Chinedu Eze identifies reasons why aviation ground handling companies record poor returns in Nigeria despite huge investment and how regulatory authority and synergy can reposition the sub-sector in order to ensure that safety is not compromised.
Despite the critical role they play in the aviation industry, aviation ground handling companies over the years may have been consigned to the short end of the stick by factors ranging from poor regulation of the sub-sector, cutthroat competition and unwillingness of local and foreign airlines to pay the right price for their services.
The handling companies’ mode of operation has subjected them to the dictates of the airlines that seem to under appreciate the critical role they play in rewarding the services rendered to them. Yet, the ground handling companies are responsible for loading and unloading freight and baggage, monitoring the safety of passengers, sorting freight and baggage, service the interiors of the aircraft, wash exterior of the aircraft and repair mechanical faults in the aircraft.
However, industry observers while blaming environmental factors, poor regulation of the sector, under payment by airlines, also blame the aviation handling companies for creating defeatist competition among themselves.
Chief Executive Officer of Mainstream Cargo Limited, Seyi Adewale identified factors responsible for the unfavourable operating environment whereby ground handling companies are arguably shortchanged by the system.
He identified non-compliance by the Service Level Agreement (SLA) signed by airlines as one of the factors and noted, “The observed infractions or violations make handling companies compromise for lower tariffs/ charges during contract renewals.
“There is lack of expertise in contract negotiations as compared with their airline counterparts. For example, airlines rarely change their contract team/ negotiators. “Many work in either the contract or procurement departments for years and gain valuation experience and quality trainings unlike their handling partners. Many negotiators have on-the-job negotiation experience for upwards of 10 years and have excellent succession plan.
“The handling counterpart have 3-5 years job experience, frequently changed or replaced and lower quality of trainings. Airlines easily share qualitative information regarding handling companies operating within an airport especially within their alliance.
“On the other side, handling companies do not have same or similar synergy. Competition and fear of losing an airline makes for easy compromises and tariff lowering. These are just some of the related issues.”
He also advised that the Nigerian Civil Aviation Authority (NCAA) should independently perform tariff audits and analyse what it actually cost to perform ramp services, passenger facilitation, warehousing and others, urging that the regulatory authority should enforce a base (minimum) rate cost per aircraft type and service rendered that all handling companies must abide by, adding that any lowering of this tariff would be meted with serious penalties including suspension of ground handling license for a determined period for the sake of Safety of our aviation sector.
“Surely, low tariff will surely compromise on aviation safety in many significant ways, which include the fact that handling companies will start cutting down on staff training, other staff related welfare will be affected and thus a demotivated workforce that are susceptible to engage in vices including negligence.
“Also staff turnover and that of experience workforce and their replacement with lower educated or qualified staff and equipment maintenance and replacement would be difficult and will affect airline operations, efficiency, and accidents,” he stated.
Low Tariff and Safety
THISDAY gathered that the handling companies yearn for adjustment review of tariffs in the services rendered to domestic airlines, a balance report between handling companies and airlines, as the two are operating in the same environment, reflecting costs to dovetail with what is obtained in other West African countries, which operate in similar environment and need for government intervention.
The handling companies also called for government’s tacit support to make the operation environment conducive for both the airlines and ground handling companies and also give the operators access to foreign exchange, as the ground handling equipment are foreign sourced, noting that there is need to continually build capacity in line with the International Civil Aviation Organisation (ICAO) requirement and standards.
President of Association of Ground Handlers (AGHAN), Adigun Olaniyi, told THISDAY that ground handling companies are barely surviving due to the low operating profit; that they cannot afford to invest in innovative technology, modern equipment, recruit/retain quality manpower and training aimed at preventing incidents and accidents.
He added that that they are rather reduced to making do with only those mandatory safety measures. By so doing, safety procedures have become a reactive exercise instead of a proactive measure; that there is also the link between safety and operating revenue.
“Whilst AGHAN members are fully committed to providing safe and secure ground handling operations, diminishing revenues due to low tariffs combined with increasing cost of doing business will continue to put material pressure on safety and security as well as long term sustainability of the ground handling companies.
“In comparative analysis, the association tabled the charges and tariffs of other countries in Wes and Central Africa and insisted that Nigerian ground handling companies charge the least for their services.
“It is observed that ground handling rates in Nigeria is the lowest in the entire African countries, if not the world and this has been a thorny issue for over a decade. And this includes domestic and international airlines.”
Furthermore, he said: “Below are rates collected from the other African countries: Guinea – $1,673 (narrow body) and $4,715 (wide body) aircraft; Senegal – $2,250 (narrow body) and $5,259 (wide body); Cameroon – $1,400 (narrow body) and $4,500 (wide body); Sierra Leone – $2,250 (narrow body) and $5,250 (wide body); Ghana – $1,500 (narrow body) and $4,150 (wide body).
