Sunday, January 24, 2016

Privatization’ll clean rot in Nigeria’s airport system –Penninck, MMA2 boss

By Louis Iba

Privatization of the nation’s aviation infrastructure is the only option left for the Federal Government to end the rot in Nigeria’s airports and unlock their full potential, says Christophe Penninck, Managing Director/CEO of Bi-Courtney Aviation Services Limited (BASL).

Penninck, whose BASL, currently manages the domestic wing of the Murtala Muhammed Airport under a concession deal with the Federal Government, decried the ranking of the Port Harcourt and Abuja airports among the worst in the world.

He stated that based on such rankings, and the poor state of most of the nation’s airports, it would be better for Nigeria to concession them to competent private firms that will make the requisite investments to ensure efficient management and delivery of services to airlines, passengers and other stakeholders.

“I  support government’s move to concession airports in the country. I support it a 100 percent because that is the right way to go,” said Penninck in an interview with Daily Sun in Lagos.

Pennick also spoke on the investments made by Bi-Courtney to grow infrastructure at MMA2, as well as the challenges it is having with FAAN in the execution of the concession deal.


Future industry prospects

I will say that 2015 wasn’t the easiest year for all of us operating in the industry in Nigeria as against 2014 which was a very good year for operators. But I think 2016 is going to be really a very difficult one for everybody. My fear is that the industry cannot support the various airlines that we have in Nigeria today. And we just have to wake up and face the reality that confronts us this year. Just look back a little. A year ago, the naira exchange rate to the united states dollar was N170 to $1 but as at this same time, I think it is N300 to $1 and that means in just a year, the naira has lost its value by more than a half to the dollar and who says there is no possibility of it exchanging for above N230 in the nearest future this year. And the major issue is that unlike some other sectors or industries, the aviation industry is hugely dependent on the dollar or maybe we can say the aviation industry is a dollar or denominated industry. So, that creates a problem for operators or investors in Nigeria’s aviation industry.

Now let me explain how or why we have a  problem. 

If the various airline operators, investors in the airports  and some other key businesses in the aviation industry are all incurring cost in dollar because of the nature of their business which entails their purchasing things in foreign currencies constantly and suddenly most of the cost have doubled and we haven’t seen the doubling of the airfares in Nigeria neither have we seen the doubling of the airport taxes in this country, that means that somewhere someone is definitely losing money. That’s the simple truth.

And the question to ask is: are we set to see the collapse of a few or more of businesses or investments in Nigerian aviation sector?  And I have refused to say: are we going to witness the collapse of airlines in Nigeria? The reason is that what is happening right now, is certainly affecting everybody in the industry and not just the airlines.

The challenge

We will always have challenges in the industry. But the biggest challenge that we have right now is with the exchange rate. As I am speaking to you now, we have invested over $1million in the CCTV project. Now you know that $1million today, is not the same as $1million some few months or a year ago. And I am talking specifically in reference to the value of the naira to the dollar. Our business income is in naira and you know that the naira has devalued. Whatever we have to pay the supplier has to be from the Naira. So it is a constant challenge. Yet we must have to continue to make investments for the benefit of the users of the airport and also to remain complaint. So, we have to find ways to invest and we have to find ways to get the money. It is a real big challenge for us.

Cost of aviation fuel

Again you might think that the reduction in the price of crude oil at the international market is a good thing for the aviation industry. Yes, it is for the rest of the world, but in Nigeria it isn’t for some reasons.

The first reason is that crude oil is still the major revenue earner for Nigeria which means less business and less revenue for the country at this time that oil prices are falling. In fact, there is less travel as it ought to be because  people are cutting down on cost to adjust to the time. The number two reason is that because of the naira devaluation, aviation fuel (Jet A1) that is not refined in Nigeria has not gone down in cost when compared to the crash in the price of the crude oil which is the raw material. Aviation fuel is still being imported at a huge cost given the current exchange rate of the naira to the dollar. And the number one cost or item that increases the overhead of an airline is fuel. 

A barrel of oil as we speak today is a little above $30. But in Nigeria, we haven’t seen any airline come out to say look my number one cost which is fuel has gone down to reflect prices in the international market. And the reason the cost of aviation fuel has not dropped in Nigeria as I earlier said elsewhere is because it is imported. A litre of aviation fuel is sold for $1 now in Nigeria.

Things are more expensive now for airline owners in Nigeria to maintain their aircraft than it was before. And if airlines are not running as profitable businesses in Nigeria, it will definitely affect every other service provider. It will affect us as in this airport because our cost is partially dollar or euro denominated while our revenue is 100 percent local naira. We live mostly from the revenue that comes from the airlines out of the services we provide for them. So for the first part of this year, I have a picture of a grim outlook. But hopefully things will get better by the end of the year because a lot of people will find ways to survive as things also get tough. Hard times make people to be more creative or innovative. Aviation is not a happy place to be for now in Nigeria.

The MMA2 concession

I think that if we did not take the decision to come into this airport in Lagos, then most probably Nigeria would not have had a good and befitting airport because nobody would have been interested in investing in the airport to boost its infrastructure as we have done. We have invested massively in technology. We have also put in place a very strong maintenance culture such that we have been able to maintain our facility at the level that it is comparable to any of the best airports in Africa. This makes our equipment new or as good as new at all times because of the way we maintain them. We have expanded the check-in counters to 45 and all the systems are new. We have changed everything. The computers are new and the printers are all new.

