Four years after the last deadly crash, Nigeria’s aviation is still reeling from twin disasters in June 2012 that have served as a wake-up call for the industry. Although Africa was the continent with the highest number of crashes (yet the lowest level of traffic) in 2010, the absence of fatal air crashes in Nigeria since 2008 seemed to indicate stricter controls and enforcement by the industry regulator, the Nigerian Civil Aviation Authority (NCAA) and the airspace manager, the National Airspace Management Agency (NAMA). Yet, following two crashes in June 2012 – first of Nigerian-flagged cargo flight in Ghana that killed 10 people and then a passenger flight in Lagos in which 163 died – public outcry is pushing for further reforms.
With domestic airlines plagued by low profitability, they will need to raise prices for domestic routes to cover higher safety and maintenance costs. Passenger traffic at Nigerian airports totalled 14.7m in 2011 and annual growth was around 7%, according to the Ministry of Aviation, meaning requirements for fleet upkeep will only grow. Global leaders in maintenance, repair and overhaul (MRO) services are positioning themselves to enter the market, but reforms (particularly on the tax front) will be required to support investments and sustain improvements in aircraft maintenance.
TRACK RECORD: Since 1945 Nigeria recorded some 44 fatal aviation accidents, causing a total of 1479 fatalities. In the decade to the advent of democracy in 1999, Nigeria’s air space suffered from a poor international reputation, being called “critically deficient” by an international association of air pilots and plagued with numerous black spots uncontrolled by the country’s air traffic control. NAMA, a parastatal under the Ministry of Aviation, was created in 1999 to build a dynamic air management system.
A new aviation bill passed in November 2006 reformed the NCAA, also established in 1999, following two bruising crashes in 2005 and 2006, causing a total of 335 deaths. The authority’s enforcement powers were strengthened and it launched a certification process with the International Civil Aviation Organisation (ICAO) and US Federal Aviation Authority (FAA). Nigerian-registered aircraft were cleared to fly to US airports in 2009. “We have completely overhauled our air operator certificates and we are extremely strict on this,”
Harold Demuren, the director-general of the NCAA, told OBG back in late 2009.
While such reforms have provided a necessary platform for aviation security, NCAA interventions in recent years have focused more on financial viability than on safety. As well as grounding Dana Air for three months, the NCAA withdrew Air Nigeria’s operating licence in June 2012 over non-payment of a N4.8bn ($30.72m) tax bill and concerns over funding for aircraft maintenance. Foreign firms leasing aeroplanes to Air Nigeria quickly recalled them, with General Electric Commercial Aviation Services repossessing its four leased Boeing 737-300s from the airline in early July 2012 and Egypt Air renouncing its collaboration on international lines.
Local tycoon Jimoh Ibrahim, who acquired Air Nigeria in April 2010, closed the airline in September 2012, announcing he hoped to reopen in 2013.
RECENT CRASHES: Following four years of relative calm, two crashes in two days shook a nation that had been flocking to affordable flights in growing numbers over the past decade. The first, on June 2, 2012, was of a Nigerian air cargo flight operated by Lagos-based Allied Air Cargo. The Boeing 727 overshot Accra’s main runway on landing and crashed into traffic, killing 10.
The next day Nigeria suffered its worst crash since 1973 when a Dana Air MD-83 flying from Abuja to Lagos crashed as it neared arrival. All 153 passengers on board, including senior central bank officials, the national oil company’s spokesperson and seven crew members were killed, as were 10 bystanders in Lagos’ Agege district. The aircraft, built in 1990 and purchased from Alaska Airlines in 2009, had already had technical problems in 2002 and 2006, when electrical smoke erupted in the cabin. Subsequent investigations by the Accident Investigation Bureau (AIB) with support from US authorities revealed the plane suffered a loss of power to both engines during the final approach to Murtala Muhammed Airport.
