Nigeria Emerges as Hub for Africa’s Bizav Boom

 - May 3, 2014, 6:00 AM
A Hawker 850XP shares ramp space at Lagos with a Fairchild-Dornier 328Jet. The latter, registered in Nigeria, is used as a corporate shuttle for the oil-and-gas industry.

With the recovery of business aviation in the mature Western markets of Europe and North America still sketchy, Africa has emerged as one of the bright spots of growth, and the jewel in the crown is Nigeria, where oil and gas production has been the principal driver behind a massive growth in business traffic. The rise of the sector in Nigeria has been phenomenal, and shows no signs of slowing down any time soon. That was the abiding message from the second Nigerian Business Aviation Conference, which was held in Lagos at the end of March.

“In the last five years we have seen huge growth in business aviation in this country,” reported Segun Demuren from Evergreen Apple Nigeria. “It’s the fastest growing business aviation in the continent. In 2012 Nigeria passed South Africa in taking deliveries,” he said. “Oil and gas are the main drivers, but telecom, finance and agriculture are also driving expansion. The sector is expected to grow by 20 percent this year.”

Nigeria is the world’s sixth largest oil and gas producer, and it has the most millionaires on the African continent. In addition, the number of high-net-worth individuals–currently 15,700–is expected to reach 28,000 by 2017.

The West African country’s regulations make it one of the most investor-friendly in the world, as foreigners can own 100 percent of local businesses, and take out 100 percent of the profit. This has made it a magnet for outside investment, while the poor transport infrastructure of the country makes business aviation a vital tool for continued growth. Of particular concern is the lack of commercial air service between African cities, which means that businessmen have little option but to travel by business jet.

Furthermore, Nigeria is a natural entry-point for the rest of the continent. “Africa is the last frontier for aviation growth in the world,” asserted Nogie Meggison, chairman of the Airline Operators of Nigeria group. “Nigeria is geographically blessed as a natural hub. You can be anywhere in Africa in five hours, making it an easy pivot point for business in the continent. It’s the natural transit point from Europe, Asia and the U.S. to connect from and to major cities in the continent.”

There are also significant factors that make Nigeria bizav friendly: it has signed on to the Cape Town Convention, making it easier for creditors to repossess aircraft in the case of payment default; there is zero import duty for aircraft and parts; foreign-registered aircraft are allowed to stay on Nigerian territory; and the country has been awarded a Category 1 safety rating by the U.S., although that was being reviewed by an FAA team last month.

While the oil and gas industry remains the main customer for business aviation, there are other, increasingly important drivers. Nigeria’s banking business is investing more in other countries, while the country’s music and entertainment business is now the third largest in the world. Religion, too, is a major “export” of Nigeria, requiring church leaders to travel around far-flung parishes. Politicians and government officials are using business aircraft more frequently to get around the country. Nigeria is also a major hub for air ambulance flights.

All this has led to a boom in business aviation in the country. The number of aircraft active in Nigeria has grown to an estimated 150 today from 20 in 2008. That number is expected to reach 350 in two years. However, it is virtually impossible to identify exactly how many aircraft are active in the country, because so many remain on foreign registers. This highlights one of the many issues facing Nigerian business aviation: “There is still a gulf between others and the [Nigerian] 5N [aircraft] register, where registration hurts value and inflates insurance premiums,” Demuren observed.

Government Help

Nigeria’s government has recognized that business aviation is vital to the country’s economic growth, and has taken steps to assist in the sector’s development. Inevitably this has not come as quickly as some operators would like, but there has been a noticeable improvement in recent years. With 50 percent of the nation’s civil aircraft, and 80 percent of its helicopters, engaged in business-related operations, the civil aviation authority has responded with a number of policies and amended regulations; aviation infrastructure and business-aircraft terminals around the country are improving slowly. This includes a dedicated lounge at Abuja, and the certification of a number of FBOs to act as security/customs points of entry/departure.

One area that has been the subject of improvement is airspace clearance, although it remains a work in progress. The Nigerian airspace management agency expects that all airspace clearances will be automated later this year. Subject to satisfactory checks of certification, security, documents and the like, the new system should be able to generate clearances within 10 minutes. Currently, crews of foreign-registered aircraft are advised to file for airspace clearance 48 hours before the takeoff time sought.

Nigerian Opportunities

Hinge on Increasing Support

For the OEMs Nigeria represents a major opportunity. “Africa is the most exciting market for us,” reported Scott Plumb, Beechcraft’s vice president sales for Europe, Middle East and Africa. “Including the Hawker range we have approximately 110 aircraft in Nigeria, which represents 41 percent of the market. Add Cessna [also part of the Textron stable] and it goes to more than 50 percent. Many of them are old and need to be replaced.” He claimed, “The growth of business aviation is dependent on the King Air. It’s important to help get people into aviation.”

