Flights or Plights:

Reviewing the Performance of the

Nigerian Aviation Industry

Contents
Executive Summary................................................................................................................3
Global Aviation Industry Overview.......................................................................................5
The Nigerian Aviation Industry Overview............................................................................ 7
Industry Value Chain..........................................................................................................8
Regulators........................................................................................................................8
Airline Operators.............................................................................................................8
Service Providers.............................................................................................................9
Air Travelers..................................................................................................................10
Flights or Plights: Assessing Industry Performance.......................................................... 11
Successes............................................................................................................................11
Route Expansion............................................................................................................11
Capacity Expansion........................................................................................................11
Extended Services..........................................................................................................11
International Partnerships............................................................................................11
Billing and Settlement Payment...................................................................................12
Air Safety Standards......................................................................................................12
Setbacks.............................................................................................................................12
Rising Cost of Aviation Fuel.........................................................................................12
Excessive Taxes and Charges.......................................................................................13
High Cost of Aircraft Maintenance...............................................................................13
Dwindling Human Resources........................................................................................13
Multiple Destinations Scheme of International Airlines............................................ 13
Strategies and Solutions...................................................................................................14
Government Intervention: Power and Aviation Intervention Fund (PAIF).............. 14
Mergers and Cooperative Models.................................................................................14
Regulatory Concessions and Support........................................................................... 14
Human Capacity Building.............................................................................................14
Industry Outlook and Forecasts...........................................................................................15
Conclusion.............................................................................................................................15
References.............................................................................................................................16

Executive Summary
For many decades, the aviation industry has played a significant role in developing
economies around the globe. With over 2,000 airlines operating more than 23,000
aircraft and serving 3,700 airports, the industry is a gateway for globalization facilitating international trade, investments and tourism. Advancements in aero
science and engineering have enabled safer and more convenient air travel for
passengers around the world. As connections to the global air transport network
continue to boost productivity and market accessibility, the aviation industry remains an important driver of economic growth.
Over the last decade, a series of events had considerable impact on the global aviation industry. Following stable growth from 1979 to 2000, the industry declined
significantly in 2001 and again in 2008. Terrorist attacks in 2001 and the global
financial crisis of 2008 caused a downturn in air travel around the world. Though
the industry has had a steady recovery since 2009 - 9.2 percent and 10.9 percent
per annum for passenger and cargo growth respectively - the industry has not
reached its record of 94 million seats in a year set in 2000. As more nations recover
from the recession and citizens elevate their living standards, global air travel is
expected to grow even though profits may drop due to high jet fuel prices.
Following airplane crashes in 2005 and 2006, the Nigerian aviation industry
sought to regain the confidence of air travelers by recapitalizing Nigerian airlines
in 2007. However, the 2008 global financial crisis caused a decline in air travel
as business and leisure travelers reduced their spending. With a steady recovery
from recession since then, the Nigerian aviation industry has seen increased passenger traffic and air travel. The industry has recorded successes in areas such as
a growing cargo market, route and capacity expansion, airline service extensions,
international partnerships and the adoption of the Billing and Settlement Plan
(BSP). While the BSP generates $6 billion annually (accounting for 40 percent
of global industry revenues), its peer system CASS (Cargo Accounts Settlement
Systems) would potentially generate four times that amount.
Yet, Nigerias local airlines face a difficult financial situation. Challenges such as
the rising cost of aviation fuel, excessive taxes and charges, high aircraft maintenance costs, and the growing access of international airlines to domestic routes
has stifled the revenue and profit potential of local carriers. While their global
counterparts spend 29 percent of cost on aviation fuel, Nigerian carriers spend 40
percent of their cost on aviation fuel.
As a strategic initiative aimed at relieving the financial pressure of local airline
operators, the Federal Government of Nigeria through the Central Bank of Nigeria (CBN) and the Bank of Industry (BOI) extended a N300bn bailout package to
the aviation industry under the Power and Aviation Industry Fund (PAIF). Other
recommended solutions are the granting of concessions on regulatory charges, and
the adoption of more cooperative models by local carriers.

