Virgin Nigeria Airways (VNA) has been in the news for all the wrong reasons since the start of the year. It has been fighting a battle with the Federal Government for months trying to stop a directive instructing the airline to move its domestic operations from the Murtala Muhammed International Airport (MMIA) to the domestic terminal of the same airport. Citing security reasons, among others, the Ministry of Transportation has gone to great lengths to use its federal might intimidating the airline and even got as far as using security operatives to destroy VNA’s lounge in the airport. That act was barbaric and says a lot about our way of doing business and encouraging private sector participation in the key segments of the economy.
The airline argued its case as best as it could drawing attention to a Memorandum of Mutual Understanding executed between itself and the Federal Government when it was established four years ago which provides for the establishment of a hub at the MMIA from which it can conduct all its operations. But investigations have shown VNA had a weak argument in that regard. No clause in the MMA provides or gives it permission to carry out all its operations from the international airport(s). Instead it is an attached letter signed by Richard Branson, owner of Virgin Atlantic and Isa Yuguda who was then the Minister of Aviation, which permitted the airline to use the “relevant international terminals in Nigerian airports for all the airline’s operation.” Unfortunately, the said letter was not an addendum to the MMA, nor was it ever referred to in the agreement, and may therefore be deemed non-binding.
However, VNA did not stop at that. It embarked on a campaign to run down the domestic terminal of the Murtala Muhammed airport, complaining that it was unsafe; unsuitable for certain wide bodied aircraft; unsuitable for the direction of its aircraft when taxing for landing and take off; and will compel its passengers transiting from local to international flights and vice versa to travel landside between the terminals to complete their journey (this entails leaving one terminal building completely via road transportation to access the other terminal building). To buttress its point it cited some IATA report, which has since been disputed by the same body.
The strategy to run down the domestic terminal proved very unpopular and drew the ire of the Nigerian public and commentators who felt a local airline should not run down the new terminal built and managed by a local private sector firm, Bi-Courtney Aviation Services Limited. By local standards, the domestic terminal is probably the best airport the country has to offer. Added to this, the reluctance by VNA and one or two other airlines to move to the domestic terminal was certain to jeopardise its (MMA2) revenue stream and ability to meet its financial obligations to the banks that financed its construction, on the one hand, and the Federal Government, on the other hand, under a 35-year concession agreement.
To restrain the government from forcefully removing the airline from the airport, VNA also went to a Lagos High Court but its case was thrown out in February this year. The airline has since gone on appeal, without getting an injunction barring the government from forcibly removing it from MMIA. That case is still pending at the
Following the most recent face-off culminating in the eventual cessation of VNA flights from MMIA for four days, and several millions in lost revenue, the airline relented last week and grudgingly moved its local flights to the domestic terminal. But VNA’s troubles are far from over. The airline has an even bigger battle for survival, completely unrelated to which airport its flights should take off and land.
In spite of controlling 35 per cent of the aviation industry’s passenger traffic in the country and its dominance on key routes such as Lagos and Port Harcourt and Lagos and Abuja, the airline since it commenced flights in 2005 has consistently posted losses, resulting in an accumulated deficit of N16.057 billion in February 2007, up from N6.535 billion in 2006. Worse still, Virgin Atlantic which gave it international leverage and acceptance has been under pressure for almost a year from Singapore Airlines to dispose of its stake in VNA. Singapore Airlines acquired a 49 per cent stake in Virgin Atlantic from the Virgin Group for £600.25 million in 2000. The Asian airline has, however, been concerned that Virgin Atlantic entered into a loss making venture which is impacting on its bottom line and ability to consolidate its business with other potential flying partners.
This could not have come at a worse time for VNA. The global aviation industry has been plagued by rising operating costs brought on by high oil prices. The recent open skies agreement between Europe and the
In order to reduce its exposure to VNA, Virgin Atlantic is in the process of selling 42 per cent of its stake through a $25 million private placement. The transaction which is being handled by Afrinvest as Issuing House and Underwriters, will be secured by the executed Share Purchase Agreement between VNA and Virgin Atlantic, as well as a board resolution from the latter authorising the sale of its shares to institutional and individual investors. In addition, Afrinvest is in the process of assisting VNA raise a N20 billion contingency line of credit to provide immediate refinancing of a $100 million bond, overdraft and other facilities extended to the firm by UBA Plc that will be securitised by the assets and accounts of VNA.
It is apparent that VNA is in dire need of a lifeline for it to survive. The airline can still leverage on the growing number of passenger traffic on domestic and regional routes currently estimated at 2 per cent of the population. But it has to put the fiasco of the
What this means is that there is still considerable potential to capture additional passengers as the volume of business grows internally and on the sub-continent. But to do that it may have to refocus its strategy by not trying to compete with the likes of Virgin Atlantic, British Airways, or even South African Airways on long haul flights, but by becoming a low cost, short haul carrier extensively covering the country and the rest of the West African region. VNA’s emphasis has been on making the international airport in
VNA, three years ago, started a revolution in the Nigerian aviation industry that compelled other local airlines to offer more professional services, become more efficient and upgrade their facilities, especially in the area of communications. The successful subscription Virgin Atlantic’s shares through the private placement, Virgin Atlantic’s continuing involvement through a technical services agreement (TSA), the injection of fresh capital, and adoption of a reinvigorated strategy that works should see it moving assuredly into the black. – courtesy This Day
