Leadership (Abuja)

16 September 2013

Nigeria: Starting New Airlines With Old Airplanes Is Uneconomical - - Ado Sanusi

interview

The management of Arik Air Limited went on a business visit to Brazil. In this interview with NSE ANTHONY-UKO, Acting Vice President Operations/Deputy Managing Director the Airline, Captain Ado Sanusi, who was part of the delegation explains Arik's plan to purchase new airplanes from Embraer S.A and other reasons for the visit.

What plans do you have with Embraer?

We have been in discussions with Embraer for the past four months and now it is time to move the discussions further.

That was why we went there to take a look at all the options of purchasing executive jets. We plan to have between 10 to 15 Executive Jet (E-Jet) planes to be delivered over a period of time. We met with the chief executive officer of Embraer, their chief financial officer and also with the Brazilian Export-Import Bank that is BNDES and the initial meetings that we had were very successful and we are happy about the outcome. It looks promising and Embraer has very good products that would fit well in the Nigerian market. Those were some of the discussions we had.

We also discussed the configuration of the Airplanes, their performance and a lot of other things regarding the airplanes because Nigeria is unique. There is humid weather in the Southern part of the country and it's dry and dusty in the northern part. We discussed all those harsh conditions that the airplanes would be operating in to see how they can be modified to suit our environment. We also discussed maintenance support. We discussed whether they can come in to support MRO since there is none in Nigeria. So there is strong interest and our discussions would continue with them.

Is the federal government playing any role to help Arik Air actualise this?

Apart from the Bilateral Air Service Agreement that was signed between Nigeria and Brazil, there is no other help from government. We are the nominated Airline to fly the Lagos or Nigeria to Brazil route and we have that already from the BASA agreement.

When was the agreement signed?

The BASA was signed almost two years ago

What other support do you think government can render to facilitate this, more so now that gol already has a landing right in Nigeria?

Naturally what happens is that the home government will also put pressure diplomatically on the government of the country where we are going, that is, Brazil to make sure that we have the same treatment that Gol Airline was given her. There is no problem of having slots or of getting the flight operations permit (FOP) to make it very easy for us to go into that country.

Naturally, what they do is that they don't give the other country everything until we also have everything. But indications show that Gol Airline has gotten everything from Nigeria and we have not gotten yet what they have. They have the landing rights, and they said that as far as regulation is concerned they have gotten all the rights to fly into Nigeria.

We have filed in our papers about four months ago to the authorities of Brazil and we are still waiting to hear from them.

Are you relating with the Nigerian Embassy in Brazil?

Yes, the Nigerian Embassy has been very helpful to us. They helped us to translate our documents and to find the right personnel to represent with the ANAC, that is the Brazilian Aviation Authority. They are also helping us to ensure that we get the FOP as quickly as possible.

Which cities are you planning to operate in?

The initial city we are looking at is Sao Paulo. But it might change because our business plan is always undergoing review. We might go to Recife, and we might go to Rio de Janeiro. But the initial one we have chosen now is to go to Sao Paulo.

Sao Paulo is the biggest city in the Southern hemisphere, and the airport is very busy, so you need a slot to go into that airport, especially if you are going to land there and also make sure that your passengers have connecting flights. So you must have a particular time to land to enable your passengers connect easily with other flights so that they can get to other countries or cities.

Are you planning to appeal to the government for help?

We are still waiting for reply of the Brazilian Civil Aviation Authorities. We don't anticipate any problem but if we do, we will have to go back to the government and let them know that must think of revisiting their own approval if there is any problem.

What is the potential market and how competitive is the Brasilia-Nigeria route?

First if you look at the historic cultural ties between the two countries, you will see that an air link between the countries is a must. Brazil as an emerging market with a very strong gross domestic product (GDP) and Nigeria is an emerging market too. So there is need to connect these two countries economically. If you look at how people from Brazil travel to Nigeria, you will see that there is traffic. They have to go through South Africa or Europe and that takes so much of their time. So now if we are making a direct travel link which is about six hours, it is going to cut their travel time by half. It is a good market and I believe that we will not have any issue with traffic at all.

I told Gol, which is the Airline that would be flying into Nigeria, that the market is not that huge, so we have to guard it and make sure that it is not diluted. I do not think 14 frequencies a week would be profitable at the beginning. I feel that seven frequencies a week would be ideal.

Were they looking at that?

Yes, we discussed that and we are going to look at the market. You know in everything you do you have to test the waters first. If we test it and see that the demand is there we will increase the frequency.

How would your partnership with GOL or TAM Airlines work?

We don't intend to have only point-to-point flight to Brazil, that is fly to Sao Paulo or Rio de Janeiro. We intend to offer our passengers the ability to fly all over South America. What we will do is to try and see the best network as offered to us either by TAM or by GOL, then we will have interlining agreement or code sharing and have a good partnership and they are very willing.

When do you plan to start?

Before the end of this year. And as you know, everything depends on the Brazilian Civil Aviation Authority. If they give us the approval to start, we will look at their conditions and then based on that, we would make the decisions regarding when to start. But definitely, we are looking at before the end of the year.

The Brazilian Export Bank seemed very eager to work with you. And you have secured credit facilities from other international organisations. How did you do it?

First of all, we told them our success story since we started seven years ago and gave them our financials. By the time they went through it, they knew that this is a genuine case and a good business strategy and so were very interested in investing in Arik. That was also what happened with the Import Export bank of Brazil. We gave them our story, showed them our financials and also showed them how we intend to use those airplanes. We showed them the routes and the study we had done on those routes over a period of time. We showed them how we will start from the losses to breaking even and how we would go from merely breaking even to making profit. We also showed them how would repay the loan over a period of time. So it was the good presentations that we made to these organisations internationally.

What is the cost implication of leasing or buying new planes compared to old ones?

It is actually cheaper to operate new airplanes over time. What Arik has done is to do a study to determine whether to make an initial investment of $2-3 million that would just serve for maybe three or four years and with lots of maintenance problems or make an initial investment of $30-40 million that can serve over a period of 10-15 years and with less maintenance problems and this is actually safe. If you look at a lot of international airlines, they do that so that they can have less maintenance cost. They are more efficient and more so, they are safe and comfortable for passengers.

How do you see the possibility of using old aircraft to start a national carrier?

Let me give you a scenario. If you are starting an airline, you intend to have that airline run for up to 30 or 40 years or for a very long time. So why would you invest your money to start an airlines with airplanes that are 18 or 21 years old when you are very sure that your company will last more than those years?

At least what you should do is have a business plan that would start with new airplanes which you can use for at least 15 years before changing them and then go ahead to use new ones. But if you start with old airplanes, let's say about 20 years old, after five years, which is the first gestation period for an airline, the airplanes are already 25 years old and you already thinking of changing them. That is too early in the lifespan of an airline to start making fleet changes. Usually, airlines should consider change of airplanes or fleet renewal after 10 to 15 years of operation. So, if you are looking at that, it is not economic for any airline to start off with old airplanes. It doesn't make economical sense. It would if you are looking at the initial investment and think that you are putting less money and that you can start immediately. But you are being myopic because it does not give you the leverage to use the airplanes for a longer time.

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