For 2012, IATA forecasts a 29 percent industry-wide drop in profits because of

the weak global economy and high jet fuel prices. The projected growth rate of the
global aviation industry falls to 2.4 percent in 2012 from 2.5 percent in 2011. In
developing economies, the prospects are much better. IATA forecasts a profit of
$4.6 billion based on passenger market growth of 4.6 percent, lower than the 5.9
percent projected for 2011. Air traffic in Africa has been forecasted to rise by 4.9
percent in 2012 compared to 2011 levels.

Global Aviation Industry Overview

With over 2,000 airlines operating more than 23,000 aircraft and serving over
3,700 airports, the global aviation industry plays a central role in globalization. It
facilitates economic growth, world trade, international investment and tourism.
Over the past 30 years, air travel has grown at an annual average rate of 5 percent,
with substantial yearly variations in different regions of the world.
The global airline industry is expected to expand as western economies experience a modest recovery from the economic recession, and emerging economies like
China, India and Brazil grow more substantially. This expansion will be further
helped by the development of air travel infrastructure and holiday/business resorts
by emerging countries in their bid to grow tourism. Concurrently, the citizens of
emerging countries will become the new international tourists as these nations
grow more affluent in the future. Business travel is also growing as companies
become increasingly global in their investments, supply and production chains,
and customer base. The demand for air travel is estimated1 to be between 1.5 and
two times a countrys GDP growth rate.
Throughout its history, the global airline industry has had major technological
achievements. The invention of jet aircraft in the 1950s, followed by the development of wide-body jumbo jets in the 1970s, drove industry growth. During this
period, airlines were heavily regulated throughout the world. This created an
environment in which technological advancements and government policies were
less focused on profitability and competition. With the United States leading the
way in 1978, airline deregulation spread across much of the industrialized world.
This has affected domestic air travel within each country and, more importantly,
aided a continuing evolution of intense competition within the international airline
industry.
From 1979 to 2000, global airline capacity increased steadily at an annual average
rate of 5%, equivalent to 94 million seats per year. The industry remained largely
immune to regionalized events such as natural disasters, conflicts and fuel price
spikes. In the vast majority of crises, there was negligible impact on global airline
capacity. On a regional level, capacity dropped less than 4 percent and recovered
within three months. However, the World Trade Center attacks of 2001 and the
global financial crisis of 2008 caused significant decreases in global capacity. Averaging a 3 percent and 9 percent drop in capacity respectively, it has taken the
industry as much as 36 months and 24 months respectively to fully recover.

Chart 1:
Historical
Highlights:
Global Aviation
Industry

Airline industry returns

to profitability

The first aircraft flown

by the Wright Brothers
IATA was established

Terrorist attacks
reduce Airline industry
capacity by 3%

British Overseas Aircraft

Corporation (BOAC)
inaugurates worlds first
commercial jet service

Almost 28 million
scheduled flights and
over 2 million passengers
Global recession
reduced Airline
industry
capacity by 9%

First Jumbo jet

Boeing 747 was flown

1903 1945 1952 1970

1995 2001 2006 2008

1976 1978 1979 1990

First regularly scheduled

commercial flight
United States leads way in
airline industry deregulation

Gulf War and

recession causes
industry decline

World airline capacity

achieved steady increase

2009 2010
Industry
records $10
billion loss
following
terrorist
attacks and
global recession
Passenger traffic
climber by 9.2%

Nevertheless, continued growth in air capacity is being driven by Brazil, Russia,

India, Indonesia, the Middle East and China. These are countries and regions in
which the middle class and general affluence are growing. In 2006, the worlds airlines operated almost 28 million scheduled flight departures and carried over two
billion passengers. The International Air Transport Association (IATA) reported in
July 2010 that passenger traffic climbed 9.2 percent on an annual basis, with the
Asia-Pacific region showing the highest gain at 10.9 percent. Also, cargo volume
rose by 22.7 percent. Through the first seven months of 2010, annualized growth
rates amounted to 8 percent for passengers and 17 percent for cargo.
Even with relatively conservative projections of economic growth over the next 10
to 15 years, a continued 4-5 percent annual growth will lead to a doubling of air
travel. To support this growth, Boeing predicts that nearly 500,000 new pilots and
about 600,000 support staff will need to be trained over the next 20 years up
from current levels of 233,000 pilots and 100,000 engineers.

