National Carrier: Bad Ideas Die Hard In Nigeria

 

I like President Buhari. I remain a fan of the man. That said, for someone like me who believes in smaller government, I have always known that supporting Buhari carried the risk of supporting dirigisme. Whatever – politics is like a christmas hamper anyway; it is not everything inside the hamper you will like or find useful.

But even at that, hearing that Nigeria wants to ‘launch’ an airline (again) just makes you shake your head. The first part of the comments attributed to the President make all the sense in the world:

Our airports are the windows through which people see our country. Anybody coming into the country will likely come through the airports.

“If we cannot secure and maintain our infrastructure, it will reflect very badly on us

Nobody can disagree with the above – our airports, especially MMIA, are truly terrible. The bar is very low – all we have to do is make sure that the airports are not glorified zoos and we would have achieved something in life.

But then the second part of the story, attributed to the Perm Sec in the aviation ministry is where it all goes messy:

The President is quite concern about lack of national carrier for now and he has directed the ministry to look into the possibility of having a national carrier as soon as possible.

Oh dear. This bad idea never goes away. There are always people who get excited at the thought of a ‘national carrier’. What exactly it is about a guaranteed waste of money that excites people remains a mystery to me. Why not just fold the money into paper planes and throw them in the air? Or burn it? The overall effect will be the same.

***

Whenever the debate comes up, people are quick to point to countries that appear to have successful airlines – Ethiopia, Singapore etc – and ask why Nigeria too cannot do it. The numerous failures from around the world are never mentioned. The chances of failure are far higher than success. One should not reason from an outlier.

The video above is of Lee Kuan Yew addressing a Singapore Airlines pilots strike in 1980. The man (LKY) almost single-handedly built Singapore Airlines from scratch and made it what it is today. And he had good reasons – Singapore had no choice but to be open to the world as an entrepôt. The airline was just one part of this plan. The second part was building Changi Airport at a cost of $1.2bn plus shutting down the old airport which had cost over $600m to build. It is said that when he visited America and landed at Boston’s Logan airport, he noticed that most of the approach of the plane was over water i.e. planes flying over people’s homes was minimal. Expanding the old airport would have meant flying over people’s homes to get to it. So he shut it down and built Changi near the edge of the city. He is on record as saying the money he spent building Changi is one of the best investments he ever made.

 You will not find any quote attributed to LKY about his ‘concern at a lack of a national carrier’ motivating him to set up Singapore Airlines. It was always a business decision for him from day one and in the early years he was always threatening to shut down the airline if they made losses. You can understand why he was irritated in that video.

All this was classic LKY – going around the world and copying the best ideas he could find then ruthlessly and honestly implementing them in Singapore. It also tells us what it takes to have a successful airline especially when you look at the Gulf carriers as well – you need to spend huge sums on having a hub airport as well for the airline to have any serious chance of being a useful investment.

When you ask Nigerians why they want a national carrier, it is always about ‘pride’ or how the sky feels empty without any aircraft flying Nigerian livery. Or it is about how Nigeria is ‘losing’ billions of naira yearly to foreign airlines. This money can always be given to a Nigerian airline so that it can create 500,000 jobs in Nigeria (it’s always 500,000 jobs).

But what is the problem being solved here? There is none. There is no scarcity of seats on planes for people who want to travel out of the country. You might not like the price of the ticket but that is another matter entirely – I like the Aston Martin DB7 but I do not like the price they are asking for it. There is not much I or Aston Martin can do about this for now.  But if you want to travel out of Nigeria today, you will find tickets to buy and go anywhere you want to go, subject to the visas in your passport.

If you’re burning with patriotism so much that it makes you hate foreign airlines, Arik is also a choice for you as long as you do not mind flying in tears. With the eye watering amount of money it owes to the Nigerian government via AMCON, it is effectively a national carrier anyway. There is no problem whatsoever crying out to be solved here. Solutions abound already. 

Yes, the Ethiopians seem to be doing it (with airlines, what you see is not always what you get), but what about the South African Airways which has lost almost $300m in the last 2 years? Or Kenya Airways which announced the biggest corporate loss in the country’s history last week of $257m? Or Air India that is losing money on every route where it is flying the Dreamliner and had to be bailed out with $5.8bn in 2012? For every ‘success’ you find among national carriers, you will 5 or more utter failures and money pits.

***

Let’s talk to ourselves as Nigerians – what is it you have seen in the history of your country that makes you think it can successfully run an airline without bankrupting the country in the process? We are not Singapore, no point lying to ourselves. Ordinary joint venture with Virgin the last time around, the Nigerian directors attended board meetings for one reason only – to demand free tickets for their wives and girlfriends. And that is not even half the story.

