PRIVATISATION OF NIGERIAN AIRPORTS

The concept of privatisation is not entirely new to Nigerians considering the frequency with which it has featured in government policy statements over the years. However, the issue of privatisation of Nigerian airports is just a new addition. It is therefore my humble intention, to objectively explore the idea so as to gain some insight into the practicability, merits as well as the implications of airports privatisation on the aviation industry in Nigeria. The term "privatisation" simply refers to the act or process of transferring "wholly" or partly', the control or ownership interest of a public or government agency, institution, organisation or corporation to private ownership or control. Privatisation is therefore synonymous with de-nationalisation, i.e. change of ownership from government-owned to private-owned.

HISTORICAL BACKGROUND OF PRIVATISATION

Privatisation and commercialisation in Nigeria was first proposed in 1986 by the General Babangida administration, as a last resort to reactivate or revamp ailing government companies. This however, remained only a proposal until 1988 when it became a federal government policy following the enactment of Decree 25 of 1988, and the subsequent establishment of the Technical Committee of Commercialisation and Privatisation. The committee was charged with the responsibilities of:

1. Advising government on the capital restructuring needs of enterprises to be privatised or commercialised.

2. Carrying out all activities required for the successful public issue of shares of the enterprises to be privatised, including the selection of issuing houses, stockbrokers, solicitors, trustees, accountants and other experts on the issue.

3. Approaching the Securities and Exchange Commission for a fair price through the issuing houses.

4. Advising the Federal Government after consulting the Securities and Exchange Commission and the Nigerian Stock Exchange on a pattern for the allotment of shares of enterprises to be privatised.

5.    Overseeing the actual sale of shares of the enterprises concerned by the issuing houses in accordance with government guidelines and;

6.    Proposing for government approval, patterns of sales that ensures spread ownership in addition to ensuring a fair price.

In the privatisation and commercialisation Decree, the Federal Government listed a total of 67 companies for full privatisation including the Nigerian Cargo Handling Company Limited (NAHCO), Durbar Hotels, Nigeria Film Corporation etc. Likewise 43 companies were listed for partial privatisation including the Nigeria Airways Limited, where 60% shares were to be sold out and government retains 40%. On the other hand, 14 companies were to be partially commercialised including the Federal Airports Authority of Nigeria (FAAN). In addition, 11 companies were to be fully commercialised including the NNPC, NITEL, NICON, NPA etc. In spite of the fact that airports privatisation is still relatively new in Nigeria, the concept has however long been identified and applied as a strategic instrument for economic reforms in Europe, America, Asia and other parts of Africa. Canada seems to have had the earliest history of airports privatisation when in 1992 it fully privatised Calgary, Edmonton, Montreal and Vancouver airports. Other countries that have followed that line include UK, Italy, Portugal, Argentina, Malaysia, USA, South Africa, Gabon, Cote d'lvoire to mention just a few. The wind of privatisation has however been very slow over the United States due to stiff legislations on the application of revenue derivable from airports.

TYPES OF AIRPORTS PRIVATISATION

There are basically three ways by which government can disengage or divest from the airports for private sector participation. These include:

A. Full Privatisation. This implies a total or 100% disengagement from airports operations by the government for full private ownership and control. Under full privatisation, it is expected that whatever constitute government ownership interest in the concerned airport(s), will be offered for public subscription in accordance with the requirements of the Securities and Exchange Commission. In this case the airport(s) becomes a fully public limited liability company (PLC).

B. Partial Privatisation. This is a situation where government decides to sell part of its shareholding or ownership interest in an airport to private individuals or body corporate, either publicly or off the counter. In most cases government will hold minority interest while majority shareholding goes to the private sector. However, this method tends to be less attractive to investors as they will still remain skeptical of possible government interference. On the other hand government considers the airports as a strategic industry, which should not be totally left in the hands of private investors. In such cases government will prefer the more cautious and gradual form of disengagement through partial privatisation.

C. Outright sale or sale by auction. This is another form of full privatisation. However the mode of transfer of ownership is not by public sale of shares but rather by simply auctioning the airport to the highest bidder or outright sale to a private firm, individual or conglomerate. This method of privatisation saves cost, but on the other hand can lead to monopoly. It is much more ideal in airports or terminals that are served or dominated by a single carrier or alliance of two or more carriers.