Embraer’s Peter Griffith also underlined the age of African aircraft: “We have 73 aircraft here, not all on the 5N register, and 64 percent of them more than 10 years old; just 21 percent are younger than five years.” Bombardier’s Khader Matter pointed to the company’s 24-percent share of the African market, of which a major slice is in Nigeria. He predicted that the figure “could double in the next 10 years.” Gulfstream’s Pete Buresh noted that the company has 70 aircraft operating in Africa, in addition to others regularly visiting from overseas. Dassault has also been a strong player in the African market.

OEM support has been of concern to African operators, who want more local service capability so they don’t have to send aircraft to Europe or elsewhere for routine work, but the provision of such facilities takes time. “You need to have a certain population of airplanes to have an OEM-owned maintenance facility,” remarked Griffith. “It will come eventually,” added Mattar. “We are working on strategies in Nigeria.” In the meantime, OEMs such as Dassault and Gulfstream remain committed to supporting African operators from Europe: “We have Fast teams in Europe ready to go at a moment’s notice, and we have a tech rep in Nigeria,” said Buresh. “We’ll do what we need to do; we always have.”

Bolstering local support is key to the growth of Nigerian business aviation, and there are moves afoot to make this happen. “We are looking at aligning projected growth with our growth,” said Chris Davey from Bombardier. “We are increasing our footprint, and have a new regional support office in South Africa. We have had a field representative in Lagos for three-and-a-half years, and we are just recruiting a third for Africa. We have a sales depot opening in South Africa. But to sustain and increase our support levels, we really need to cultivate local talent.”

While there is a ready pool of educated candidates, it takes time to train engineers to the required standards. ExecuJet Nigeria’s Peter de Waal reported, “We are now training more Nigerian engineers, but it takes four years to see results. It starts with one year of on-the-job training before moving to type certification.” The company already has the expertise to handle Bombardier and Hawker types, and will soon add Dassault Falcon 900 and 2000 capability.

Aircraft Financing

One area that has traditionally been a challenge for African operators is the financing of aircraft. However, there are signs that financing may be getting easier as the industry adjusts to the African way of doing things, and conversely as potential African owners recognize the issues that face traditional banking institutions. “We’re optimistic about the industry in Africa,” asserted Melanie Humphries, head of aviation corporate and institutional banking at Investec. “Funding is available, but banks need to be open and sponsors need to provide quality information.”

Unlike many regions of the world, traditionally “cash is king” in Africa. However, that is beginning to change as companies and individuals recognize the advantages of using cash in their businesses rather than for purchasing aircraft. Another trend is for increasing participation from local and regional banks in aircraft financing, with the possibilities of partnering with large financial institutions by providing detailed local knowledge. That local knowledge can drive shorter, simpler deals that keep costs down for all concerned. While dollar deals are still desired by banks, it has become increasingly possible for local currency to be used.

Large multinational banks are on the lookout for spreading their footprint in Africa, and business aviation is seen as a good vehicle for that growth. However, such banks want high-quality financial information on which to base their decisions, and that has been difficult to come by in many cases in Africa, where companies often have short trading histories.

“We probably need to do 20 good deals to cover one bad one,” warned Mike Kahmann, managing director of finance group CIT. “That leads to a lot of conservatism. How persistent and resilient are those cash flows? Let us understand the business; without that the financial statements don’t mean much.” There is also a requirement to have solid information about the asset being acquired, particularly details of its registration and how it is to be used. “In developing high-growth markets we are more asset-oriented lenders,” he added. “The type of aircraft, the maintenance programs, who’s the operator. They are all important. We’re not going to ignore the credit, but the asset is more important.”

One recurring area of concern is the reluctance of banks to finance lower-value deals of, say, less than $10 million. This makes it difficult for first-time buyers and start-ups to enter the world of business aviation. “It’s the same old problem of legal charges being the same for low-cost deals as expensive ones,” explained Humphries. “We need to look at more volume-driven deals rather than bespoke ones to keep costs down and make low-cost deals more likely to obtain finance.”

Nigeria: A Place for Growth

It is clear that Nigeria remains one of the world’s “hot spots” for growth. In the last few weeks a rebasing of the country’s GDP placed it ahead of South Africa as the dominant marketplace in the continent, despite ongoing civil unrest with Boko Haram Islamist rebels. “We have the oil, we have the geographic position, and we have the people,” said Meggison.

Naturally business aviation is poised to play its part in that boom, despite the challenges that are still being addressed. “We’re cultivating a vibrant sector of the economy,” commented Demuren, “We need to be in it for the long run. It doesn’t happen overnight.”