Indeed, the economy has been growing over the last few year’s. It grew at a record 14% in 2011 and 8% last year. The growth is mainly due to the oil and gas industry, a growth in the mining sector and a growing middle-class population becoming increasingly reliant on air-travel.
The figures in the aviation sector support this. In the year 2000 there were 15 airlines in Ghana, but currently there are about 40 in number. There were 1.8 million passengers using our airport in 2011, but the figure has been projected to shoot up to 6 million in 2015. The sector experiences an annual growth rate of 10%, and with Government hoping to make Ghana the aviation hub of West Africa, the sector can only look up.
Ghana was one of the first African countries to establish a national airline in 1958, but it went into liquidation in 2005 under a mountain of debts. A new Ghana International Airlines (GIA) was set up in 2005 (70% Government-owned and 30% private-owned). This also collapsed, in 2010, with debts and other problems.
While on a visit to the USA two years ago, the country’s late president John Atta-Mills told Ghanaians resident in New York that a national airline was not a priority of his Government. So the renewed interest by the John Mahama administration to establish a new carrier for the country has set me thinking. I thus wanted to find out how feasible it is, the merits and demerits and how other African countries with national airlines are faring.
Some African countries with well-known national carriers include Ethiopia (Ethiopia Airlines), Kenya (Kenya Airways), South Africa (South African Airlines), Morrocco (Royal Air Maroc) and Egypt (Egypt Air). Last year, The Gambia established a national airline called ‘Gambia Bird’ while Nigeria, Zambia and Uganda are all contemplating having their own airlines.
Having a national carrier has many advantages. Firstly it helps in boosting a country’s tourism and trade potential. Once a country establishes a state-owned carrier, the country usually becomes the hub for the airline. The country’s route becomes well-served and this draws in tourists because research evidence shows that there is a direct relationship between air links and tourism.
It also benefits trade and commerce. Writing on a blog, aviation writer David Lawrence wrote that in a June 2012 article entitled “Room for Improvement” in the British Terminal World magazine, Simon Buck revealed that “you are 9 times likely to trade with a country with direct air links”. With intra-African trade (trade among African nations) so low, having regional routes well-served by airlines could help boost trade.
A national airline is also a source of pride and prestige for the country. The national colours and flag of a country adorning the fleet of the airline from country to country is a source of branding for the country and its image.
Many countries are experiencing a commodities boom and, with poor road and rail transport networks, state carriers ensure connectivity. Some countries are landlocked and private airlines may be reluctant to fly to them due to low volumes, and as a result national airlines come in handy to fill this gap.
Indeed, within Africa, Ethiopia’s and Kenya’s airlines are very profitable businesses -- generating tax revenue, employment and economic growth for their nations. The success of these 2 carriers in particular is what many other states like Ghana are seeking to emulate. But there serious issues with having a national airline, as Ghana’s two previous failed attempts show.
Setting up and operating a state-owned airline is very capital intensive. Cost of new or charter planes, fuel and aviation costs, staffing costs, maintenance costs and so on make operating airlines very expensive ventures. In Nigeria in 2011 the total budget for the aviation industry was put at about N28billion Naira (US$182million), according to Monday Ukoha writing in the Aviation and Allied Business online publication. This is a lot of money that could be spent on other critical sectors of the economy like education and health.
Many national airlines suffer from political interference in their running. Typically, political appointees are sent to serve on boards and to manage the airlines. The aviation sector requires expertise and experience to run it, but because political appointees are not chosen on merit, it affects their management and with time the carriers run into debts, collapse or are taken over.
Instead of being run on a professional basis, they are run at the whims of politicians who enjoy free travel and other perks at the expense of profitability. Apart from the Ghana Airways and GIA examples above, it is interesting to note that many African airlines have folded up recently or are in parlous states.
According to the Economist magazine, Air Zimbabwe suspended operations last year due to fears of been impounded because it owes many creditors abroad. Zambian Airways went bankrupt in 2009 and Air Malawi is limping in the air because it cannot find a strategic partner to help it survive. Once a profitable and proud national airline, South African Airways is having serious operational difficulties. It appointed its fourth Chief Executive within 7 months and was bailed out with a huge amount of taxpayer funds not long ago.
With the state of affairs above, is it prudent for Ghana to go ahead and establish a national airline -- albeit on a PPP basis? I do not think so. In making a case for a new national carrier for Ghana, Minister Dzifa Attivor said: “Government will partner the private sector to set up a national airline. We must avoid all those challenges like political interference and all the other issues”. I understand PPP to mean Government will still have some shares when the airline comes on-stream, probably with a minority shareholding. But a minority shareholding will entail the state still contributing money financially, and also appointing one or two officials to serve on the board or management. The same problems of the past will surely crop up.
I think Government should completely remove itself from the setting-up and operation of a national airline. Government should create the needed business environment for private investors to invest their own money into establishing and running a national airline. The state can create the needed environment by ensuring airports are modern and have state-of-the art facilities, regular supply of aviation fuel, cheaper airport taxes, flexible regulation, upgrading regional airports, and ability for airports to operate 24 hours and so on. Since successive Governments have touted that the “private sector is the engine of growth”, Government should facilitate it instead of been in competition with the private sector.
A lot of private investors shy away from investing in critical sectors, including aviation, because they fear their private investment will not get them managerial autonomy. For example, if a Government is a minority shareholder, it will find ways to interfere or give directions to the private partners. Or if the airline runs into difficulties, the state will be forced to bail-out the airline with taxpayer’s money. This fear makes some investors reluctant to join PPP arrangements.
For example, in South Africa private airline operator Comair complained bitterly Government’s US$540million subsidy that was given to prop-up South African Airways created an uneven playing field and scared away potential investors.
Empirical research shows that when a Low-Cost-Carrier (LCC) enters the aviation market, prices fall by an average of 20% in the first 4 years, resulting in an increase of passenger through-put by about 50% in the same period. Thus, a Government stands to gain more by creating an environment that fosters competition among private aviation operators.
Additionally, the nature of the aviation industry involves huge capital outlay that many African countries should study well before embarking on. Although Kenya airways is profitable, a look at the ownership structure shows that it is 30% owned by KLM and 70% by the general public and other institutional investors. The name and flag of the country is used to brand the airline. That is an approach Ghana could imitate, such that the state has no shares but receives royalties from the airline for the use of the name and the country’s flag.
The airline industry is the worst-performing of any industry worldwide. In the last 10 years alone in the USA, the industry has cumulatively lost US$50billion and numerous carriers have either gone bankrupt or merged, according to the July 2012 edition of the International Finance Corporation (IFC) quarterly publication, the Handshake. In the same publication, the former Director-General of Airports Council International and an aviation expert, Robert Aaronson, said that “given the abysmal record of state-owned airlines the world over, consensus has finally emerged that Governments have no business being in this business”.
The record for national airlines around the world and Africa in particular is not impressive, so I am of the opinion that Ghana will be better served if private operators are invited to set up a national airline. Government should only be a willing facilitator.