Insurance coverage for the aircraft was split 30% to local underwriter Prestige Assurance and 70% through the London Lloyd’s market. Yet by September 2012 only 58 of the victims’ families had accessed initial insurance payments, according to the insurance regulator, due to multiple and fraudulent claims and delays in death certificate processing. Following a NCAA safety audit of the airline, which operated 27 flights a day prior to the crash, the licence suspension was lifted on September 7, 2012 in the midst of public outcry. Although the airline was deemed safe, Stella Oduah, the minister of aviation, pledged that, “The government will continue to strengthen its oversight and regulatory functions to ensure that all airlines operating in the country adhere strictly to safety procedures.”
THE MRO MARKET: Some limited local capacity has developed in recent years. Aerocontractors, which grew out of a business of servicing Shell’s operations in Nigeria, was awarded a licence for its aircraft maintenance hangar in June 2011. Aero has been completing A and B checks on Boeings since 2011 and launched C checks from July 2012, aiming to service third-party aircraft throughout West Africa. Bristow Helicopters also established a new maintenance firm in Lagos in 2011.
While Lufthansa Technik has long held MRO contracts with Nigerian airlines such as Air Nigeria and Arik Air, it signed a memorandum of understanding with the government in 2009 to establish its West African hub at Abuja’s Nnamdi Azikiwe Airport. The airline continues to fly its aircraft to Lufthansa Technik’s hangars in Italy and Malta for major checks and repairs. In September 2012 it partnered with Arik to provide technical support for the airline’s MRO hangar in Lagos. Some 50 engineers have been dispatched to Lagos to service the airline’s Boeing 737s and Bombardier CRJ900s.
A key part of the government strategy of raising standards has been to encourage the largest global aircraft maintenance operator to establish Nigerian bases. In August 2012 Oduah embarked on a North American roadshow, visiting Bombardier in Canada and Boeing in the US. The clear aim was to develop in-country capacity and attract foreign investment and, crucially, expertise. While visions of an MRO hub for West and Central Africa in outlined in Nigerian marketing material may sound ambitious, Oduah did walk away with commitments to develop MRO facilities in Nigeria.
It is likely that both aircraft manufacturers view commitments to invest in maintenance capacity in country as a means to expand their market share amongst domestic airlines, particularly since both agreements include mentions of facilitating new aircraft acquisition by domestic operators. But while both have committed to building MRO hangars, Boeing will establish a new training centre (adding to the existing Nigerian College of Aviation Technology in Zaria), establish an aviation database and carry out an industry-wide audit on behalf of the Aviation Ministry. Boeing’s provision of checks from A to C will bring it into direct competition with the Arik-Lufthansa Technik venture.
DOMESTIC & INTERNATIONAL SERVICE: While the expansion in domestic capacity and the ministry’s efforts to tighten safety checks will likely raise standards, they will also increase costs for airlines already facing financial difficulties. Financial Derivatives, an advisory firm, has forecast net industry profit of just 0.5% of gross revenue for 2012, with growing competition squeezing domestic players. Despite falling fuel costs in 2012, domestic carriers have continued to struggle financially and rumours of a potential merger between Aero and Arik circulated in the summer of 2012.
Growing competition has resulted in sustained downward pressure on pricing. The suspension of Air Nigeria’s regional flights benefitted new regional upstarts, such as Togo-based AS ky, 40% held by Ethiopian Airlines, which started commercial flights in early 2010. The July 2012 entry of Air Côte d’Ivoire, 20% backed by Air France, should add to competition on regional routes.
Despite annual growth of 7-15% forecast by the Ministry of Aviation for the medium term, the industry’s ability to cover higher costs remains in doubt. Investments in Nigerian MRO capacity will thus need to expand the serviceable market to prove profitable over the long term. While geographically well-placed to offer third-party services to West and Central Africa, Nigeria will need to revise its regulations to counter competition from Morocco, Ethiopia and South Africa, each of which acts as a hub for its region.
ENSURING A SAFE LANDING: A tax on spare parts in particular creates an incentive for aircraft to seek maintenance offshore. Security concerns also need to be addressed, with aircrew from global carriers like British Airways sleeping on their aircraft amidst such concerns in early 2012. While the government is proving to be proactive in establishing the foundations for a safer industry in the long term, it will need to show it is taking further concrete steps to help avoid future disasters. “Our goal is zero accidents,” Demuren told OBG. “You always have incidents, but we cannot lose lives.”