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Private Sector Should Take Over Airports

Former Managing Director of the Federal Airports Authority of Nigeria Mr. Richard Aisuebeogun, in this interview with Chinedu Eze, posited that airports’ management should be transferred to private hands

 

Business jet market is sliding since after the presidential election. Do you foresee future growth of that segment of the aviation industry?

What we witnessed prior to the elections cannot be said to be growth; it is at best a bubble. This bubble was partly fed by a bubble in the oil and gas industry and a rise in political activities. The post-election lull is hence anticipated and in order. It is actually a reversal to the actual status of the industry than a slide. The general aviation part of the aviation business is still largely open hence it is still a green market. Opportunities still abound in the areas of functional Aircraft Maintenance Organisation (AMOs), Flight Simulation Centres, aircraft detailing, quasi-scheduled executive transport amongst others.

The business jet operations is a Federal Aviation Administration (FAA) designate part 135 sub-sector of air transport and interestingly reached its healthiest state in seven years in 2014. Industry analyst based in the US, reported a survey that showed that business jet reached a pre-recession level with flight actually finishing up two per cent compared to 2013 and even made a forecast increasing growth in years ahead.
What are the factors responsible for the slowing down of the business jet market after positive projections that put it at high growth rate? Erroneous perception of growth; end of political activities; slow start up of the current government; body language and the zero tolerance corruption perception of the government; the attendant ambiguity of aviation policy direction of government; a highly impacted and scaled down oil industry (reduction of in international price of oil) and the recent government policy directive to all MDAs for compliance to Treasury Single account (TSA).

Do you think that those who invested hugely in that area can recoup their investment in not so distant time?

There needs to be first a distinction between investments and venture capitalism. The true investors already have plans for the medium to long-term with contingencies factored in for undulations and other environmental factors. For this set, there exists a promise of good returns in the foreseeable future. The change in government and the attitude thereof would reveal the real players in the sector. The pattern of consumption of the consumers would also change. Incessant and unwarranted business jet “ownership” would cease while the real customers would charter rather than own. The few real owners would remain and operate as normal.

Sadly, the party might now be over for the venture capitalists as there would be no room for such in a growing Nigerian business aviation niche.

What role would you recommend government should play in the aviation industry?

Government,whether in this or other sectors should provide the role of an enabler by minding the gap in terms of infrastructure. Minding the gap because, she is to hold the forth until such a time in the continuum when the sector is grown enough to attract private investors to take over.

Government should also restructure to provide developmental regulatory frameworks and regulation. Rather that the today’s regulation that is more like policing, they should evolve to a partnership status with the interest of ensuring accelerated growth within the framework of international best practices and standards.

Do you share the view that Nigerian airlines may not break into the international traffic market without a national carrier?

No, I do not believe so. However, I do believe the carrier that provides services in the international space is either ill prepared or has not attained that level of growth and preparedness to fly our flag in the international market.

You have to deal with these hard facts, which include the fact that strong presence in the International Air Transport Association (IATA) clearing house is a must.  Sadly, we are not even on this platform.

A serious international carrier cannot operate as a standalone or just depend on point –to-point traffic.  Even the legacy carriers know the importance of alliances, codeshares and interlines and a serious international carrier knows the importance of a working and real-time GDS. No major carrier feeds into Internet based GDSs. Hence the distribution channels leveraging these platforms are already confined to local destinations and traffic.

There is a completely non-existence of products, brand essence and a geometric erosion of goodwill due to lack of reliability as a result very dismal on-time-performance status.

There is non-compliance with either the Nigerian Civil Aviation Authority (NCAA) or IATA standards during flight disruptions. While flight disruption is not so much of a challenge, the handling of same is even of far more significance and there is dearth of capacity especially human capital.

Do you agree with the agitation that domestic airlines should stop paying charges to aviation agencies as a way of making them survive and operate profitably?

I do not agree that airlines should not pay charges. If services are provided by government, then all services consumed must be paid for whether rendered by government or otherwise. There should be differentiation in charges based on categorisation of airports. Example, what is payable in Kano for instance should be different than in Akure.

I however, would advocate the waiver of charges on aircraft spares, tools and equipment as it is the practice in many other countries where their aviation sector is still an evolving stage as ours.

Again, the need to reiterate government position as partners rather than competition is of absolute necessity.

What is your candid view about airport management in Nigeria? 

Personally, I do think airports management should start undergoing a gradual phase of transferring from government to private hands. First, through a process of commercialisation; then privatisation.

However, in the interim, there should be a change in strategy that encourages less dependence on “aeronautical” incomes to more of “non-aeronautical” incomes. A lot of thriving airports are today facilities housing huge fashion houses, accessories, business centres, tourist attractions, car dealerships, pharmaceutical giants that happens to have airport/travel as part of a thriving complex. The thematic presentation of our airports should be headed in this direction.

