FG clarifies Air Nigeria, as Mustafa Chike-Obi Pooh-pooh idea
By Ogbuefi Ndigbo
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The Minister of State, Aviation, Hadi Sirika, said that by December this year, the national carrier would come on stream. By December 19, 2018, the first five aircraft that would be operated by the airline are scheduled to arrive and its operations will start off.
Sirika revealed that $8.8 million would be spent in berthing the airline, using $300 million as take-off cost. He said the airline would be private sector-driven, as government would have only 5 per cent stake. The airline would start with initial 81 routes already identified.
However, critics say the minister said that the new airline would be private sector-driven, but he did not explain the equity of the airline. He has not made it clear that the airline would have core investor or technical partner but government has been talking to Qatar Airways since 2016 about the airline.
If the airline would be private sector-driven why is the minister discussing with aircraft manufacturers single-handedly without involving other investors.
While there is so much talk about the new airline, there is nothing on the ground to show that the nation’s airline would soon take to the skies less than six months to the target date.
But Mr Mustafa Chike-Obi, Inaugural CEO of the Asset Management Corporation of Nigeria. University of Lagos trained Mathematician. Stanford M.B.A.. Wall Street Veteran. Goldman Sachs, had tweeted:
Am baffled. Air France/KLM paid 286 million dollars for 31% of Virgin Atlantic last year, but we are putting up 300 million dollars for 5% of a start-up airline?? Would really appreciate a rational explanation.
My tweet yesterday was honestly asking a question, the answer of which I believe any patriotic Nigerian would care about. I made no accusations or inferences. After all the comments, and some insults, the question still stands.
For further clarity, Delta bought 49% of Virgin Atlantic in 2012 for 360 million dollars. So is investing 300 million dollars for 5% of a startup airline a matter of national pride, a sensible economic decision, or something else entirely?
Final words on Nigeria Air. It appears it is really a 100% Gov. Sponsored Enterprise (GSE )that would transform into a PPP in the future when FG sells down 95% to investors. They should just have said so. Pray the process of selling down the 95% follows all due process.
There are more important national issues than the airline for us all to focus on. I sincerely wish our smart and hardworking Aviation Minister all the success with this venture. It is in all our interest as Nigerians that it becomes a source of pride to Nigeria.
There are more important national issues than the airline for us all to focus on. I sincerely wish our smart and hardworking Aviation Minister all the success with this venture. It is in all our interest as Nigerians that it becomes a source of pride to Nigeria.
— Mustafa Chike-Obi (@ChikeMustafa) July 23, 2018
SEE below federal government response:
Matters Arising – Revisited (Air Nigeria/Nigeria Air)
– Who are the owners of the 95% equity?
Answer: The 95% will be owned by the strategic investor and the general public.
– Why is the ownership shrouded in secrecy?
Answer: No secrecy. The entire process is guided by the infrastructure concession regulatory commission guidelines/regulations. Because it’s a PPP, it has 3 stages the project development stage, procurement stage and implementation stage. The project development stage was just concluded with the approval of the Outline Business Case, which the ICRC issued a certificate of compliance. At the moment OBC is awaiting FEC approval. Once the process gets to procurement stage, there will be a RFQ and RFP bidding process which will be made public, competitive and transparent. Shares will be set aside for the Nigerian public (IPO). All ownerships will be made public. As it stands now, it’s only the 5% that will be in the governments hand.
– Why is 5% equity holder funding the business?
Answer: The Government is not funding the entire project. It’s just providing start up capital in the form of Viability Gap Funding. Once the strategic investor is in place, they will be expected to build on the initial investment made. The OBC suggested that if there is a need to start the business in order to attract credible investors.
– Where are these fundings $8m, $300m coming from? Budget? Borrowing?
Answer: These fundings are from the OBC. I’m not sure about the $8m. But the $300m is the funding requirement for the next 2018 ($55m), 2019 ($100m) and 2020 ($145m). The funds for 2020 will most likely be paid by the strategic investor. Kindly note the term funding requirement. It does not mean the exact amount to be expended. It may end up being lower than the $300m based on initial discussions and projections.
As mentioned earlier, this will form part of the VGF. The Government can decide to fund it through budgetary allocation or development financial institutions like AFREXIM bank, AFBD, ISDB etc, which have indicated keen interests in funding this project.
– Are the aircrafts under lease agreement? If yes, for how many years?
Answer: As you may be aware it’s almost impossible for you to pay and get a new aircraft immediately because it is not a shelf item. However, as part of our discussions with the major Manufacturers, we will pay the deposit for brand new aircraft and they will support us in getting very good lease aircraft coming directly from C Check and certified by them. By the time the new aircrafts are ready, they will be replacing these leased aircraft, till all the aircraft are owned by the airline. According to the manufacturers, the new aircrafts will start coming through from 2021.
– If it’s private investment, why would a 5% equity holder determine the name, logo and other trademarks of the airline?
Answer: At the moment only the 5% equity holder is in place.