Table 1:
Global Aviation
Industry Financial
Performance*
Source: ICAO
Financial Report
(2011) (*Figures
are in Millions)

Year

Operating
Revenue

Operating
Profit

Operating
Margin

Net
Profit

Net
Margin

2006

$465,200

$15,000

3.20%

$5,000

1.10%

2007

$509,800

$19,900

3.90%

$14,700

2.90%

2008

$569,500

($1,100)

-0.20%

($26,100)

-4.60%

2009

$475,800

$1,900

0.40%

($4,600)

-1.00%

2010

$546,500

$21,700

4.00%

$15,800

2.90%

Boeing expects a disproportionate amount about 40 percent of the resource

demand to come from the Asia-Pacific region. For example, China alone will need
70,600 new pilots over the next 20 years. Similarly, IATA suggests that Asia and
the emerging markets will primarily drive the growth in air travel demand, given
the slow economic recoveries and still-fragile consumer confidence in Europe and
North America.
Boeing also forecasts that the worlds airlines will buy 30,900 aircraft valued at $3.6
trillion between 2010 and 2029. More than two-thirds of that demand is expected
to be for smaller single-aisle jets such as Boeings 737 and Airbus A320, with the
Asia-Pacific region emerging the biggest buyer.
In Africa, the growth of air transport over the past sixty years has brought African
countries closer together, linking most capital cities with the rest of the continent.
This has also contributed to the expansion of infra-African commerce and trade.
In 2000, the Conference of Heads of State and Government of the Organisation
of African Unity (OAU) adopted the Decision on Market Access for Air Transport
in Africa. The full implementation of this decision, commonly referred to as the
Yamoussoukro Decision, was initially approved in November 1999 and is expected
to progressively eliminate all non-physical barriers in the industry including those
linked to grants of traffic rights, tariffs, capacities and the frequency of air services.
As economic indicators show most global economies steadily recovering from the
recession, Africas airline industry also is on a steady growth path. South Africa
Airways continues to perform well, but its profits could dwindle in the future because of increased competition from international airlines like KLM, Air France
and British Airways. Its profits will also be affected by volatile global fuel prices
and other rising costs. In Kenya, a revival of tourism has helped the airline industry surpass pre-2007 levels and expand. Nairobis Jomo Kenyatta International
Airport, the busiest airport in eastern and central Africa, is undergoing massive
infrastructural enhancement. The Kisumu International Airport is also being
expanded to handle increased air traffic among the five East Africa Community
member states.

The Nigerian Aviation Industry Overview

The Nigerian airline industry enjoyed rapid growth following the oil boom of the
1970s. There was a remarkable increase in the number of operators, airports and
passenger traffic. In 1988, Nigeria adopted the National Policy on Civil Aviation.
The following year the Civil Aviation Department (CAD) of the Federal Ministry
of Aviation introduced regulations and evaluated the nations air traffic services.
The Federal Civil Aviation Authority (FCAA) was established in 1990, taking
over the CADs function. However, the FCAA was to function with the Nigerian
Airports Authority (NAA), which had earlier been carved out of CAD in 1976 to
manage Nigerias airports.
In 1995 the Federal Government scrapped the FCAA as part of a restructuring
initiative and handed over its functions to other agencies. The newly established
Directorates of Safety and Economic Regulation and Monitoring within the Ministry of Aviation took over the safety and economic functions of the FCAA. Air
traffic services and aerotels were merged with the former NAA to form the Federal
Airports Authority of Nigeria (FAAN).
The International Civil Aviation Organization (ICAO) is responsible for setting
standards for international civil aviation and ensuring that states fulfill international obligations. The ICAO required all member states to establish an appropriate
organization to be known as Civil Aviation Authority (CAA). This organization
would be charged with the authority to ensure compliance with air navigation
regulations. Nigeria, as a signatory to the Convention on International Civil Aviation and in response to stakeholders in the aviation industry, enacted Decree 49 of
1999 to establish the Nigerian Civil Aviation Authority (NCAA).
The NCAA began operating in 2000 with the statutory responsibilities of regulating, monitoring and promoting safety, security and economic growth of the
nations air travel services according to the ICAOs Standard and Recommended
Practices (SARPs). The NCAA aimed at an industry growth rate of at least 7% to
drive GDP growth.

