REQUIRED: A SYSTEM OF CORPORATE GOVERNANCE - Soul 2 Soul Mates Blog

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10/23/2018

REQUIRED: A SYSTEM OF CORPORATE GOVERNANCE


REQUIRED: A SYSTEM OF CORPORATE GOVERNANCE
Despite its many attractions, investment in the domestic aviation sector parades ugly statistics indicating low returns.

The statistics from the Nigerian Civil Aviation Authority (NCAA) supports this position.

Checks with the NCAA revealed that about 42 domestic airlines have failed in Nigeria since commercial aviation started over 80 years ago.

This unpleasant statistics makes Nigeria the country with the highest number of failed airlines in the world. Averagely, the country’s domestic airline has a life lifespan of 10 years before running into turbulent waters.

A plethora of factors have been adduced for the high failure rate of airlines. Some of are unfriendly operating environment; unfriendly government policies; multiple taxation; poor business plans/models; poor financial models by investors and manager, among others.

But besides this factor is poor corporate governance, which industry experts insist has remained one of the major factors responsible for the ‘burst and boom circles‘of many airlines.

It was therefore instructive when eggheads in the industry and beyond converged for a colloquium organized in Lagos to chart a new way out for the aviation sector.

The forum, organized by NigeriaTravelsMart.com, had as its theme: “Corporate Governance and Airline Industry Development in Nigeria. “

The Chief Executive Officer of the firm, Mr. Simon Tumba, disclosed that the programme was put together to examine why domestic airlines have a short life span in the country.

He said the forum was part of his contributions to deepening conversations on the challenges and growth of the aviation sector.

Resource persons

Experts at the gathering included the Managing Director of Asset Management Corporation of Nigeria (AMCON), Ahmed Kuru; Vice President, Pricing and Revenue Management, Copa Airlines, Panama, Chris Amenechi; Chief Executive Officer, Ropeways Transport Limited, Captain Dapo Olumide; Chief Executive Officer, GDL, Kolawole Ayeye and Senior Partner, Aelex  Law Chambers, Lawrence Fubara Anga.

The eggheads were unanimous on the fact that without applying strict principles of corporate governance, the future of airline business in Nigeria hangs in the balance.

Issues

The forum discussed deployment of corporate governance principles, adoption of the latest technology, use of the right human capital and people. It agreed that proper understanding of right policies will fast track the industry growth

Besides canvassing the right policy framework, participants said stakeholders buying in into what government should adopt for the growth of the sector remains a critical national assignment.

AMCON’s position

Kuru, while describing aviation as a catalyst for economic development, said this could only happen if industry and operators apply global best practices in carrying out their operations.

One of such practices, he said, is the entrenchment of corporate governance codes built on rules and practices that promote accountability, fairness and transparency in stakeholders’ dealings and engagements.

He said corporate governance requires that there are checks and balances to entrench effective regulation to facilitate entrepreneurial and prudent management that could deliver long-term success for public interest.

Kuru said: “Robust corporate governance ensures that the business is well managed, proprietor controlled , has a formal and balanced decision making framework with independent input.”

He said the airline sector has peculiar characteristics such as huge capital outlay; low returns on investment; poor capital size and structure; poor reserves to replace major aircraft parts; limited access to leasing opportunities; regulatory changes and other macroeconomic factors which have made the business a nightmare.

He said: Airline operators continue to complain of lack of government support, huge burden of taxes, poor infrastructure and these have combined with shallow-rooted corporate governance principles to cause stunted growth and collapse of many airlines.”

Kuru said many airlines collapsed because corporate governance principles were not applied in the constitution of boards.

Kuru said: “Airlines fail when    the lifestyle of the owners supersedes payments to pilots and engineers. Funds of the company are not separate from that of the owner.

“When decisions to expand fleet are taken by an individual without deep analysis, the industry will continue to grapple with collapse owing largely to  lack of effective boards, weak regulations and lack of the courage to enforce compliance based on need to ensure effectiveness of airlines.”

He proposed the professional scrutiny of cash flow of airlines; scrutiny of ownership and source of funding of prospective investors to confirm fitness.

Other interventions

On his part, Amenechi said until operators adopt the right business, operational and funding models more airlines will collapse.

He said smart players would find the right models to remain in business.

Amenechi said merger or consolidation of airlines could change the narrative because existing operational models of carriers is not likely to keep more airlines afloat.

He said Nigerian carriers could be sustained if they have effective boards that could manage the business and at the same time balance issues on external community and capitalistic interests to achieve organizational performance.

According to him, the way to go, is to hire the right management with proper understanding of financial plan, growth strategy, deployment of information and regulatory strategies as well as capital strategy.

Panel’s perspective

Olumide , Anga and  Ayeye, noted that besides corporate governance, the industry needed to examine critically, issues affecting airlines’ demarketing;  intrigues among operators ; use of wrong aircraft ; fare structure and absence of truth by industry players.

In particular, Olumide said that financial models of aircraft used by an airline could affect its costs of maintenance and its effects on airlines’ survival.

He said issues of inefficiencies in the management model by setting the right business plan; on time performance and the consequence of flight delays are major issues that contribute to airline failure.

Olumide said:”If consumer rights are pursued in line with extant regulatory requirements, airlines getting away with infractions in their operations will assume a different dimension. This brings to the fore the failings of the industry regulator, NCAA.“
Legal perspective

Anga, a senior advocate of Nigeria, said failure to apply the code of corporate governance remains a recurring challenge in the sector.

He said this was due largely to poor entrepreneurial leadership.

Anga said: “The essence of corporate governance across the spectrum of the industry is to expose poor economic regulation.

“This has raised fundamental questions about capacity and capability of the NCAA. The industry regulator should lead the way in entrenching the code of corporate governance.

Operating environment

Ayeye said something was fundamentally wrong with the operating environment as passenger traffic is not sustainable by the number of airlines.

He canvassed peculiar legislation, regulation and principles that will accommodate efficient carriers and chase out inefficient operators. He said using regulation to create players for the aviation sector remains key.

Ayeye said the revenue generation and distribution template is not healthy for existing carriers.

He said: “We have to declare a state of emergency in the industry and the dysfunction in regulations, operations, and policies should be examined exhaustively.”

Recommendations

Participants resolved that deeper consultation among stakeholders; improved airport infrastructure and air navigation facilities as well as provision of   aircraft maintenance facilities and leasing opportunities should be adequately addressed.

They said the adoption of global models by airlines will advance the drive to create strong and functional airlines; as well implementation of air treaties will go a long way to accelerate the growth and development of the industry.

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