These are requirements for an ATL and AOC. In any case Name and Logo can be amended it the owners feel it’s not right for the business.
However, this airline line is going to represents our Nation, the Name, Logo and Color should be in line with what was done.
– Is Nigeria Air same as Nigerian Airways? Staff of the airline are waiting for their entitlements.
Answer: Well you can ask the owners of Air Nigeria, because what we have is Nigeria Air which is a totally different entity from Air Nigeria and Nigerian Airways. You can seek further clarification and confirmation from the CAC.
– Since it’s private sector driven, why not adopt any of the existing airlines in Nigeria as the National carrier?
Answer: The existing airlines have their own business plans which do not conform with the OBC developed by the TA. Furthermore, to attract a good strategic investor, it’s best to start on a clean slate.
– Are there sinister motives? Sure! Time shall tell.
Answer: You are absolutely right, time will tell!!!
Facts that you may need to compare notes:
Answer: The facts below are duly noted. However, you may wish to note business are operated to suit a particular environment. Nigeria is completely different from all the countries mentioned below. The airline business is not a 1 size fits all business. What we did was to identify our needs. Now we are trying to use our strength to get the opportunities that are out there in order to minimize our weaknesses and overcome our threats.
Some tweeted this which is very true “An age where people can hashtag, tag and tweet useful suggestions on improving aviation industry especially on the back of #NigeriaAir launch..they spend it being bitter and doomsday prophets @hadisirika and others am sure are receptive to positive ideas. @mustyjun2000” The HMSA Sen. Hadi Sirika has mentioned times without number that he welcomes constructive criticism, it helps him in doing his job better.
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While we provide the clarifications below for record purposes, only delivering a world class national carrier is good enough for Nigerians, this will stop the export of jobs and exploitation of Nigerian air travelers. We are not deterred but we are focused on our target and mission.
Part of the falsehood being spread is the lack of a domain name, as part of the airline PPP project development phase – Nigeria Air Limited – has been incorporated with the corporate affairs commission for now as a wholly government owned company with the corporate affairs commission using nominal directors who are directors of the ministry of aviation. On conclusion of the PPP procurement process, when full equity structure pre financial close is finalized the incorporation will be updated and certificate of incorporation made public. The present certificate of incorporation is attached. Nigeria Air Limited is indeed a legal entity.
Further to the incorporation of the company with nominal directors the domain name www.flynigeriaair.ng has been reserved and will be made active very soon as part of the project evolution and marketing process. Some people whose only desire is to steal Nigeria’s common wealth by hawking domain names will not a get a kobo from the people of Nigeria. They can eat their domain names.
In terms of ownership Nigeria’s national carrier by international convention must be beneficially majority Nigerian owned to enjoy the benefits and privileges accruing to national carriers. So in all cases majority ownership in equity terms will be Nigerian, while management of the national carrier will be concessioned via a renewable long term operate and maintain concession agreement to the minority private sector strategic equity partner to be selected via an open competitive international two stage PPP procurement exercise.
For general information and awareness, the national carrier is being procured as a PPP. Nigeria’s PPP process has three phases – one is an internal government bankability process – the business case phase and the other two external. The PPP process cycle is:
PPP Development Phase – Outline Business Phase
PPP Procurement – Request for Qualification and Request for Proposal to pre qualify and select PPP partner
PPP Implementation
For the national carrier only the Development phase has been completed and all the information about this phase has been transparently disclosed on the PPP Disclosure Portal of the regulator the Infrastructure Concession Regulatory Commission (no private party has been selected, final financial requirement not completed only business case funding estimate is available, final equity structure not in place yet).
Other information in the social media claiming ownership or others post PPP procurement decisions are false and unfortunate. Once the Request for Qualification and Information Memorandum document is completed for the procurement phase, these documents will be released to the public for an open competitive international bidding process to select a minority strategic equity partner who will invest and operate the national carrier. The public will know more.
As part of efforts to make airlines viable in Nigeria, the ministry is making moves to have the National Assembly pass a fly Nigeria act. This act will require that anybody travelling on a ticket bought with public funds must travel on a Nigerian carrier unless the route is not served by a Nigerian carrier. However, with your private funds you can do as you like. Many countries including America has such as Act.
Answers to specific falsehood raised in the social media are provided below.
Who are the owners of the 95% equity?
**Ans** At start up government will own majority equity in Nigeria Air Limited Joint Venture Company. A Joint Venture Company that would be very similar to Nigeria LNG Limited. Nigeria LNG Limited is a huge JV success that is private sector managed so will Nigeria Air Limited. After one year of operations, government will through an IPO divest her equity for purchase by Nigerians subject to approval of the Securities and Exchange Commission. Government will then retain only 5% equity. The rest of 95% equity of Nigeria Air Limited will then be owned by the strategic equity investor and the general public. Majority ownership must however remain with Nigerians so that the national carrier can benefit from BASA and other bilateral agreements which require local beneficial ownership as a condition precedent. Management of the national carrier will be concessioned to the strategic equity investor with no step in rights and management control by government. Signed up acceptance and approval of the management concession agreement will be a condition precedent for the IPO.