A national carrier will need plenty of government subsidies for a number of years for it to get off the ground. The way Nigerians approach such things is that the subsidies then become the incentive of the whole game i.e. they will avoid making profits so as to ensure the subsidies are never withdrawn. If you don’t believe me, look at Nigerian Railways and the ridiculous pricing of their tickets. What they tell you is that the tickets are priced low for the sake of ‘the masses’. But these prices guarantee that the whole enterprise is unsustainable so government allocations continue to flow every year.

But there is something even more sinister at play here. Who is asking for a national carrier? Or who are the people likely to loudly support this idea? It is definitely not the market woman hustling to get by daily or the farmer facing an uncertain harvest. It is the Nigerian middle classes who are experts at capturing government for themselves. This played out very vividly 4 years ago when the then Aviation minister, Stella Oduah, was fighting the foreign airlines for cheaper business and first class tickets. The richer you are in Nigeria, the better your chances of capturing government to hand you subsidies. Indeed, until the recent introduction of ‘luxury taxes’ in the dying days of the Jonathan government, business and first class flyers paid lower taxes on their tickets than those flying in economy.

And we have not even talked about those who will steal the place dry. Yes, we are hopefully entering an era where stealing stupidly and with impunity will be greatly reduced. But why risk such an experiment? It is better not to find out if Nigerians are now able to stay in the same room with money that does not belong to them without the money disappearing. Maybe some day in future but I doubt if that day has arrived yet.

Given the depressing challenges facing Nigeria at the moment, do we really want our President running after some petty thieves who will be looking for ways to fly their girlfriends for free at the expense of the rest of us? I think not.

Let us bury this bad idea once and for all and spend our time thinking about policies that actually make life better for Nigerians. Bad ideas suck out life from the space where serious issues are being debated. They are a sideshow and end up wasting everyone’s time.

Mr President, if you are looking for ideas that can transform people’s lives and start the hard task of beating back poverty from our shores, Professors Abhijit Banerjee, Esther Duflo and several others have a truly exciting idea that they have tested in 6 countries with very very encouraging results.

Their paper is here

Thank you for listening. Don’t give in to the devil. Airline business is bad market.

FF

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21 thoughts on “National Carrier: Bad Ideas Die Hard In Nigeria

  1. Justification for the Aviation Intervention fund was to save 7000 jobs, but the airlines are already seeking another round of “investment” despite not being able to repay the existing loan (http://africabusinesscommunities.com/news/nigeria-airlines-seek-fresh-lifeline-from-amcon.html). So the question is do we keep bailing them out without influencing their corporate governance and demanding a seat at their table? Or refuse their request, watch airlines start to cut corners on expenses including maintenance and safety and have death scares? And also inject 7000 people into an already saturated labour market?

    Maybe AMCON might need to write off the N200bn debt and call it a day, but that won’t solve the problem. If there’s a need in future for another bailout, I think it would be justified for the government to take over and run these businesses. While we can’t trust Nigerians to run a government business properly, we also can’t trust Nigerians not to cut any available cost corner. Safety in the aviation industry is it’s most important service, how can local airlines guarantee it without adequate funding? With Buhari’s aim of solving the unemployment crisis, I doubt he will want that industry to fold on his watch. The Nigerian state is not a charity, something has to give.

    I’m just upset that AMCON exists. Government subsidising and encouraging Corporate corruption and inefficiencies.

    1. N200bn for 7,000 jobs. These must be the most expensive jobs ever created in the history of mankind. Not to talk of the ongoing costs of keeping them ’employed’ in an exercise in futility.

      It is well

  2. The policy in itself is not bad. The problem is your interpretation of it is ideological, and it is a blindspot. Lee Kuan Yew succeeded because he was able to use common sense, and adapt ideas to his local environment, not blindly and rigidly apply ideas that won’t work within the local context. State ownership of an airline will not by itself make it fail, as private airlines have failed and gone under as well. The key variable is not the type of ownership (government or private sector), but the type of management and the institutional framework. There is a huge domestic market in Nigeria and regional market in West Africa that should comfortably make Nigeria a regional aviation hub if it is disciplined enough to create the right institutions to support that. Nothing wrong in Nigeria outsourcing the actual running of this airline to an efficient third party private sector organisation, while it owns it, or going into some version of PPP. Nothing wrong with ensuring this airline, once it takes off, competes with all the others, and is not propped up by unhelpful subsidies. Yes national airlines are prestige projects to an extent, but what is so wrong in Nigeria having a prestige project, so long as it is not wasteful? How different is this prestige project, from others such as say, Britain hosting the Olympics in 2012 or Brazil hosting the world cup in 2014, all of which cost lots of money but were of questionable benefit?

