revenue assumptionsif operations commence at the said date (April 2022). Also, given the stagesrequired to complete the transaction process, we believe April commencementdate may not be possible, more so as 2022 is a pre-election year that isusually characterised by a focus on election campaigns to the detriment ofproject completion. We see no need for any hurry. In our view, the governmentneeds to take effective steps to identify and prevent the obstacles that haveled to previous failures.