At an Aviation Stakeholders Forum held in Abuja in May 2016, Minister of State for Aviation Hadi Sirika stated that a transition adviser will soon be appointed to help develop the process for the establishment of a national airline.
Having a national carrier would enhance Nigeria's visibility on the global stage, promote the development of the aviation sector, increase revenues, create jobs and boost the tourism industry. However, certain factors must be considered when setting up a national carrier - not least ensuring that it has a sound legal structure.
Several different ownership and management structures may be considered when setting up a national carrier, such as government owned, private company or public-private partnership (PPP). The choice of structure should be informed by the peculiarities of Nigeria, the reasons for the failure of previous national carriers and international trends in the ownership and management of national carriers.
Traditionally, most national carriers were government owned. However, in recent times airlines have moved towards a privately owned or PPP structure, due to the issues associated with government-owned airlines, including government mismanagement, excessive bureaucracy and corruption. Public funds are generally used to shore up the assets of failing national airlines, which usually end up being loss-making ventures. These were some of the issues that led to the downfall of the previous government-owned Nigerian national carrier, Nigerian Airways; this model thus would not appear to be the best option for a Nigerian carrier.
The national airline could be set up purely as a privately owned enterprise, like German airline Lufthansa or British Airways (both of which were initially state owned, but are now in private hands).
A PPP involves a long-term contractual arrangement between a private entity and a government agency or authority for the provision of a public asset or service. In entering into such an agreement, the parties combine their skills and assets to carry out a specific project. This is another viable model that could be explored when setting up a Nigerian national carrier; however, it will be important to bear in mind the issues which led to the failure of previous national carrier Virgin Nigeria, which was a PPP with Virgin Atlantic.
A PPP can take several different forms, with varying levels of government and private participation depending on the characteristics of the transaction. A government that plans to embark on a PPP for a national carrier will normally partner with a well-established international airline with the technical know-how and goodwill to ensure that the carrier can operate successfully.
Meanwhile, the government's participation should ensure that unnecessary bureaucracy does not prevent the airline from obtaining the requisite regulatory approvals; the government may also provide sovereign guarantees for the project cost where necessary. The government should partner with a transition adviser who is an expert in the sector, to help ensure the success of the national carrier.
An example of a successfully restructured African airline using the PPP model is Kenyan Airways. Kenyan Airways, like most airlines, was originally government owned and was privatised in 1995, with 26% of the airline being sold to a strategic partner, KLM. Non- Kenyans were also limited to 49% ownership of the airline.
In light of Nigeria's previous experiences, several factors must be considered when establishing a national carrier. The first is to ensure that a strategic partner airline which is knowledgeable in the field and has the necessary experience is selected. Another key consideration is to appoint a transition adviser with the necessary expertise to advise the government on the steps to take in setting up the carrier and to ensure that these are in line with international best practices, good corporate governance and accountability. Another consideration is to specify a minimum shareholding level for Nigerians, to ensure that the airline is operated in a way that accords with the interests of Nigerians.
Past experience would suggest that the most suitable structure for a Nigerian national carrier would be a PPP led by the private sector, with government participation ensuring that the airline is not hindered by unnecessary bureaucracy and that the requisite approvals are received in a timely manner.
For further information on this topic please contact Timeyin Bob-Egbe at George Etomi & Partners by telephone (+234 1 462 1660) or email ([email protected]). The George Etomi & Partners website can be accessed at www.geplaw.com.