    1. When LKY wanted to set up Singapore Airlines, one of the countries they went to copy was India. Air India is a complete mess today. At the very least that tells me that Singapore is special – it has built the most efficient bureaucracy seen in any country in modern times as far as I can see.

      State ownership in Nigeria is guaranteed to fail. That IS our local context in Nigeria. It is private ownership that has a small chance of succeeding e.g Overland Airways that is very profitable by focusing on a niche and serving it very well. There is zero evidence that govt owning an airline will succeed. So why embark on it? There are many other projects that wont cost that much money if prestige is what you are after.

      This one is a money pit.

      1. Air India might be a complete ‘mess’ but there are many other government-owned airlines – Qatar, Emirates, Ethiopian etc – around the world that are doing okay, some are heavily subsidised, some aren’t. In Nigeria, for every ‘profitable’ Overland Airways, there are several Chanchangi, Air Nigerias etc etc that have failed spectacularly for the very managerial reasons you dismiss government-owned enterprises. There is lots of historical and cross-country evidence that government-owned airlines do succeed, even in sub-Saharan Africa – of course ‘success’ itself is a subjective term whether we define it as being simply afloat or profit-making – and of course there are failures. To simply focus on the ‘failures’ and not the successes is rather unhelpful. It is crucial not to conflate institutional and regulatory weaknesses, with managerial competencies/capacities, which are two different very things. I will reiterate my point above that the key variable is not the ownership – government or private sector – but the institutional environment, the regulatory framework, the Ministry of Aviation, FAAN and those agencies. On the second issue of managerial capacity, there’s no point mentioning all the other state owned airlines around the world and investigating how they are actually managed either directly or through third parties or other arrangements, and competing well with wholly privately owned ones. The opportunity exists and there’s a huge market.

      2. At a time when the nation’s economy is in dire staits, my definition of success for an airline will be something that can stand on its own without regular govt intervention. Qatar, Emirates, Etihad do NOT meet this criteria at all.

        They are very well run airlines but that does not mean they do not get huge sums of overt and covert state help from subsidised fuel to huge airport investments.

        Why is this a good way to spend money right now?

    2. The policy is bad. EoD.
      There is no how you spin this policy that it make sense.
      This sounds like another amnesty program. Government throwing billions down a bottomless pit and being convinced that having once started, it will cost more to abandon than complete the futile task. It is best not to start at all. Did we learn nothing from the Virgin saga?
      There is nothing in our polity that points to an ability to run such a volatile enterprise well. Besides, where is the funds for this? We can barely pay salaries as it is.
      The flights will be filled with government officials’ families and their girls in Lekki axis.

  3. Love the aptness and directness in your analysis as always. A toddler could read and understand every nitty-gritty and that helps people like us who these things are not our forte. Keep up the good work sir.

  4. The Q that must be answered is: Is national carrier is an essential service such that a vast majority of Nigerians or the nation’s economy would collapse if not offered by the government? National carrier as a product cannot be equated with energy products in terms of needs. If national carrier is so essential, why can’t we have national food system? Isn’t food security essential?

  5. In as much as this issue seems to stems on classical theory vs Keynesian theory, it is far more of a national security problem.

  6. thing is airlines aren’t the most lucrative business models, they’re just essential in the modern world. that’s why they keep getting bailouts & aid. every “successful” state run airline is only successful in the the sense that it brings people into the country to spend their money, that’s that’s what Etihad, Emirates, Qatar etc excel at and it may not be able enough. Alitalia, KLM, Swissair etc did that very well and it wasn’t enough. A Nigerian National Carrier would do the opposite, it would subsidize cash flight

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  8. I read your airline piece with great interest.
    However,I recall a Buhari interview on TVC immediately after his election win where this very question about setting up a national carrier was put to him.
    His answer was unambiguous. He said this would not be a priority for his govt.and that in his opinion, investment in rail was a more pressing need.
    So I was somewhat surprised to read that the FG is looking at this issue once again.
    In my view, opening up the country with rail and road is a better use of money. It would be a great shock to me if this national carrier idea has not already died a natural death.

    I enjoy your blog immensely!

    1. Thanks for this. Quite fascinating. I will go back and watch the interview.
      I wonder what happened to change his mind in a matter of 3 months or so…

      And thanks for reading 🙂

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  11. Pingback: National Carrier: Bad Ideas Die Hard In Nigeria | motofey

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