Why is the ownership shrouded in secrecy?
**Ans**: No secrecy. The entire process is guided by the infrastructure concession regulatory commission guidelines/regulations.
Because it’s a PPP, it has 3 stages – the project development stage, procurement stage and implementation stage. The project development stage was just concluded with the approval of the Outline Business Case, which the ICRC issued a certificate of compliance. Once the process gets to the PPP procurement stage, there will be an RFQ, Information Memorandum and RFP bidding process which will be made public, competitive and transparent. It is only after the PPP procurement process that the strategic equity investor will be known. At that stage the JV partners will be government and the strategic equity partner. Government’s equity share held in trust for Nigerians will be devolved to Nigerians via an IPO. The government will retain only 5% equity, the list of shareholders then will be available to SEC and the Nigerian Stock Exchange. At that point Nigeria Air Ltd becomes a public company subject to SEC, NSE and relevant CAMA rules for public companies. All PPP procurement and ownership moves will be made public. Signed up acceptance and approval of the management concession agreement will be a condition precedent for the IPO.
Why is 5% equity holder funding the business?
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T**Ans** The Government is not funding the entire project. It’s just providing startup capital in the form of an Upfront Grant/Viability Gap Funding. Once the strategic equity investor is in place, they will be expected to build on the initial investment made.
The OBC made it clear that the strategic equity investors will not start the national carrier; government has to start it in order to attract credible investors.
Where are these findings $8m, $300m coming from? Budget? Borrowing?
**Ans** $8m represents startup capital for offices etc required for takeoff. But $300m is the entire airline cash flow funding requirements (aircrafts, operations and working capital) for three years (2018, 2019 and 2020). This funding can be in the form of equity or debt. The financial model estimates cash flow requirements as follows 2018 ($55m – $8 million is included here), 2019 ($100m) and 2020 ($145m). In order to ensure take of the airline in 2018 government will provide US $55 Million upfront grant/viability gap funding to finance startup capital and pay commitment fees for aircrafts to be leased for initial operations and deposit for new aircrafts whose delivery will begin in 2021.
The remaining financial injection by government will be determined by the quantum of equity that the strategic equity partner will bring as a result of the PPP competitive bidding process. This explanation clearly debunks the claim in the social media that government is paying $300 million for a 5% equity share. Furthermore, with ongoing discussions the cash flow requirement may be lower than $300 million; furthermore, the cash flow estimates contains a 20% buffer that is put in on the assumption that the airline may suffer an operating loss in year 1 due to competition and need to build a brand. As mentioned earlier governments contribution to equity will be in the form of an upfront grant/VGF. Government’s upfront grant/VGF contribution to equity will be funded through either a supplementary budgetary allocation or development financial institutions like AFREXIM bank, AFBD, ISDB etc, who have indicated keen interest in funding the national carrier project because of its bankability and profitability profile.
Are the aircrafts under lease agreement? If yes, for how many years?
**Ans** As you may be aware it’s almost impossible for you to pay for and get a new aircraft immediately because it is not an off the shelf item like indomie noodles. However, as part of discussions with major Aircraft Manufacturers, the Government will pay deposits for brand new aircrafts and the manufacturers will support Nigeria Air in getting very good dry lease aircrafts coming directly from c checks and certified by the original manufacturers. These aircraft lease period will be for an initial period of 5 years with an early termination option after 4 years. By the time the new aircrafts are ready, they will be replacing the leased aircrafts. Till all the aircraft are owned by the airline. This is how Emirates Airlines started with two leased aircrafts from Pakistan Airlines until it was able to buy her own aircrafts. According to the manufacturers, the new aircrafts will start coming through from 2021.
If it’s private investment, why would a 5% equity holder determine the name, logo and other trademarks of the airline?
**Ans**
The logo etc are requirements for an ATL and AOC required for NCAA to license an airline. In any case the name and logo can be amended it the strategic equity partners feel it’s not right for the business. We must recall that the airline name and logo was the result of an open national competition. However, this airline line is going to represents our Nation, the Name, logo and color should be in line with what was done with the public.
Is Air Nigeria same as Nigerian Airways? Staff of the airline are waiting for their entitlements
**Ans** Well you can ask the owners of Air Nigeria, because what we have is Nigeria Air which is a totally different entity from Air Nigeria and Nigerian Airways.
You can seek further clarification and confirmation from the CAC.
Since it’s private sector driven, why not adopt any of the existing airlines in Nigeria as the National carrier?
The existing airlines have their own business plan and liabilities which does not conform with the OBC developed by the TA. Furthermore, to attract a good strategic investor, it’s best to start on a clean slate. Adopting the existing airlines will immediately transfer their liabilities to Nigeria Air and it may never take off.
Are there sinister motives? Sure! Time shall tell.
**Ans** You are absolutely right, time will tell!!
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On flyairnigeria.com, see below critique sent to me:
