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Ethiopian Airlines swoops in for Nigeria Air’s take-off

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Ethiopian Airlines swoops in for Nigeria Air’s take-off

After many failed attempts to launch a profitable airline, the Nigerian government has enlisted Ethiopian Airlines to help its new national carrier take off.

The establishment of a national airline was one of President Muhammadu Buhari’s campaign pledges when he first won the presidency in 2015 and he is keen to see the promise implemented before he relinquishes office in May 2023.

Nigeria Air was first unveiled at the UK’s Farnborough Air Show in 2018. Within months the project had been suspended as critics raised concerns over its relevance, sustainability and burden on the government budget, with startup costs estimated at over $300m over three years. But now the project is back in the works. In September, Ethiopian Airlines was revealed as the preferred bidder for shares in the new airline.

Under a new deal Ethiopian Airlines will own a 49% stake in Nigeria Air, while the Nigerian Sovereign Fund will take 46% and the Nigerian federal government the remaining 5%. With initial capital of $300m, and plans to have 30 aircraft within four years, Nigeria Air will launch a service between Abuja and Lagos and add other routes later.

Resurrecting regional airlines

This is not the first time that Ethiopian Airlines has helped a continental carrier take off.

In 2018, then-Ethiopian Airlines CEO Tewolde Gebremariam, outlined plans to found new African carriers across the region by helping countries to set up new companies or overhaul existing ones. The airline has invested in carriers in Malawi, Zambia, Mozambique, Chad, and Togo and has this year been involved in talks with the government of the Democratic Republic of Congo.

Flying to 127 destinations globally, and more than 60 destinations in Africa, Ethiopian Airlines has expanded in recent years even as many African flag carriers have struggled to stay afloat.

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Many of Africa’s airlines were in poor financial shape before the Covid-19 crisis, but the ensuing loss of revenue has driven many to the brink. Before the pandemic struck, South African Airways (SAA) entered voluntary business rescue in December 2019 after years of financial losses, before relaunching operations in 2021 with investment from private partners.

Air Mauritius (AM) became the first African airline to enter voluntary administration as result of the pandemic in April 2021. Meanwhile plans to nationalise Kenya Airways collapsed this year amid a $1bn debt restructuring and depressed passenger demand due to Covid restrictions.

This is Nigeria’s third attempt at realising its dream of flying its flag carrier to the major airports of the world. Its first national airline, Nigeria Airways was one of the leading airlines in Africa in the 1980s, serving destinations in Africa and Europe. But a combination of mismanagement and competition from non-African airlines led to its liquidation in 2003.

Two years later Virgin Nigeria, a partnership with billionaire UK businessman Richard Branson, took to the skies with much fanfare. But after a change of government, which saw President Olusegun Obasanjo succeeded by Umaru Yar’Adua, a row broke with Virgin Atlantic, prompting the British airline to sell its 49% stake in the venture. Virgin Nigeria was subsequently rebranded to Nigerian Eagle Airlines, and later Air Nigeria, which eventually laid off all its staff and ceased operations in 2012.

Under the latest deal Ethiopian Airlines will manage the airline, and provide aircraft, senior executives, cabin crews and technical personnel – all trained in a $100m training academy on the outskirts of Addis Ababa, Ethiopia.

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With a population of over 200m, Nigeria represents an important market for Ethiopian Airlines, allowing it to add new routes and develop a hub in Africa’s largest and most populous economy.

“Nigeria is a huge market for Ethiopian Airlines. Ethiopian Airlines has been operating flights to Nigeria since the 1960s – immediately after independence. Today they fly to four destinations, Lagos, Abuja, Enugu and Kano,” says Keleyesus Bekele, an Ethiopia based aviation analyst.

A code-share agreement between the government and airline will also see Nigeria Air collect passengers from regional and domestic destinations and feed them into Ethiopian Airlines’ routes.

A flying start

The partnership could shake up Nigeria’s domestic airline industry. Nigeria’s 23 airlines grounded flights in May after the war in Ukraine helped triple aviation fuel prices to N700 ($1.68) per litre.

Joining forces with a regional juggernaut like Ethiopian Airlines could make it hard for domestic carriers to compete, says Sindy Foster, an analyst at African aviation specialists at Avaero Capital Partners. “It really is uncertain at this time what the benefits (if any) there would be for Nigeria’s flailing domestic aviation industry.”

Ethiopian Airlines’ training, funding, technical support, provision of fuel and ground handling will provide the newcomer with a competitive advantage.

“This is good for consumers in the short run, but if other airlines are not able to compete it may lead to a monopoly situation on some routes, which isn’t so good for consumers. The objective should be more airlines and more competition, not less,” says Foster.

Repatriation woes

The move comes at a time when other international airlines are reconsidering their presence in the country. Dubai’s Emirates Airlines suspended all its flights to and from Nigeria from 1 September, citing a continuing inability to repatriate funds from the country.

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“Emirates has tried every avenue to address our ongoing challenges in repatriating funds from Nigeria, and have made considerable efforts to initiate dialogue with the relevant authorities for their urgent intervention to help find a viable solution… Regrettable [sic] there has been no progress. Therefore Emirates has decided to suspend all flights to and from Nigeria, effective 1 September 2022, to limit further losses and impact on our operational costs that continue to accumulate in the market,” the firm said in a statement.

For years, Nigeria has faced complaints from international investors that it is too difficult to repatriate funds. Dollar shortages have led the Central Bank of Nigeria to impose strict foreign currency restrictions on international investors. In a letter sent to the government on 22 July, Emirates said that it had $85m stuck in the country as of July, a figure that had been rising by $10m per month. In June, the International Air Transport Association estimated that under the policy, Nigeria was withholding around $450m in revenues earned by international carriers operating in the country.

How that reality will affect Ethiopian Airlines’ plans in the country remains to be seen. But while the new stakeholders would no doubt relish special treatment, analysts also say that the new airline must be as independent as possible from government.

“I see a promising future for the new airline if the Nigerian government doesn’t intervene,” says Bekele.

“The new management should be independent. Most of the airlines in Africa fail because of government interference, mismanagement, corruption.”

 

 

Source: African.business

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