Why Nigeria must encourage investment in MRO 

Hadi Sirika

By Lakinbofa Goodluck

Ever since the first aircraft landed in Nigeria in 1925 and the subsequent establishment of the West African Airways Corporation (WAAC), which later metamorphosed into the defunct Nigeria Airways Ltd in 1958, aviation has remained a vibrant aspect of Nigeria’s transportation system. There are currently about fourteen local airlines in Nigeria, with an estimated combined capacity of over 40 aircrafts. The industry contributed $685 million to the country’s Gross Domestic Product, GDP, in 2015, and according to the Chief Executive Officer (CEO) of RTC Advisory, Opeyemi Agbaje, the industry attracted $4 billion foreign direct investment (FDI) in 2016 alone, in addition to the $6 billion in 2010, $7.1billion in 2012; $5.6 billion in 2013; $4.6 billion 2014 and $8 billion in 2015. Essentially, the aviation industry in Nigeria has not been starved of investments as shown in the preceding presentation. The only shortcoming is that the investments have not trickled through the value chain. This explains why the realities of the industry is a mix of fortune and otherwise.

Although recent figures from the National Bureau of Statistics (NBS) show a decline in the contribution of air transport to the nation’s GDP, its importance to the Nigerian economy cannot be overemphasised. Despite its contribution to the economy, the aviation sector in the country leads the way in the facilitating capital flight from the country. This is due to the absence of a functional Maintenance, Repair and Overhauling facility in the country. This is the reality of a country with huge aviation potentials and a daily increase in the number of private jet owners, yet the country lacks a repair facility. A Maintenance, Repair and Overhaul facility popularly called an MRO is an organisation that specialises in the repair and maintenance of aircraft and its components. There are different categories of repairs or checks conducted on an aircraft after a certain period or usage. The checks range from category A-D. The category A and B checks can be regarded as minor checks, while C and D can be classified as major checks. A C-check is usually conducted every 20 calendar months or 1,800 flight hours as the case may be, and can last anywhere from 3-5 days or months depending on the age of the aircraft and other factors. A D-check, sometimes known as a “heavy maintenance visit” takes the entire airplane apart for inspection and overhaul. This heavy check can take up to 2 months to complete, depending on the aircraft and the number of technicians involved. Apparently, the different checks require considerable manpower and time, which explains why a check can cost as high as $500, 000.

For Nigerian airline operators, the Nigerian Civil Aviation Authority (NCAA) in its effort to ensure air safety directed airlines to conduct routine maintenance on their aircrafts every eighteen months. The upshot of this is that airline operators spend millions of naira to maintain their aircrafts, thereby contributing to the growth of other economies, such as France, Germany, Lithuania, South Africa, Kenya, Botswana and Ethiopia among others, to conduct the necessary checks on their aircraft. The global MRO industry is currently estimated at $50billion annually yet no portion of this humongous figure is attracted to Nigeria; rather we aid other countries in taking advantage of the market. But the question many may ask is what does it cost to have an MRO facility in Nigeria and why has this lucrative industry eluded Nigeria? Until 2004 when the national carrier, Nigerian Airways, was sold and metamorphosed into another defunct Virgin Nigeria, the airline operated an MRO that was responsible for the repair of all its fleet. However, the MRO was liquidated with the sale of the carrier and ever since, efforts to have an MRO in the country had remained futile. The Akwa Ibom state government attempted to facilitate the establishment of one in Uyo; the government even went as far as setting up the complex with the hope of attracting private investors. The complex is visible with deterioration setting in, but there are no private investors to take advantage. Setting up an MRO can be likened to setting up any other business; it requires funding, planning and can only survive with the support favourable government policies. In fact, in Nigeria’s case the intervention of the government will be a significant motivation and incentive for prospective investors.

The absence of a functional MRO in the country has facilitated many negatives about the industry. Nigeria currently has one of the most expensive airfare owing to high cost of business in the industry. Operators have stated at different forums that aircraft maintenance alone is responsible for nearly 60 percent of operational cost, which is eventually reflected in the airfare and borne by their patrons. For a harsh economy like ours where the exchange rate is currently at a dangerously high rate, it is even more difficult for airlines to conduct the appropriate checks on their aircraft. For instance if a check cost about $500, 000 at an exchange rate of 360 it means that an airline operator would require about N180million to maintain an aircraft. And since FAAN regulations require a routine check every 18months, it presupposes that N180m would be spent on an aircraft every 18months. One can only imagine the impact this would have had on the Nigerian economy if the funds were domiciled in Nigeria. Additionally, many graduates of the Nigerian College of Aviation Technology have been rendered jobless even before they conclude their academic programmes. Many students spend years studying aircraft maintenance engineering and upon graduation, there are hardly jobs for them and soon the college may be forced to scrap the course as there may no need for it.

A huge market is available for this industry to thrive. Aviation is not restricted to ferrying humans and goods; there is a long value chain that possesses the capacity to add value to the Nigerian economy and create jobs. The amount that is being repatriated from this country annually through maintenance of aircraft is sufficient to set up an MRO. Currently, there have been no investments in this area because there are no deliberate policies geared at such operations in the country. There have been roundtables on the subject matter. Many of these conversations ended as mere rhetoric without a follow up strategic action to actualise the desire of practitioners in the industry. Every stakeholder in the aviation industry knows that MRO will greatly boost the value chain and business generally in the industry.

Moreover, it will ultimately reflect on air fares as customers always bear the cost of expensive operating environment. A drop in the price of airfare will also attract more patrons with a potential to grow the industry from the current annual figure of 15million domestic travellers. It will naturally affect the ease of doing business in the industry positively and drive down cost of doing business significantly.

These enormous advantages of an MRO are enough reasons to excite stakeholders in the aviation industry on the latest announcement of a locally repaired aircraft. On January 4th, 2018 Aero Contractors announced at a press briefing that they had just test-flown a locally maintained aircraft. The Boeing 737 aircraft was maintained by local engineers at the company’s maintenance, repair and overhaul (MRO) facility. The Managing Director, Capt. Ado Sanusi, expressed that “This feat is not just for Aero Contractor, but for the entire industry. We are happy to announce this to the world.” And truly this is a feat that should be commended by every stakeholder in the aviation industry. However for the project to be successful and stand the test of time there will be need for government intervention. Setting up an MRO is capital intensive, hence the need for guarantee on return on investment. Any organisation that commits enormous funds into a business endeavour naturally expects protection and return on investment. A major disincentive for investors in Nigeria is the inconsistency of government policies.

The sustenance of the MRO will require the government to institute policies that encourage patronage from local operators. The over 40 combined aircrafts and the ever-increasing private jets are sufficient to sustain the local MRO if there is a government policy that encourages local patronage. Beyond Nigeria, there is also a regional market waiting to be explored as there is no functional MRO in the whole of West African region except for few companies that have obtained licenses for operations. Nigeria can truly become an aviation hub if we do the right things and put in place the appropriate policies. There is already a race in the West African region to tap into this huge untapped market. Just recently Kenpong Aircraft Maintenance Ghana Ltd acquired license for maintenance operations in Ghana in an attempt to position itself to explore the market. Now is the time to encourage the establishment and sustenance of more maintenance, repair and overhauling facilities in Nigeria.

 

  

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