Industry Value Chain

Nigeria has over 22 airports. The four international airports in Nigeria are:
Muritala Mohammed Airport in Lagos, Nnamdi Azikwe Airport in Abuja, Port
Harcourt Airport in Port Harcourt and the Mallam Aminu Kano Airport in Kano.

The industry currently consists of four major categories of

players/segments:

Regulators
Airline Operators/Carriers
Service Providers
Air Travelers

Chart 2:
Historical
Highlights:
Nigerian Aviation
Industry

First commercial flight

in Nigeria

FCAA was scrapped,

NCAA established

The first airport in Nigeria was

established
Rapid growth in the aviation
industry due to the oil boom
Nigerian Airport
Authority was formed

NCAA commenced
operations

3 fatal plane crashes

in close succession

National policy on civil

aviation was adopted

1935 1936 1970 1976 1988

Civil aviation department

introduced regulations
and evaluated the
nations air traffic

1999 2000 2005 2006

1989 1990 1996

2007 2010

Local Airlines Recapitalisation

2010 N300 PAIF relief fund for

Aviation Industry

Federal Civil Aviation Authority

was established

2010 Nigeria attains highest

safety rating, Category 1

Nigerian Airports authority was

established

2010 Total radar coverage of

Nigeria (TRACON) commissioned

Regulators
Nigerias aviation industry has three major regulators. They are: the Federal Airports Authority of Nigeria (FAAN), the Nigeria Civil Aviation Authority (NCAA)
and the Nigerian Airspace Management Authority (NAMA). While each agency has
a distinct role, they are collectively responsible for formulating and implementing
policies to develop and manage aviation operations in the country.
FAAN: This is a service organization statutorily charged with developing and managing all commercial airports in Nigeria. It provides and maintains the services
needed to ensure smooth operations, safety and security at the airports.
NCAA: This agency is responsible for regulating market entry and the conduct
of air transport operators in Nigeria. It ensures the safety of aircraft, monitors
the operating environment for aircraft, and serves as an advisor to the Ministry
of Aviation.
NAMA: With the enactment of a new industry act in 1999, the Nigerian Airspace
Management Agency was set up to oversee Nigerias airspace and develop it to meet
the requirements of the ICAO Standards and Recommended Practices. The agency is
responsible for managing the countrys airspace to ensure safe and efficient flights.

Airline Operators
Aviation companies that obtain the air operator certificate from the Nigerian Civil
Aviation Authority of Nigeria are deemed to be airline operators. In 2006, the federal government issued a recapitalization order to tackle the problem of frequent
air crashes. This led to a drastic reduction in the number of operational airlines.
Today, airline operators offer flight services that range from domestic to regional
and international flights. Domestic and regional carriers include Air Nigeria,
Chanchangi, Dana and IRS. International carriers include Arik Air, Air France,
Aero Contractors and British Airways.
Helicopter operators are also covered by these regulations. Helicopter operators
provide air charter services to oil and gas companies for onshore and offshore field
operations. Helicopter operators in Nigeria include Bristow Helicopters, Caverton
Helicopters, OAS Helicopter Services and Pan African Airlines.

Table 2:
Local Airline
Operators in Nigeria

*17 Aircrafts
still on order

Local
Carriers

Fleet
Size

Aero
Contractors

12

Air Nigeria

10

Arik Air

40*

Chanchangi

Dana Air

First Nation

IRS Airlines

Overland

Service Coverage
Domestic

Regional

International

Service Providers
Aviation industry service providers include engineering service companies, airline
marketing services, flight booking agencies, ticketing companies, baggage handling
companies, facility maintenance companies and other ancillary services.

Table 3:
Service Providers

Services

Description

Financial
Services

Banks, insurance companies and other

financial institutions that provide credit,
financial data and advisory services to
airline operators.

Engineering and
Maintenance
Services

Companies that provide maintenance

and engineering services to aircraft. They
provide regular check-up services to these
airline operators to ensure that their fleet is
in optimal working condition.

Airline
Marketing
and Ticketing,
Travel Agencies
and Logistics
Services

Companies that provide services ranging

from marketing of airlines travel offerings to
ticketing, flight reservations and other travel
logistics.

