On Nigeria Air – National Pride is not a Business Strategy by Jekwu Ozoemena

In Africa, National Carriers are conceived as a strategic decision to support a sector (or the entire economy), rather than as a standalone business.

So far, only Ethiopian Airlines seem to be profitable (2014 PBT of approximately US$96 Million, US$276 Million in 2015, and US$232 in 2016). This is despite the fact that Ethiopian Airlines Corporate Level strategy is designed to support a burgeoning hospitality sector.

In its 2016 financial year, Kenya Airways (KQ) posted its largest loss ever of over US$254 Million and subsequently embarked on a fire sale of some of its assets (to urgently free up US$100 million cash) and a US$2 Billion debt restructure. 9 months pre-tax loss of its 2017/2018 financial year (March) dropped to 6.1 Billion shillings/US$60.6 Million and US$80.88 Million if annualized.

South African Airlines (SAA) is still bleeding; ZAR935 billion loss in 2012, ZAR1,204 Billion loss in 2013, ZAR2,590 Billion loss in 2014, ZAR5,619 Billion loss in 2015, ZAR1,492 Billion loss in 2016 and ZAR5,431 Billion loss in 2017.

SAA is expected to cut its fleet by 23% particularly after Standard Chartered Bank called in its loan in June 2017 (the South African Government had to honour the ZAR2.2 Billion bad loan) while both Citibank and Standard Bank refused to renew their loans.

SAA total loan debt of ZAR19.1 Billion is backed by the Guarantee of the South African Government.

Rwandair is still loss-making and projected to continue to do so through 2019 I believe, however, like Ethiopian, the Carrier is designed as an integral part of the country’s Meetings, Incentives, Conferences and Events (MICE) strategy and not as a standalone business. All its loans are backed by the Guarantee of the Government of Rwanda.

Royal Air Maroc (RAM) only returned to profitability (after losses in 2010 and 2011) when the government agreed to cover its loss-making domestic services, the company downsized its staff, moving from 5, 372 employees in 2010 to 2,737 by 2014.

Both RAM, SAA, KQ and Rwandair are fully owned by their home governments and enjoy regular capital injections and subsidies.

They are operating mainly because of other corporate level strategy considerations beyond national pride. Consequently, their host governments spend a considerable amount of national resources just subsidizing their operations.

Today, the Federal Government of Nigeria is flexing its muscles over a new national carrier because the oil price is above US$70. What happens if it drops to as low as US$38 per barrel? How will we sustain subsidies given that we are already groaning from fuel subsidies and the various FX subsidies?

And will it even make sense to subsidize the business of a Private Public Partnership in which the Federal Government may be a minority shareholder?

In summary, it will be nice for Nigeria to have a national carrier, however, such a decision must be as a result of a national business imperative.

Is it going to be a loss-making venture? That is almost certain given the antecedents across the region. “Are there benefits to having a national carrier?” Definitely, however, these benefits have to be articulated, quantified and constantly measured and re-measured. The overarching business imperative has to be clear. Most importantly, national pride is not a business strategy.