How Nigeria Air will be financed -- Infrastructure Commission

The newly established national carrier, Nigeria Air Limited, will be financed through a mix of government budgetary provision, private equity debt arrangement and finance syndication from a consortium of regional and international banks, PREMIUM TIMES has learnt.

The Infrastructure Concession Regulatory Commission (ICRC), the government agency handling the process towards the airline’s establishment, disclosed in an explainer sent to PREMIUM TIMES on Wednesday that the government will not fund the project alone.

Since the unveiling of the logo of the proposed national carrier by the Minister of State for Aviation, Hadi Sirika, a fortnight ago, the project has come under serious criticisms, with many Nigerians describing it as a “wasteful venture.”

At the unveiling exercise, Mr Sirika said the new airline, will have a national carrier status and be jointly owned with the private sector, but managed fully by the private sector and run on a purely commercial business basis.”

A former Minister of Education, Oby Ezekwesili, dismissed the initiative is a wrong headed priority that “must fail for Nigeria’s sake.”

The former Vice President of the World Bank said if she were President Muhammadu Buhari and her Aviation Minister sent a Memo asking for her approval to set up a ‘National Airline’ with initial capital of $300 million, she will not hesitate to sack him.

Several other Nigerians, including the former Managing Director of Asset Management Corporation of Nigeria (AMCON), Chike Obi, and Lagos lawyer and senior Advocate of Nigeri, Femi Falana, during the recent 25th anniversary celebrations of the have also criticised the project.

According to Mr Obi, it was baffling that 5 per cent of a start-up airline would cost $300million, whereas Air France/KLM paid $286 million for 31 per cent of Virgin Atlantic recently.

For Mr Falana, Nigerians must not allow government to waste public funds on a project that is bound to fail.

Rather, Mr Falana said the government should convert the public funds invested in acquiring the toxic debts of Arik and Aero airlines into equity, and consolidate both airlines under a Nigerian private management.

Although an Abuja-based Economist and CEO, Global Analytics Consulting Limited, Tope Fasua, urged caution in criticising the initiative, he said the project would however not be such a fantastic idea at this point.

But, during the recent 25th anniversary celebrations of the African Export-Import Bank (AFREXIMBANK) and the launch of the proposed Intra-African Trade Fair (IATF) in Abuja, president of the bank, Benedict Oramah, said syndication of a loan to finance a Nigerian national carrier was its priority agenda in 2019.

Mr Oramah said this was he Bank’s attempt to promote intra-Africa trade and movement through an airline that operates from Nigeria to other parts of Africa.

Other development finance institutions that have also indicated interest in funding the initiative include the African Development Bank (AfDB) and the the Islamic Development Bank (ISDB).

Funding details

Of about $300 million funding estimate for the entire airline start-up operations in 2018, the ICRC said the federal government will provide $55 million upfront grant/viability gap funding.

Out of the amount, $8 million would take care of acquisition of offices for the official take-off of operations, cash flow requirements, payment of commitment fees for aircraft to be leased for initial operations and deposit for new aircraft.

The airlines’ financial model shows about $100 million would be required for 2019 operations and $145 million for 2020, with the remaining financing to be determined by equity contributions expected from the strategic equity partners.

To be modeled after the Nigeria LNG joint venture structure, the ICRC said at start-up government would own majority equity in Nigeria Air Limited, with management to be concessioned to the strategic equity investor.

After one year of operations, government would be expected to divest her equity by issuing an initial public offer (IPO) approved by the Securities and Exchange Commission for Nigerians acquire shares in the airline.

“Government will retain only 5% equity (after the IPO), while the rest of 95% equity will be owned by the strategic equity investor and the general public,” the commission said.

To enable the airline benefit from the bilateral air services agreements (BASA) and other such agreements requiring local beneficial ownership as a condition, the law expects Nigerians to own majority stake in the company.

To become fully operational as a public-private partnership (PPP), the company is expected to develop through three stages, namely development, procurement and implementation.