Ground
Handling and
other Ancillary
Services

These Companies provide a wide range of

services including Cleaning, IT services,
Entertainment and Catering services.

Air Travelers
Air travelers are usually categorized as Business or Leisure travelers. A recent
Ciuci Survey revealed that Business Travelers most critical consideration when
choosing an airline is their need for direct flights. This need accounted for 41 percent of Choice of Carrier responses. Other frequent considerations are time spent
in transit (29 percent), and convenient departure times (20 percent).
Fewer business executives - 10 percent of respondents - said air fares would be
their key consideration. 71 percent of respondents said that their choice of airline
is strongly influenced by their inability to tolerate time delays and their sensitivity to the number of flight connections. By choosing direct flights over connecting
flights, business executives are able to avoid possible flight interruptions and delays.

Chart 3:
What drives
the Choice of
Carrier?
% respondents

Convenient
departure time

20%
29%

Time spent in
transit

10%

Cost or budget

41%

Direct Flight

19 percent of business travelers said that the convenience and comfort provided by
carriers strongly influence their airline preference. Further discussions revealed
that they prefer carriers who provide satisfactory lounge services, food and beverages, and quality customer service. While onboard, they prefer a comfortable
cabin layout with in-flight amenities to ensure that they are relaxed for meetings
scheduled shortly after their arrival. Only 10 percent of respondents say that the
fare price and other additional fees would strongly determine their choice of carrier.

Chart 4:
Business Travel
Preferences
% respondents

Strong Time
Sensitivity

10%
19%

Convenience, Comfort
and Less Fatigue
71%

Price and
Affrordability

Flights or Plights: Assessing Industry

Performance
Successes

Along with steady recovery from the global recession, the Nigerian Aviation Industry is experiencing continued growth in passenger traffic and air travel activity.
As high load factors and increasing air fares mark domestic and international
flights in 2011, air carriers are witnessing a rise in business and leisure travelers
(particularly to Europe) to pre-recession levels.

Chart 5:

14

Growing
Passenger Traffic
in Nigeria
Millions of Passengers

12
10
8
6
4
2
0

2005

2004

2005

2006

2007

2008

2009

The increased activity can be attributed to various factors such as route and capacity expansion efforts, strategic partnerships with international carriers, adoption
of the IATA Bill Settlement Payment (BSP) system by some domestic airlines, and
compliance with international air safety regulations.

Route Expansion
With the introduction of a second daily flight, Aero Contractors increased its capacity on the Abuja-Enugu domestic route. In addition to existing morning service, a
new evening flight has been introduced to meet demand growth at both ends of the
route. With the newly commissioned Asaba airport, Aero Contractors flight services
have been launched to expand its domestic network. The new airport is expected to
attract other domestic operators into the route. Air Nigeria has launched a nonstop
service on its AbujaEnugu and Abuja-Owerri route. In its efforts to enhance its
international route network, Air Nigeria will compete on the Lagos-London route
against former partner Virgin Atlantic Airways, British Airways, and domestic
rival Arik Air. There are also indications that Air Nigeria will soon start a weekly
flight between Lagos and Sao Tome as part of its strategy to expand its domestic
and regional network.

Capacity Expansion
Arik Air is eying an addition of 15 new aircraft to its existing fleet of 25. This is
part of its ambitious expansion drive in Nigeria and overseas. Air Nigeria, which
currently has about 10 aircraft in service (down from a peak of 20), is looking to
add eight more aircraft to its fleet in the next few months.

10

Extended Services
Upon obtaining an Aircraft Maintenance Organization (AMO) certification, Aero
Contractors became the first locally-approved airline to carry out third party
maintenance of aircraft in Nigeria. Coupled with the ownership of an aircraft
maintenance hangar, the domestic carrier will be well-positioned to generate revenues from maintenance services. Airlines pay as much as $150,000 per aircraft
to perform overseas C checks, which usually take between six to twelve months
to conduct. Aero Contractors will be able to capitalize on this regional market.

International Partnerships
Arik Air signed an interline agreement with Emirates, enabling passengers to
purchase joint Emirates-Arik Air itineraries. Passengers will be able to connect
seamlessly from Emirates double daily services to Lagos and other cities including Abuja, Kano, Kaduna, Port Harcourt and Enugu. Arik and other local and
international carriers are enjoying 100 percent load factors, especially for outbound
flights. In June 2011 Air Nigeria entered into a code share agreement with international airline Delta Airlines. It is a pivotal step to ensure the continued growth
of international trade and travel between the United States and Nigeria. Delta is
now carrying Air Nigerias code on the New York-Accra-Abuja route and on its nonstop service to Lagos from Atlanta. Air Nigeria aims to expand its route network
using its code share with Delta as well as Ethiopian Airlines.

Billing and Settlement Payment

The BSP is a system designed to facilitate and simplify the selling, reporting and
remitting procedures of IATA Accredited Passenger Sales Agents. It is designed
to improve financial control and cash flow for airlines that adopt the BSP system.
In 2011 two local airlines, Arik Air and Air Nigeria, adopted IATAs BSP system.
The system provides airlines with access to the global distribution network of IATA
accredited travel agents who have signed a single standard Sales Agency Agreement
with IATA. Additionally, Air Nigeria appointed AVIAREPS, the multinational
aviation and tourism management expert, to handle its future sales, marketing
and ticketing activities beginning on September 1, 2011. AVIAREPS will assume
responsibility for the BSP handling in various EU countries.
While the BSP generates $6 billion annually (accounting for just 40 percent of
industry revenues), its peer system CASS (Cargo Accounts Settlement Systems)
would potentially generate four times that amount. Therefore, air cargo and baggage handling services has presented itself as the next big opportunity in Nigerian
aviation space. Domestic and international passengers grew by 1.9 percent and 4.0
percent, respectively, since last year.

11

Air Safety Standards

The industry achieved a remarkable milestone in air safety standards in 2010 when
it received a Category One air safety rating from the United States of America.
The rating, usually determined through the assessment of the US Federal Aviation
Administration, confirmed that Nigeria has complied with air safety regulations
set by International Civil Aviation Organization (ICAO) safety and security standards. As a result of the rating, Nigerian-registered flights have direct permits to
the US with the benefit of reduced premium charges and preferences for leasing.
To maintain Nigerias air safety rating, certain initiatives and safety monitoring
measures have been set up by industry regulators. NAMA seeks to make air travel
safer by installing Total Radar Coverage of Nigeria (TRACON), and also acquiring very high frequency radios. NCAA has also begun regular audits of various
airlines. These audits involve a comprehensive total system check as well as an
audit of operations, personnel, insurance and maintenance.

Setbacks
Though the industry has made considerable progress in passenger activity and
safety, the rising cost of aviation fuel continues to stifle airline revenues. Local
carriers also face challenges such as excessive taxes and charges, high aircraft
maintenance costs, inadequate training and capacity building, and the access of
international airlines to domestic routes through the Multiple Destination scheme.

Rising Cost of Aviation Fuel

The high cost of aviation fuel is a challenge for airline operators around the world.
In 2011 the unrest in the Middle East, especially in oil-producing Libya, pushed
up global oil prices to levels not seen since their peak in 2008. Aviation fuel spiked
even higher. The catastrophic earthquake and tsunami in Japan, which caused
outages at three major refineries, also took some aviation fuel off the market. As a
result, the price of aviation fuel has risen by nearly 50 percent above 2010 prices
and by 30 percent above prices at the start of 2011.
In Nigeria, although aviation fuel accounted for 15 percent of airline costs in 2000,
it accounts for 40 percent today. Within a 12-month period (from September 2010
to September 2011) aviation fuel prices rose by over 88 percent (from N80 per litre
to over N150 per litre) leading to a corresponding increase in air fares. Though the
global industry spends 29 percent of its costs on aviation fuel, Nigerian carriers
incur extra costs (which amount to an additional 11 percent) on the importation of
aviation fuel. Consequently, local operators have recorded significant losses and
falling profits despite increased passenger revenue. This situation has pushed
many Nigerian carriers into a distressed financial position. While some have gone
bankrupt, others have incurred huge debts.

12

Chart 6:
Jet Fuel Prices
versus Air Fares

Excessive Taxes and Charges

Not only do local operators grapple with high aviation fuel costs, they are also
inundated by excessive taxes and levies. A recent IATA report states that the Nigerian aviation sector has the highest number of charges in the world - the ICAO
confirms this fact. Airlines in Nigeria continue to battle with the cost of landing,
parking and navigation charges. This situation needs to be addressed to save the
industry from the current death rate of domestic carriers.

High Cost of Aircraft Maintenance

Aircraft maintenance services required by local operators are limited. While aircraft typically require Category A to D maintenance services to keep them efficient,
only Category A and B services are available in Nigeria. Airlines cannot access
Category C and D services, which involve overhaul and turn-around maintenance,
in Nigeria. As a result, local operators have become heavily dependent on other
countries to meet this need.
Since foreign services are provided at a much higher cost, local operators are forced
to spend more on aircraft maintenance services than they would if services were
available locally.

13

Dwindling Human Resources

Besides being faced with financial pressures, the Nigerian aviation industry is
also confronted with the challenge of dwindling human resources. With an aging
workforce and inadequate training facilities to develop new talent, the industry
has become heavily dependent on expatriate pilots and engineers to operate its
aircraft. According to the NCAA, less than 200 of the 700 pilots currently in the
industry are Nigerians. This small pool of local professionals is being depleted as
they accept higher paying jobs in other countries.
With its dependence on foreign experts, the industry spends over N10 billion annually on salaries. This expense is a major contributor to the high operating costs
incurred by local operators.

Multiple Destinations Scheme of International Airlines

Through the Fifth Freedom of Air Act, the Multiple Destinations scheme allows
airlines to land at more than one airport in a specified country. Though it helps
countries to reduce airport traffic to a particular airport and creates additional
routes, the scheme could inhibit the growth of a countrys domestic industry if it is
not managed well. Typically, smaller countries limit international airlines to one
or two entry airports to ensure that local airlines benefit from guaranteed routes
for incoming international travelers.
In Nigeria, however, international airlines seem to have access to too many airports. Some international airlines fly into Lagos, Abuja, Port Harcourt and Kano.
With such access to the countrys four international airports, foreign airlines hold
undue advantage over the domestic airlines by gaining all the domestic traffic.
Under such unfavorable competitive conditions, domestic airlines will continue to
struggle to generate revenues.
Regulators need to support local carriers by developing aviation policies that favor
the domestic air travel business.

Strategies and Solutions

Though the challenges confronting the Nigerian Aviation Industry are multifaceted, they can be resolved through the strategic and collaborative moves of all
industry players.

Government Intervention: Power and Aviation

Intervention Fund (PAIF)
In September 2010 the Federal Government of Nigeria, through the Central Bank
of Nigeria (CBN) and the Bank of Industry (BOI), extended a N300bn bailout package to the aviation industry under a Power and Aviation Industry Fund (PAIF).
While the PAIF has been offered to fast track the development of power and aviation industries and improve the credit terms of operators, it would also provide
leverage for additional private sector investments in both industries.

14

The PAIF is accessible tolocal airlineoperators duly incorporated under the Company
and Allied Matters Act. Besides the Bank of Industry, all Deposit Money Banks
andDevelopment Finance Institutions (DFIs) are participating in the disbursement of the Fund. Beneficiaries are expected to repay loans at an interest rate of
7 percent over a 15 year period.
The Fund is expected to cushion the effects of rising prices of aviation fuel and to
facilitate the development of aircraft maintenance facilities in Nigeria.

Mergers and Cooperative Models

By adopting more cooperative models, local carriers will expand their operations
and share costs and risks. Through mergers and other strategic alliances, many
American and European airlines have gained competitive advantage and reaped
major benefits.
In 2010, the merger between United Airlines and Continental Airlines formed the
largest airline in the United States. The new carrier has the capacity to serve 144
million passengers, to fly to 370 destinations in 59 countries, and to generate $39
billion in revenue. Similarly, the acquisition of North American Airlines by Delta
Airlines in 2008 created the second largest airline.
In Europe, the British Airways-Iberia merger has outsized the KLM-Air France
merger and has made it one of the largest carriers in Europe.
As global industry players shift from sole entrepreneurship and embrace cooperation, Nigerian airlines can also increase their chances to succeed by adopting
cooperative models.

