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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.
The development stage was recently concluded with the approval of the
outline business case and the issuance of a certificate of compliance
by the ICRC.
During the procurement stage, requests for qualification (RFQ) and
proposal (RFP) would be issued to pre-qualify and select PPP partner,
after which information memorandum and RFP bidding process would be
published.
“It is only after the PPP procurement process that the strategic
equity investor will be known. At that point, Nigeria Air Ltd will
become a public company subject to SEC, NSE and relevant CAMA rules for
public companies,” the Commission said.
To ensure its viability, the ICRC said the Federal Ministry of
Transportation would facilitate a Bill to be sponsored in the National
Assembly for an Act making it mandatory for public officials to use the
airline for their official trips.

“The Act will demand that any official travelling on a ticket bought
with public funds must travel on a Nigerian carrier, unless the route is
not served by a Nigerian carrier,” the commission said.
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