AREAS OF AIRPORT PRIVATISATION

Where privatisation is segmented, it can be classified thus:

a.) Aircraft Hangers:

Airports that are served by government owned aircraft maintenance hanger facilities can decide to fully privatise such hanger facilities separate from other airport structures. Private investors like aircraft operators or manufacturers that can certainly better provide this service by government.

b.) Cargo Handling Services

This might probably be one aspect of partial airport privatisation that has featured in Nigerian government-owned airports. The intention of government to fully privatise NAHCO, which was hitherto wholly owned by government, was indicated under Schedule 1 of the Decree 25 of 1988. The main objective of government setting up the cargo handling company was to help minimise airlines' operational costs, which could have been heightened by a proliferation of cargo handling equipment at various airports by various airlines. And now that the objectives had been achieved, it is only reasonable that it be handed over to more efficient private ownership and management. c.) Terminal Buildings

This is a major aspect of segmented airport privatisation. It involves either the outright sale or leasing of airports' terminal buildings to either individual airlines or a group of them proposing to use such facilities jointly. Major world's airlines like British Airways, KLM, Lufthansa, Japan Airlines, Air France and some more have adopted this method in major world's airports. Under such arrangements, the airlines (terminal buyers or leasers) do not pay aircraft parking fees and can use any available commercial space in such terminals for revenue purposes. Airlines like the British Airways have made significant profits from such arrangements in addition to uniquely serving their customers.

d.) Commercial Activities

This form of privatisation involves the leasing of commercial space or granting of concessions for the operation of Duty Free Shops or other commercial ventures within airport terminals or vicinity. The operation of VIP Lounge, Bars, Gift Shops etc can all fall under this category of privatisation.

e.) Air Traffic Management (ATM)

This arguably by all means is the most sensitive area of airport privatisation. It extreme sensitivity lies in the fact that the service itself directly or indirectly impacts on all aspects of aviation. Air Traffic Management privatisation entails the transfer of the provision of Air Traffic Services to private firms who will undertake it for profit. Developed countries like Italy, Malaysia, Canada, and UK etc are fast exploring this area of privatisation. However, whether Nigeria is ripe for this form of privatisation or not remains a very crucial issue, which should be analysed in subsequent issues of this journal.

OBJECTIVES OF AIRPORT PRIVATISATION

The following are some of the basic objectives of undertaking the privatisation of government airports.

a.) To Minimise Public Expenditure:

Deficit financing has become a regular feature in Nigerian budgeting culture. This simply implies that government expenditure far outweighs her revenue and consequently had to resort to borrowing to supplement her declining income. However, this form of deficit funding has resulted in huge public debts, which has severely constrained our efforts at economic development Thus government finally opted to prune down cost through privatisation of most of its' parasitic agencies as a mean of attaining balanced, if not surplus budgeting.

b.) Enhance Airport funding

As depicted earlier, government income is relatively on the decline as compared to her ever increasing responsibilities (expenditure). Therefore, government has gradually become overburdened and consequently unable to adequately fund essential services such as airports' operations, which is not only dynamic but equally capital intensive. It is therefore obvious that if government does not disengage to allow for inflow of private funding into such agencies, then their gradual collapse is imminent. Privatisation of airports especially through public offer of shares for public subscription on the Stock Exchange can avail them of unlimited capital for large-scale expansion and acquisition of required facilities.

c.) Enhance Efficiency and Profitability

The present poor state of most government agencies is a reflection of their level of management. Also the lack of profit motive in such organisations has simply rendered them as mere cost centres. The post-privatisation performance of most airports that have been privatised is a clear confirmation that Nigerian airports can make do with an injection of private funding and management potential to turn them around to profit centres.

ALTERNATIVES TO PRIVATISATION OF AIRPORTS

In situation where government might not be favourably disposed to privatisation, the following corporate strategies might be adopted as alternatives in order to enhance efficiency and profitability of such airports.

a.) Contract Management: Contract management refers to an arrangement whereby government engages the service of management consultants to manage the operations of the airports or facilities thereof for a specified period. Under this arrangement, funding either remains the responsibility of the airport authority or the management consultant is given the financial autonomy to generate revenue and spend part thereof in the running of the airport or its' services. The management consultant can either be remunerated by way of a fixed commission, management fees or an agreed percentage of the revenue generated so as to enhance revenue generation. The engagement of management consultants in the management of airports has become a very attractive alternative to privatisation in view of the inherent expertise of such bodies. Private management consultants have been engaged in Gabon and Cote D'lvoire to manage the Libreville International Airport and the Abidjan International Airport respectively.

b.) Commercialisation: Commercialisation refers to the reorganisation or restructuring of fully or partially owned government enterprises to make them profit-oriented ventures capable of being self-sustaining rather than dependent on government subventions. As indicated earlier, the Federal Airports Authority of Nigeria (FAAN), then NAA, was listed for partial commercialisation in 1988 under Decree 25. However, commercialisation of Nigerian airports in a situation where they are not granted financial autonomy does not in any way make them self-sustaining. Rather, commercialisation has only serve to transfer cost to airport users by way of increased charges without improved services.

d.) Leasing: This is a contract or an arrangement whereby the government (lessor) allows an individual or firm (leasee) the right to use an airport structure, facility or building for a fixed period in exchange for rents, or tease installments. The private firm or leasee can in turn charge the users of such a service or facility for the benefits derived there from.