“In Nigeria, the rates oscillate between $400 and $1,139 (narrow body), depending on the negotiating power of a foreign carrier and $3,000 and $3,200 (wide body), depending on the negotiation of the foreign carrier. These rates have been on since late 1980s and 1999.”
Impact of Inappropriate Rates
Former Managing Director of the Nigerian Aviation Handling Company Plc, Kayode Oluwasegun-Ojo explained that If you charge for a service that is less than cost-reflective, it means you are getting your cost back and on the long run, it will not be sustainable, remarking that lack of sustainability for aviation has serious implications because aviation actually starts from the ground and you land back on the ground, noting that it is the ground handling companies that facilitate that.
“If you are charging less than cost, it means you are subsidising from somewhere and this will have impact on the service you provide, equipment on the ground and others.
“You know that most accidents/incidents in the aviation industry actually occur on take-off and landing. So, it is extremely important that we take care of what happens on the ground and in this case, via the ground handlers in charging the cost-reflective tariff.
“That means you can recover cost with some margins for hospitability, including being able to pay taxes to the government. Companies that make losses will not be able to pay taxes. As you are aware, all the ground handling companies are locally-owned now and there is employment implication for staff. If these companies are not making money, thousands of people will be out of work,” he said.
It has been noted that one of the factors that drove down the tariff and charges is competition, but ironically the sub-sector is dominated by NAHCO and Skyway Aviation Handling Company Plc and other smaller players, which makes it a duopoly but competition is still rife,
Oluwasegun-Ojo stated, “You must allow prices to be cost-reflective, but still show some levels of competitiveness. The telecom industry is a good example; operators compete around service and the call tariff’s difference is not that much. They have a minimum service level that they must provide.
“There should be price fixing for narrow body and wide body aircraft. You should have a minimum level you can go, but don’t charge yourself out of business. If you are already operating below the bottom, honestly, it is not sustainable.
“There is implication on safety, security, job employment and the government. If companies are not making sufficient profit, it will affect the level of tax they will pay.
“Anybody doing business must first recover his cost and this is simple to do. You must recover the cost of depreciation, tax, profit and others. Otherwise, inflation will catch up with you.
“Clearly, the rates they are charging are not sustainable, but I may not be able to be specific on the right rates. What I think they are doing right now is subsidizing from other aspects to do the business. That is not a sustainable model for business in the long run. Whatever that is not sustainable, you will eventually crash,” he said.
Oluwasegun-Ojo therefore, called for the intervention of NCAA, noting that the regulatory body has a great role to play and urged it to call the stakeholders together – the airlines and the ground handling companies.
“My experience in the banking industry is that you collaborate before you start competing. If Ghana is charging about $1,500 to handle narrow body aircraft and Nigeria is charging this little, then, something is wrong with our system. We must do something about helping our country and industry to grow. We have a huge market here and we must do something to boost the sector, starting from the ground handlers, he said.
Safety and Security
Speaking in the same vein, the former Managing Director of SAHCO Plc, Alhaji Oluropo Owolabi said that the low charges by ground handling companies has been on for more than a decade and remarked that it is unfortunate that government has not intervened yet.
He said that the low charges affect the government, foreign exchange, the Federal Airports Authority of Nigeria (FAAN) and even the NCAA, being the regulatory authority.
“When you fly straight, within the next 25 minutes, you are in Accra. Then, you ask how much they handle a wide and narrow body aircraft over there. It is completely different from what they are paying in Nigeria. In fact, it is peanut here. When you move further to other West African countries, you will see the disparities and they are unbelievable.
“Move to South Africa, Europe and America, the disparities are unbelievable. We are a country that is suffering just because there was no authority to be able to stamp their regulation on these airlines and call the ground handling companies to order.
“This act has painfully affected the revenues of the handlers, the take home of FAAN at the end of the year. The total sales that we pay as remuneration to FAAN at the end of every year surely will diminish. It is what we take that we pay for. As we are losing, FAAN is losing and NCAA is not taking up its responsibility to ensure everything is being done rightly.
“The point is, how much are you paying for air tickets 10 years, five years and even three years ago? Is it the same as you are paying now? Handling prices must move at par as what we are paying on tickets. Don’t forget that the equipment we are using is imported and is cleared by ICAO and IATA (International Air Transport Association) before we can use them,” he said.
Owolabi therefore called for NCAA intervention, saying that the Authority needs to wade in because the government is losing foreign exchange, as foreign airlines pay in dollars, while Nigerian airlines operating domestic flights pay in the local currency. He noted that these foreign carriers are taking undue advantage of the ground handling companies.
“NCAA should stamp its authority. There should be a minimum rate with sanction to anyone that violates it and should be treated as a saboteur to government. Though, the sub-sector is deregulated, but the take home of government annually is being shortchanged when appropriate charges are not collected. So, the government can’t keep quiet on that,” he added.