Extending Aviation Concessions

Nigeria

Economic News

22 Jul 2010
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The Nigerian government has reaffirmed its commitment to extending the partial privatisation of the nation's airports, despite lingering doubts over the profitability of Nigeria's 17 remaining state-controlled airports, as it seeks to boost flight frequency and arrival figures.



The four candidates for private concession are Murtala Mohammed Airport, Lagos; Mallam Amino Kano International Airport, Kano State; Nnamdi Azikiwe International Airport, Abuja; and Port Harcourt International Airport, Rivers State. If privatised, these four would join the existing concession at Murtala Mohammed Airport 2 (MMA2), which was awarded to Bi-Courtney Aviation Services in a N20bn ($126m) 36-year build-operate-transfer (BOT) contract in 2003.



As a trial-run for further privatisation, MMA2 clearly signposted the government's intent to improve the efficiency of the aviation sector, although it has not been without teething troubles. The initial agreement for a 25-year BOT contract was recently extended to 36 years following a court dispute, which involved several industry players, including the government. Under the terms of the initial memorandum of understanding, MMA2 was intended to have a monopoly over domestic air traffic in Lagos. However, in an attempt to recoup investment costs Bi-Courtney announced earlier this year that it would increase passenger charges at the terminal from N350 ($2.21) to N1000 ($6.32) in June. This factor, combined with the continued operation of the General Aviation Terminal (GAT) which MMA2 was supposed to supersede, and which continued to charge N350 ($2.21) per passenger, made for some difficulty in persuading carriers to switch to the new terminal. Other wrangles, including the desire of some carriers to develop their own terminals (thus circumventing MMA2), debates over the difference between transfer and transit passengers, and government concerns over the establishment of a private sector monopoly, have all served to slow the gains of privatisation.



The announcement that more of Nigeria's most profitable airports will follow the same route as MMA2 will bring about changes for the country's aviation industry bodies, such as the Federal Airports Authority of Nigeria (FAAN).



There is no doubt that the concessioning of airports in Nigeria fits into a wider government policy towards the development of aviation: establishing a modern, privatised network, where the government assumes the role of regulator as opposed to service provider. As Richard Aisuebeogun, the MD and CEO of FAAN, told OBG, "The government realises that it cannot develop and maintain the country's infrastructure by itself." FAAN expects the four proposed airports to be conceded within the next 18 months.



Aisuebeogun's views are echoed by an independent aviation consultant, who wished to remain anonymous. "By and large, the safety environment in Nigeria's 22 airports has improved in recent years,” he told OBG. “The separation of FAAN, the airport operator, and the NCAA, the regulator, has improved the regulatory environment for the aviation industry."



Indeed, in a highly significant step for the Nigerian aviation industry, the US Federal Aviation Administration has awarded the IASA category 1 safety certification to Nigeria this year – allowing domestic operators to resume flights to US airports.



The government also sees an opportunity to make Nigeria the West African hub for international carriers, and to that end has recently secured an agreement with Lufthansa and Lufthansa Teknik to build a maintenance hangar. While becoming a regional hub remains an achievable goal, there are indications that the current market framework needs some fine-tuning. Nigerian carriers in particular are struggling to maintain market share against their better-capitalised international competitors, with Virgin Nigeria recently pulling out of long-haul routes to London and South Africa. Nigerian carriers in general currently have a significantly lower share of international long-haul routes in and out of the country than two decades ago.



The current complications surrounding aviation in Nigeria may resemble something of a Gordian knot. However, in common with that knot, whichever operators can successfully untangle it stand on the cusp of great rewards.

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