Operating Lease and Finance Lease

An operating lease is a lease agreement whereby the lease subject matter remains the property of the lessor. In other words there is no transfer of ownership, and at the end of the lease period the property reverts to the lessor. On the other hand a finance lease is a lease agreement whereby the lease duration covers 80% or more of the useful life of the asset. In addition, a finance lease contains a purchase option and the ownership interest in it is transferred to the leasee according to the value of total lease instalment paid. Properties that can be subjects of lease in airport management include, but not limited to terminal buildings, office buildings, com­mercial areas, aircraft hangar, cargo han­dling facilities, car parks, aircraft fuelling services etc.

ADVANTAGES OF PRIVATISATION

The gains of a well-implemented privatisation scheme are endless, but the following are the major ones.

a.) Inflow of Foreign Investment: Privatisation of airports the world over has attracted tremendous investment from multinational corporations and other body corporate. It is expected that if the major Nigerian airports like Lagos, Abuja, Kano and Port Harcourt are privatised, they will attract an inflow of foreign investment from world's airlines, aircraft manufacturers, manufacturers of aeronautical equipment, financial conglomerates etc.

b.) Unlimited Access to Finance: Privatisation of airports can permit the quotation of their shares on the stock exchange market. This singular act can avail them the opportunity of raising unlimited funds by way of equity, debentures or bonds. In addition, short-term and medium-term loans can easily be raised from financial institutions as against bureaucratic limitations posed to government airports.

c.) Structural Development: It is expected that increased funding will enable the new private management, the opportunity to develop the structural facilities within the airports to international standards. Funding has being a major cause of under-development of our airports as it is shrouded in political and bureaucratic intricacies. This has made it very difficult to maintain or expand basic airport facilities like runways, taxiways, aprons, power plants, security systems, terminals, ATM etc.

d.) Financial Autonomy: Our government-owned airports are mostly cash-squeezed due to lack of financial autonomy which would have allowed them apply revenue generated for running cost as well as for capital projects. Rather the airport management was simply expected to remit all revenue generated into the Federation Account while it continues to go cap in hand seeking quarterly subventions, which are often inadequate and irregular.

e.) Efficiency and Competitiveness: The input of private as well as foreign management expertise is expected to enhance the level of airport management and consequently the quality of services rendered. Efficiency is also expected to translate into increased profits. Competition is also expected to arise as a result of possible differences in ownership and management of privatised airports - this will also lead to improved productivity and profitability, which are the major determinants in attracting investment

f.) Plough-Back Profits: Under government-owned airport's management, the bulk of the revenue generated from the airports is simply paid into government coffers. However, in contrast, privatisation will inculcate long term planning which will require ploughing back profits for expansion.

g.) Improved Training and Remuneration:

With the expected input of foreign ideas, it is hoped that the poorly remunerated and untrained Nigerian airports' employees will be upgraded to international standard of remuneration and training - this will equally motivate them towards improved productivity.

h.) Easy Access to Aeronautical Equipment/Facilities

Acquiring the much needed airport equipment such as plants, lighting systems, cargo handling equipment, GPU, Navigational equipment, communication and security systems etc will be much more easier for a privatised airport system which will be owned by marketers or manufacturers of such equipment/facilities.

i.) Construction of Comprehensive Aircraft Maintenance Hangar: This is something that is very essential in the aviation industry yet almost non-existent in the Nigerian Aviation industry. It is believed that privatisation will encourage the establishment of hangar facilities at Nigeria's major airports/This facility if put in place, will go a long way to ameliorating the plight of airlines who annually incur excruciating cost in acquiring foreign exchange at the open market for aircraft checks abroad. Such facility will not only increase revenue and employment, it will equally enhance the flow of foreign exchange from neighbouring countries that will consequently seek to take advantage of it

j.) Finally, privatisation will equally minimise government interference in airport management. It will also enable airports to adopt standard accounting practices, profit planning, internal control systems and budgetary techniques that will guarantee a stable and profitable corporate existence. It will also boost the activities of the capital and money markets.

DISADVANTAGES OF AIRPORT PRIVATISATION

Despite the numerous possible gains of privatisation of airports, there exist some possible negative implications of privatisation. These include:

a.) Global Manipulation of Airport Charges:

Most people feel the drive to airport privatisation is an attempt by major actors in the industry to control the aviation industry to their own advantage. They argued that if an airport like Murtala Mohammed International in Lagos is acquired by major airlines like British Airways, KLM, Air France etc, they are likely to manipulate a drastic reduction in landing/parking fees, enroute navigation charges, passenger services charges etc. On the other hand it is believed that such investors/operators if given the chance of ownership, will certainly put in place the best facilities for their safety and operational convenience than is presently obtained.

b.) Controlled Ownership: There is an intense feeling by the masses that privatisation only benefits a select few and their cronies who simply acquire controlling interesting such ventures at the detriment of such organisations and the country at large. This fear can however be eliminated if government can systematically ration the sale of such shares among major stakeholders in the industry.

c.) Adverse Effects on Standards: It is also feared that where airports are privatised to different firms or investors, then opposing policies and strategies might be adopted which may be detrimental to safety standards or procedures. However, all such airports will be guided by international standards as established by ICAO and local procedures as specified by a government regulatory body (e.g. NCAA or NAMA)

d.) Retrenchment/Foreign Expatriates:

Privatisation is certainly a very unpopular policy as far as labour is concerned. Employees view it as a policy tilted towards retrenchment. They also believe that with foreign involvement in the ownership of our airports, the inflow of foreign labour is imminent

e.) Repatriation of Profits: It is also argued that the introduction of foreign investment in our airports will lead to capital flight by way of repatriated funds under the guise of profit or capital assets acquisition etc.

f.) Insecurity:

Airports are generally considered border-posts especially international ones. Thus many will argue that it will amount to a great security risk to entrust a sensitive place like the airport to foreign agents in the name of privatisation. In other words, we will be unable to adequately control what goes out and comes into our country. You can imagine what will happen if foreign drug lords are able to acquire a controlling interest in our major airports under any corporate cover.

IMPEDIMENTS/LIMITATIONS TO AIRPORTS PRIVATISATION

In spite of the tremendous gains derivable from the privatisation of our airports, it is necessary to point out the following factors, which might likely impede the successful or timely execution of the programme.

a.) Airports Establishment Decrees or Statutes that contrasts the private ownership of airports have to be repealed or amended.

b.) Debt Burden: Some airports (not Nigerian) are heavily burdened by huge debts that make them unviable to the ever profit-conscious private sector. However, most Nigerian airports are inactive and as such not viable enough for privatisation,

c.) Lack of Political Will: From experience of attempts at privatising government agencies like NEPA, NITEL etc, it can be construed that government sometimes display utter lack of the necessary political will for a full privatisation of our airports.

d.) Labour Opposition: It is certain that the labour unions within the concerned airports will strongly oppose the programme because of their perception of it as being anti-employees,

e.) Sectional/Regional Sentiments: The privatisation of airports located within a given area or region is likely to be misconstrued as being an attempt to marginalize or dis-empower such areas from the central government as was recently displayed in the case of Benue Cement Company.

f.) Continued Government Interference: Where airports are to be partially privatised most investors will still consider such withholding interest as potential source of government interference.

g.) Fulfilling the requirements for Stock Exchange Listing: To qualify the shares of an airport to be sold on the stock exchange requires serious financial restructuring. This is a task that must be assigned to financial experts or consultants to ensure its success.

STRATEGIC STEPS TO AIRPORT PRIVATISATION

The following steps can serve as a guide to a strategic implementation of the privatisation of Nigerian airports,

a.) Conduct a comprehensive feasibility study using both financial and aviation consultants. The study should identify airports to be privatised; determine if to be fully or partially privatised. Determine the actual market value or network of such airports. Determine the viability of such airports. Analyse the possible implications of privatisation of airports on government, standards, passengers, employees, investors and the general public.

b.) Review of the prevailing legal framework guiding airports establishment, development and operation to fine-tune it in line with the privatisation drive

c.) Carrying out public enlightenments and employees' supports for the scheme. You can also guarantee a fixed controlling share interest in the venture for employees of the affected airports,

d.) Strategic marketing of the scheme: This should involve a deliberate effort to attract both foreign and local investors by the government.

e.) Corporate restructuring of the Airports in conformity with requirements for stock exchange listing

f.) Finally, the Bureau may decide the actual systematic implementation of the privatisation scheme either through public auction, sale or public offer as for Public Enterprises. This will finally signal the actual transfer of ownership of such airports in accordance with the degree of privatisation.

CONCLUSION

This contribution couldn't have come at a better time than now considering its almost prophetic timing. It was while one was labouring to draw his final conclusion today (March 1, 2001), that one comes across "The Comet" newspaper report, which quoted the spokesman of the BPE, Mr. Chigbo Anichebe as saying that the Federal Government has decided and directed the Bureau to sell (privatise) the four major Nigerian airports - Murtala Mohammed International, Lagos; Mallam Aminu Kano International, Kano; Port Harcourt International and Nnamdi Azikiwe International, Abuja. The Bureau's spokesman also hinted that the Nigerian Airspace Management Agency (NAMA) would remain fully government owned. With the above policy intention, it is hoped that the Bureau will put in place the right mechanism to enable it estimate the true net worth of these airports and be able to get a good price and a good buyer. However, one would caution that the sale should be rationed in such a way as to ensure fair representation of all the major stakeholders in the industry rather than to a single buyer.