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Calls for merger in the Aviation sector as authorities propose 20 planes per airline benchmark

Airline Operators have frowned at the proposal to benchmark the minimum number of planes in a local airline to 20. The operators described the call made by Aviation Safety Round Table Initiative (ASRTI), as “mere talks” adding that it is not in correspondence with the economics of the aviation industry.

ASRTI recently argued that, contrary to the current minimum of two aircraft requirement for Air Operating Certificate (AOC), the Nigerian Civil Aviation Authority (NCAA), should consider an upward review which will force merger of struggling airlines to emerge stronger and better to compete in regional and international fronts.

Chairman of the Airline Operators of Nigeria (AON), Captain Nogie Meggison, said the argument by ASRTI runs contrary to logic and is probably coming from those with no stake in the airlines’ operations.

He argued that with the cost of acquiring an aircraft and the rather difficult operating environment in the country, it would be unfair and wrong to compare the likes of Ethiopian Airlines, having over a hundred airplanes in its fleet, with local airlines.

“It is easy to talk on the side; let them come to the field. People that are in the field should be given the credit and honour, especially at this time of economic hardship with interest rate at 26 per cent. Anyone that is in aviation field should be given the credit not side distractions.”

Meggison queried the continuous reference to Ethiopian Airlines as standard for Nigerian Airlines,  noting that, Nigerian Airlines did not enjoy the privileges given to their counterpart.

“What is your exchange and mutual benefit with Ethiopia? Back in the days, our forefathers did trade by barter. What economic benefit is Ethiopia putting on the table as human capital, skilled labour, training our youth and economic contribution? Under Ethiopian Airlines have you seen any engineer, mechanic, cabin crew and pilots employed? Yes, they can fly 200 planes because your own policy is not right and you open your backyard to them. Until you recognize and pick your own up, then you have nothing.

Ethiopia today has $30 billion invested in the airline. What is Nigerian investment in our airlines? Today, we have 400 pilots unemployed. Are we creating jobs for them? The onus is Nigerians to put Nigeria first for us all to benefit.”

Is merger a bad idea?

Following ASRTI proposal for a benchmark of 20 planes per airline or a possible merger, Meggison ruled out the call, saying that, while such merger might have been possible in the banking sector, airlines case is different as it entails investors funds capped by conditions.

However, with Nigeria’s aviation goal of attaining the standard of other airlines in the region and in the world, some are of the opinion that a merger would not be such a bad idea, considering it has worked in other nation’s aviation sectors in recent past.

Earlier, Ethiopian Airlines Group merged with Ethiopian Airports Enterprise (EAE) to form the country’s new Aviation Holding Group. It saw the formation of a new holding group comprising EAE, Passenger Airline, Cargo Airline and Logistics Company, Ethiopian Aviation Academy, Ethiopian Inflight catering Services, Ethiopian MRO Services and Ethiopian Hotel and Tourism Services.

“The regulation cites the merger will help the airline cope with the global aviation competitive market. The Enterprise has been running 23 airports: four are international, and some are under construction,” a statement by Ethiopian Airlines said.

South Africa’s Government is reportedly also considering merging its three state owned airlines into one entity, offering a 25% stake of the holding company to a private equity partner.

“I believe the answer to all of it lies in how we rationalize the three companies and how we bring in a 25% shareholder to help us with management as well as on finances,” Minister Lynne Brown told a parliamentary committee.

In 2005, US airways merged with America West creating USA’s sixth biggest carrier. It also made a truly national carrier by bringing together the wstern focussed America West and the eastern focused US Airways.

Although the company initially struggled with the integration, it soon found its feet as it improved the airline’s performance and transformed it into one of USA’s most profitable outfits.

The merger of Delta and Northwest knocked out long-time leader American out as USA’s number one carrier and signalled the wave of consolidation that was soon to wash over the industry. The company took Delta’s name in what was then the largest U.S. airline deal ever.

Despite Northwest’s reputation for uneven customer service, Delta’s management team engineered what’s considered to be the gold standard of modern airline mergers. Today, most industry experts point to Delta as the one other big airline are chasing in terms of customer service and operations.

Apparently, the Delta-Northwest deal spurred more mergers. Continental, which long had insisted it wanted to go it alone, responded just a day after the Delta news by telling employees it would have to reconsider staying independent to “make sure we remain a strong long-term competitor.”

Continental agreed to merge with United in 2010, assuming the title as the world’s biggest airline.

Report shows that if Kenya Airways, Ethiopian and SAA were to combine, they would account for just 37% of Emirates’ revenue and about half the number of passengers. Meanwhile, with calls from African airlines to merge in order to better compete against much bigger foreign airlines, many have questioned id merging is such a bad idea.

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