Regulatory Concessions and Support

By granting concessions and reducing the amount of charges and taxes on local
airlines, industry regulators will help to keep them in business. In the United
States, the Houston and New York airports give new market entrants free landing
for the first two years; in the third year they only pay 50 percent of the fees. Such
concessions and support provide a helpful cushion for airlines.
Regulators should develop and implement policies that favor local airlines. Regulators can protect the revenues of local airlines by controlling the access that
international airlines have to domestic airports and restraining them from flying
domestic routes.

Human Capacity Building

There is an urgent need to revive aviation training services in Nigeria. For about
four decades, the Nigerian College of Aviation Technology (NCAT), Zaria was the
only aviation training institution in Nigeria. Established in 1964, NCAT has been
wholly responsible for producing aviation professionals in Nigeria. In May 2011
the International Aviation College, Ilorin was commissioned by the Kwara State
Government as the second aviation training institution in the country.

15

With more public and private investments promoting the establishment of aviation
training institutions, the industry will experience a much-needed boost in human
resource capacity.

Industry Outlook and Forecasts

The International Air Transport Association (IATA) predicts a gloomy picture
for the global aviation industry. IATA states that because of the current global
economy, 2011 may be more productive than 2012. It forecasts a 29 percent fall in
2012 industry-wide profits due to a weak economy and high jet fuel prices. This
forecast is built around a global projected growth rate of 2.5 percent in 2011 falling
to 2.4 percent in 2012. The financial performance of the airline industry largely
depends on the performance of the global economy. It has been projected that GDP
growth might be below 2.0 percent in 2012 and this automatically implies a poor
performance for the airline industry.
While revenues of $632 billion are projected, global industry profits are expected
to fall to $4.9 billion, resulting in a net margin of 0.8 percent. Passenger yields are
projected to drop in 2012 to 1.7 percent closely approaching a 50 percent decline
between 2011 and 2012. While air cargo volumes are projected to grow by 4.2
percent, yields are not expected to witness any growth.
Airlines in the Asia Pacific region are projected to maintain 2012 profits close to
2011 levels at $2.3 billion. The rest of the industry is projected to witness declining profitability. The region most affected by the economic crisis is expected to
be Europe, where the industry is projected to return a profit of only $300 million.
In developing economies, the situation appears to be better even though the prospects are restricted because of transport linkages with developed nations. The air
transport market is expected to be at its weakest point in the first half of 2012. The
industry has forecast a profit of $4.6 billion based on projected passenger market
growth of 4.6 percent. This is less than the 5.9 percent projected for 2011. The yield
growth falls to 1.7 percent in 2012, almost half of the 3 percent projected rate in
2011. Airline traffic in Africa is expected to rise by 4.9 percent in 2012 compared
to 2011 levels, but the African aviation industry is projected to lose $100 million.
Aviation fuel prices are projected to decrease slightly, based on crude oil prices of
$100 per barrel. This barrel price is less than the $110 price projected for 2011.
The fuel price is expected to account for 32 percent of airline costs with a total of
$201 billion industry costs. For the first time, costs will be above the $200 billion
level and are up from 30 percent in 2011.

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Conclusion
In the face of a weak global economy and rising costs of jet fuel in 2012, the Nigerian aviation industry and those in other developing economies have unharnessed
opportunities for growth and development.
While capital injection initiatives, like the PAIF, provide temporary relief from the
financial pressures, local airline operators need to consider long-term solutions.
Resource sharing and cooperative strategies are examples of approaches that can
create greater economic value.
In addition, the local production and supply of aviation fuel will lower costs for
Nigerian airlines and provide greater profitability.

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References
Aerospace Global Report 2011
www.imap.com
Airline Industry Forecast 2011-2015
www.iata.org/ps/publication/pages/airline industry
Air Transport Association (ATA)
Release and statements, September 2011
www.airlines.org/News/Releases/pages/News_9-27-2011.aspx

CAPA Centre for Aviation, September 2011
IATA Report
www.centreforaviation.com/analysis/iata-upgrades-2011
Flying High the Nigerian Style
Article in Aviation Publication 2011
Financial Derivatives Company and Ciuci Consulting
What Business Travelers Want
Article in Aviation Publication 2011
Financial Derivatives Company and Ciuci Consulting

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Analysts
Fola Onasanya
Chima Onyewuchi
Seyi Adebiyi
editorial@ciuci.us

ciuci
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