And for the past one and half years that these have been installed, the airlines have been very positive about the investments.  We have added so much value to the airport from the time we took over that today everyone who uses the MMA2 airport agrees that we have made the airport more efficient and effective. It is the cleanest facility that you can ever think of in the country. Since the installation of these 45 counters and other self checking counters, as well as the passenger and baggage tracking systems, there has been a drastic reduction of queues in the airport. In fact, I can say that the queues are no longer there because people spend very little time on the queue before getting their boarding passes unlike in the past. If you find a line, it is usually a very short one. So we have improved the convenience of passengers and made things lighter for them.

And not only that, we have also improved the security at the MMA2. Thanks to the passenger tracking system,  we now have the ability to know who traveled through the airport and at what date and time. It has become so easy to track passengers because we now know for sure that one passenger has only one boarding pass. We don’t have a duplication of boarding passes. So we know who is inside the airport and wants to fly a particular airline. We know when they came in inside and at what time they were boarded. That old system of manual boarding is long gone at the MM2.   And to track baggage, we also make sure that it is only when a passenger is boarding that a baggage is identified and it is only then that that baggage is boarded. And we know who loaded the bags and also at what time it was loaded and from where it came and who owns it. Everything is monitored. Passengers may not be aware. But these are some of the steps we are taking to increase security for passengers, airlines, and the airport. We are currently installing a brand new CCTV system at the airport, about 267 cameras.

In terms of passenger facilitation, we have all the escalators working and they are all new. What we have done might sound revolutionary in Nigeria, but for me this is just the norm globally. We are in such a time that airports in the world must invest in safety and security and in passenger facilitation. We are not doing anything revolutionary. Rather, what we are doing is just to be compliant to the rules and regulations of the industry at this time and also of the expectations of the airlines and all the users of the airport.

Privatization of airports

The question has always been asked if we are running at a profit or not at MMA2?  And then if more Nigerian airports should be concession. First, I have to state that airports in general are profitable business. So, there is no need for an investor to be doubtful. We have a challenge however in this airport as it concerns the execution of the concession agreement.  The concession agreement is very clear that all scheduled domestic flights going out of Lagos airport must operate from MMA2. You might look at it as a monopoly; sometimes a monopoly is good in aviation. Why? Because we have a regulator and the standards are all global. The aviation industry operates on globally set standards. So a regulator ensures that you follow the rules in safety and security and in infrastructure. In fact, a regulator also makes sure you don’t increase prices arbitrary. So, as long as there is a regulator, a monopolist must abide by the rules always and must also continue to invest in the business. If the terms of the concession were respected, I think we would have been happy and the public that uses this airport would also have been happier because we are doing more but could have done much more. But the problem is that the Federal Airports Authority of Nigeria (FAAN) is not respecting the concession agreement. And how are they doing this? Now, I have to inform you and this is general knowledge  in the industry that FAAN is managing and operating a terminal that is called General Aviation Terminal (GAT) at the Lagos airport which is being used for by commercial airlines for their scheduled flights.

For people who might not know the difference and why what FAAN is doing amounts to a breach, GAT is non-scheduled airport, which means it can only be used solely for such purposes by those who own private jets, air ambulances, government owned aircraft among others. That’s what a GAT is used for. But we now have a situation where FAAN is operating a GAT as a competing scheduled flight terminal to MMA2 which is completely against the terms of the concession agreement. FAAN can have a GAT and we are not claiming anything against their GAT. What we are contesting is that all scheduled commercial flight must be operated at the MMA2 which is the term clearly defined in the concession agreement and which we signed with the government, the former Aviation Minister and the former Managing Director of FAAN. Yet, FAAN has refused to respect that agreement. If they had respected the agreement, we will be profitable and we will be investing far more than we are doing now and we will bigger. We still are the best terminal in this country and I tell you Nigerians are very proud of us.

But from what we are doing now with the little resources that we have, we feel we have achieved so much, but if FAAN had respected that agreement, I think the government would have fared better because they would have had a model airport to use in the campaign to get more investors to come into the country.

Now lets face it. I am not the one who said it; the report is there even in the internet that the Port Harcourt airport is the worst in the world and then the Abuja airport. So that means, that there are countries in poor places in Asia and Latin America that have far better airports than Nigeria’s capital city. Bagdad airport even in war time is still ranked better than Abuja airport.  And it is not something to be proud of. 

So I support the government move to concession the airports in the country. I support it a 100 percent because given the situation, it is the right way to go. But let it be done in  a way that local companies also have the fair opportunity to bid and that the terms of the concession be respected and then at the end of the day I can assure you that Nigerian airports would have no reason to be ranked among the worst or dirtiest in the world because private companies managing them would ensure better efficiency, they will invest more in technology to uplift the infrastructure of the airport, and they will also care more about the customer.

Even in South Africa where you have the best airports in Africa, it is a private parastatal running the airport and managing it as a business not as a government employment agency. So, let us concession Nigerian airport and it will be a win-win situation for the airlines, the passengers, and the government. To me, this is the right way to go.

Original article can be found here:

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