There should be rigorous pursuance of complete multi-modalism in our airports. This makes them the hub of domestic transport. Besides, international transit systems in Nigeria is still far from seamless. This needs careful planning and deliberate tuning.

Let me also add that airport provides access to and interlink regional, national and international markets. This makes investment in existing or new airport infrastructure essential to economic development.

Traditionally, airport were owned, managed and operated by government, but increasingly, there has been a global shift towards private sector involvement with varying degree of private ownership and responsibilities, including the use of public private partnership models.

In other words am saying that government should begin to see the need to share the risk of growth with private partners.

This has been done successfully in UK with Global Infrastructure Partners (GIP) a private enterprise based in New York; USA led by a Nigeria Business Man Dr Adebanjo Ogunlesi acquiring a major stake at £1.5 billion from British Airport Authority (BAA) and thereby own London Gatwick Airport (LGW). He has since gone further to acquired 50 per cent of American International Group Stake in London City Airport and Edinburg Airport in 2012.

Don’t forget that the Spanish Construction giant Ferrovial bought the largest stake in London Heathrow Airport and went on to buy other British Regional Airport still struggling to sustain their existence. Interestingly enough, another Spanish airport operator company and a private equity have just agreed a deal to buy Luton Airport in a latest sign of consolidation among the EU airport operators.

Would you advise government to hold on to the airports or to concession them?

Let us first appreciate government efforts over the years. The airports we are talking about were built in the 1970’s with the 1960’s architecture by government because they wanted to integrate the region through a faster and safe means of transportation (Air Transport). However, over the years the infrastructure have been left to dilapidate, and with increasing numbers of variables competing for available scare resource, less attention was paid to the growth elements of course until recently. Therefore, for passengers to begin to feel the desired experience when traveling through the airport a complete airport improvement program must be in place and government must take the lead in the infrastructure upgrade before we begin to talk of concession.

Remember, seven key drivers make airport attractive for investment be it from government or by private enterprise and they are market position: This is natural and given in this case with Lagos airport as hub for west and central Africa region; customer Base: we must have a strong Flag Carrier or diversified customer base (several major airlines); actual performance: the operational efficiency (What’s is our annual growth YIY) and profitability.

There is also growth potential: the higher the growth rate the higher the value of the airport; Airport Capex Need: The capital expenditure as a correlate to capacity; non aeronautical: develop your retails, duty free, car parking, advertising and real estate etc; regulations: Airport must see itself as a service provider and not regulator. So the dual till concept is best approach to regulation.

Do you believe that without government control of the airports it will expose the facilities to security threat?

Of course, I do not believe so. However for the sake of arguments, every part of the airport can be concessioned; then a body called aviation corps can be created from what is today Directorate of Aviation Security of FAAN and made into an autonomous body with inputs from Customs, Immigration, the National Drug Law Enforcement Agency (NDLEA) etc. for the security of the airports. This autonomous corps should report to the office of the NSA.

How possible is insider threat to Nigerian airports in terms of safety and security?

Like most threats, they rarely occur in isolation without insider threat. This is why security should be consistent and impersonal in its application. The continued need for rigorous background checks and airport operatives and concessionaires profiling cannot be overemphasised.

There is opinion that if well-harnessed, Nigerian airports need not rely on aeronautical charges but advertising alone can provide the FAAN the funds it needs to offset current expenditure and invest in airport development?

The need for less reliance on aeronautical charges is not only the way to go but has now become necessary. It is contestable if the current stream of aeronautical charges is able to meet FAAN’s recurrent commitments. It should be made clear however that while advertising if properly harnessed could provide the airport operator with very healthy incomes; it is definitely not the only source of additional incomes. Automated car parks, tolling, royalties, fuel charges etc are other sources.

What is your suggestion on how best to maximise revenues from advertising from the airports?

Outsource to private hands and agree on the rules of engagement.

In the comity of airports where are you going to place Nigerian airports?

Technically, we have about three or four Category III airports. That shows very high standards in terms of infrastructure-wise, while some strides were made during the last administration, I would say we are still a work in progress.

There should be a conscious strategy to position Lagos airport as African hub. This cannot be left to FAAN, as it is more about the country than the airport operator. There should be categorisation of airports and should be strictly adhered to. Example, the denomination of Owerri airport as a cargo airport should be strictly adhered to in order to develop their different capacities.

The policy of Aerotropolis as posited by the last administration should be sustained and generally, airport infrastructure is still below par.

How can government boost revenue from air transport?

Simple, view airports as the gateway to the country’s image and hence (Foreign Direct Investment (FDIs) and treat it as such. See airports as a facility that is capable of facilitating an entire value chain and not just a contraption for the movement of goods and persons. There should be more collaboration between government and private entities for the intended definition of privatisation.  Regulators as partners and not mere policing and enhance capacity development.

 

 

Source: Thisday Nigeria

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