Introduction

At a January 2017 press conference, the Nigerian Civil Aviation Authority director general revealed that, as of December 2016, Nigeria had executed bilateral air service agreements (BASAs) with 90 countries.(1)

Over the years, questions have arisen as to the effectiveness and profitability of these BASAs for the Nigerian economy. This update analyses the country's position during the negotiation of the agreements and the issues that have subsequently arisen, as well as additional Nigerian air transport industry concerns.

Negotiation of BASAs

BASAs are treaties that allow international commercial air transport services between the signatory countries. They promote international air links, which support and enable the movement of persons and cargo, as well as trade and tourism. The agreements provide the framework under which identified airlines from the signatory countries fly into designated airports in each other's territory. In order for both countries to benefit from a BASA, they usually ensure that it covers such issues as:

  • traffic rights;
  • the use of intermediate routes;
  • types of aircraft;
  • safety standards;
  • competition;
  • ownership policies;
  • fares;
  • tax issues; and
  • the design and control of airlines.

Role of bargaining power in negotiations

Each country's bargaining power plays a significant role in the negotiations of a BASA. In determining this bargaining power, the following should be considered:

  • each party's air transport policy (whether liberal or restricted);
  • the volume of each party's air transport market; and
  • the size of each country's national carrier.

Nigeria is generally viewed as having one of the most liberalised air transport industries in Africa. It is a signatory to the Yamoussoukro Declaration, which it has implemented through its national air transport policy. The Yamoussoukro Decision calls for, among other things:

  • the full liberalisation of intra-African air transport services in terms of access, capacity, frequency and tariffs;
  • the free exercise of first, second, third, fourth and fifth freedom rights for passenger and freight air services by eligible airlines. These rights, granted by most international BASAs, enable non-national carriers to land in a state and take on traffic coming from or destined for a third state, among other things;
  • liberalised tariffs and fair competition; and
  • compliance with established International Civil Aviation Organisation safety standards and recommended practices.

At the 2015 African Union Summit in Addis Ababa, Nigeria recommitted to the complete implementation of the Yamoussoukro Decision by 2017. This zealousness, although commendable, must be critically monitored – especially with regard to Nigeria's bargaining power in its negotiations of BASAs – to ensure that the economic benefits of these BASAs are realised.

Although Nigeria lacks a national carrier at present, a number of foreign airlines operate to and from the country at varying frequencies via its international airports located in Lagos, Abuja, Port-Harcourt and Kano. In addition, prospective foreign airlines are permitted and encouraged to enter Nigeria to operate flights to, from and within the country. However, such operation is subject to the extensive conditions prescribed by Part 10 of the Civil Aviation Regulations, which prohibit foreign air operators from operating into, out of or within the country without obtaining operation specifications issued solely by the Nigerian Civil Aviation Authority.

In addition to foreign carriers, privately owned carriers that operate both domestically and internationally also exist in Nigeria. According to World Bank statistics, in 2015 an estimated 52,496.8 international and domestic departures were undertaken by carriers registered in Nigeria. However, this figure is significantly lower than the estimated 65,631.5 reported in 2012. As such, it is clear that Nigeria's air transport industry saw a sharp decline after the fall in oil prices reported in 2014. This fall weighed heavily on Nigeria's financial market and had negative effects on foreign exchange, thereby leading to a sharp increase in the cost of airline operations. A number of international and domestic air carriers were forced to cease operations.

This may lead to the conclusion that Nigeria, although still competitive within Africa, has significantly weaker bargaining power when negotiating BASAs with non-African countries. This could result in an imbalance when entering into negotiations and renegotiations, with results spanning from increased dominance of foreign airlines to capital flight.

For example, after the renegotiations of the BASA between Nigeria and Qatar, Harold Demuren, former Nigerian Civil Aviation Authority director general, stated in a 2016 press release that the agreement gave Qatar's designated airline, which at that time had seven frequencies into Nigeria, more entry points into the country, thereby compounding the problems of domestic airlines. His argument was that Nigeria had no indigenous carrier to compete favourably with Qatar Airways, thereby making the agreement one sided, despite Minister of Finance Kemi Adeosun's confidence that its signing would lead to significantly more investments and business opportunities between Qatar and Nigeria.

Argument for national carrier

Demuren is not alone in his contention that the government should invest in the revival of the national carrier. The argument broadly circles around Nigeria's competitiveness under its active BASAs, as it is believed that a national carrier would be able to operate in foreign countries, much like Qatar Airways, British Airways, Ethiopian Airlines and other foreign national carriers. In addition, it has been argued that as a national carrier would be based in Nigeria, it would create local jobs and business opportunities. However, the reality of operating a national carrier is not so simple. A national carrier, unlike other government-owned institutions, must be run as a business. In arguing for a national carrier, a lot of confidence is inadvertently placed in the Ministry of Aviation's ability to operate the airline as a profitable business. The ministry would be expected to make efforts to ensure that costing, pricing, advertising, marketing and other business fundamentals are effectively and efficiently carried out to a professional standard.

At present, the national carrier would be subject to the same difficulties faced by private carriers. As such, the government should focus on creating a more conducive business environment within which a national carrier may strive. Once this has been achieved, the government may consider entering into a public private partnership with a strong private investor whose expertise should bring the desired professional and strategic business planning to ensure success.

Comment

It is apparent that certain BASAs have been negotiated or renegotiated without extensive consideration of the commercial elements required for the industry to experience the proposed targeted benefits of such agreements. Further, there has been little emphasis on the economic realities which Nigeria is facing. For example, most BASAs provide for royalties to be paid to the government where the nominated Nigerian air carriers are unable to reciprocate under the agreement. This measure may be an efficient way of boosting government revenue under the agreement, but it does nothing commercially for the industry. In some cases, agreements have been signed to stop the payment of these royalties altogether. In stark contrast, Emirates entered into an agreement with South African authorities in 2014 to obtain additional frequencies from South Africa to Dubai. It was reported that the additional frequencies were granted on the condition that the airline pay 40% of the cost of each ticket to South Africa Airways. As such, there was a commercial benefit to the national carrier and, by extension, the nation. It is recommended that the government consider similar or other commercial options so as to give indigenous carriers an incentive to continue operations and possibly expand them internationally. The idea is not to reduce the frequency of flights or entry points of foreign carriers, but to increase the indigenous air transport industry to a level of competitiveness that would rival that of any foreign country. Further, the government and industry stakeholders must look internally to the improvement of aviation infrastructure and other related areas in order to strengthen Nigeria's bargaining power before seeking to renegotiate existing BASAs or negotiate future ones.

For further information please contact Ibifuro Sekibo or Adunola Akindele at George Etomi & Partners by telephone (+234 1 462 1660) or email (ibifuro.sekibo@geplaw.com or adunola.akindele@geplaw.com). The George Etomi & Partners website can be accessed at www.geplaw.com.

Endnotes

(1) Notably, only around 39 of these executed agreements are active.

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