17-Jun-2021 1:23 PM

Nigeria (again) “planning” the concession of its four main airports

Analysis

Privatisation of African airports has been very patchy. There are many reasons why operators and investors alike would want to stay away from them. But a deal in Rwanda, one which involves an airline operator/investor, has awakened interest.

The Nigerian government would no doubt like to do the same with its four main airports, and it frequently tells the world it wants to have them concessioned, as it has just done - again.

But the trade unions there, and too many politicians, want the underperforming, unprofitable regional airports privatised first. Unfortunately it doesn't work like that.

This report reprises the history of this aspiration and examines what each of these airports has to offer. The conclusion is that the Lagos airport would generate most interest and that the government should start there, and see if it has a positive spin-off for the others.

Summary

The Nigerian government plans to offer the four main airports (Abuja, Kano, Lagos, and Port Harcourt) for concession to private operators for a minimum of 20 to 30 years.
The privatization of Nigerian airports has faced opposition from trade unions and politicians, who argue that underperforming regional airports should be privatized first.
The Nigerian economy is slowly improving, with higher crude production and oil prices, easing of COVID-19 lockdowns, and a gradual recovery from the recession triggered by the pandemic.
Potential concessionaires will have access to non-aeronautical assets in the passenger and cargo terminals, and the airports will be designated as "special economic zones" to attract local and foreign direct investment.
Lagos airport offers the best prospects for concessionaires, being the busiest airport in Nigeria and a major hub for international flights.
The government aims to complete the airport concessions by early 2022, with expressions of interest from qualified companies expected by the end of June 2021.

Summary

Yet again, Nigeria tells the world that it has (at least) four major airports ready for concession - but that isn't the way the unions see it.
There is some serious interest there, but the government can't get to first base.
The economy is turning slowly in Nigeria's favour and Chinese loans are off the menu; seat capacity is returning, and the pandemic may have peaked.
There are added benefits for potential concessionaires, including access to 'special economic zones'.
Lagos offers the best prospects, except that a private terminal deal there has not run smoothly.
The government might consider offering Lagos first - both to attract the heavy hitters and to generate some interest in the other airports
Breaking news - concessions "to be completed early in 2022".

Aviation ministry announces, not for the first time, that airports will be offered for concession

On innumerable occasions now the Nigerian government has "confirmed", either directly or by way of agencies, that it intends to offer the four main airports (Abuja, Kano, Lagos and Port Harcourt) for concession.

Every time it does so there is stiff and immediate opposition to the concept, both politically and from trade unions.

CAPA last reported on the matter in Oct-2020 in an article entitled 'Nigeria's airport concession scheme still opposed, and drags on', which says it all.

See: Nigeria's airport concession scheme still opposed, and drags on

In that report the headline, so to speak, did not concern these four airports, but a statement by the aviation minister (the same one who on 08-Jun-2020 made the most recent remarks about them) to the effect that "more airports could be concessioned beyond those immediately targeted".

Indeed, in the distant past the minister has intimated that all Nigeria's state-owned airports could be concessioned.

Other salient points raised in the report were:

Nigeria ideally seeks investors who possess the capability, finance, knowledge and the capacity to construct large airports with facilities including hotels, in line with global standards, but at the same time stresses that the concessions are not a sale of the airports - only management rights, which does not appear to go hand-in-hand with the requirement to be able "to finance and construct large airports";
Swathes of unions continue to oppose airport privatisation in any form for these airports and demand to know why another 18 unprofitable airports have not been commissioned first (the answer seems to be contained in the question);
No attempt has been made, as far as it is known, either to bracket these airports together in groups for concession purposes, with one anchor airport supporting other smaller ones (as has become the norm in Latin America), or to consider public-private partnerships (PPPs) to build critical infrastructure, even though there is one such arrangement in place at Lagos Airport where a terminal is privately operated (and which still generates opprobrium from the unions);
One regional airport concession (a BOT) has already been terminated on the basis of a breach of the contract;
Surprisingly perhaps, some foreign investors have previously declared an interest, including those from Saudi Arabia, Qatar and Turkey, whose TAV Airports was reported to have decided to submit a bid for concession tenders at all four of the main airports;
This prompted concern in the National Assembly of a "northern agenda", which may refer to the fact that some of the main airports are in the north of the country rather than that Turkey is in 'the north'.
Presumably prospective investors were attracted by the fact that Nigeria is by far the most populous country in Africa, with over 200 million inhabitants; it is the world's 11th biggest oil producer, but its surface transport infrastructure remains inadequate;
That the tide has turned against loans from China, which have financed a fair deal of Nigeria's airport rehabilitation in the past and in favour of concession;
Indeed, this seems to be the case throughout Africa generally, where China has provided hefty loans in return for access to resources, prompting growing resentment. The little matter of a global pandemic won't have helped.

So has anything changed since the last report? The answer could be yes.

Nigeria is better placed economically right now

Firstly, the economy is improving. It grew by 0.5% in 1Q2021, lifted by higher crude production and oil prices, together with a gradual easing of coronavirus lockdowns. Nigeria had been grappling with low growth before the pandemic triggered a recession and created large financing gaps, including dollar shortages and inflation.

The 1Q2021 growth rate was slower than the 1.87% growth rate recorded in 1Q2020 but higher than the 0.11% recorded in 4Q2020, which is indicative of a slow but continuous recovery. In the fourth quarter Africa's largest economy exited its second recession since 2016, despite a full-year contraction in 2020.

Of course, an oil-based economy will be subject to uncertainty in the new, green world order. At present the oil economy accounts for 9% of GDP (Jun-2021).

Africa in general has escaped quite lightly from the pandemic - at least to date - with the exception of South Africa. That might be something to do with the relative lack of international travel.

In Nigeria, although it has had over 8,000 deaths from the coronavirus, the COVID-19 case rate has seemingly bottomed out, with an increase of only 11,000 confirmed cases from 01-Mar-2021 to 25-Jun-2021.

COVID-19: spread of cases within Nigeria, May-2020 to May-2021

Seat capacity rallies strongly

And that has impacted on seat capacity, with 190,300 seats available throughout Nigeria in the week commencing 14-Jun-2021, which is 90% of the level of the comparable period in 2019, and exactly five times the capacity of 2020 (same week).

Nigeria: weekly total system seat capacity, 2018-2021* (projected)

Furthermore, there has been some successful airport concession activity in other African countries, notably Rwanda, where a new USD1.3 billion airport in the capital is being built to be operated partly privately (and by an airline), and for which the construction contract was switched to the African subsidiary of a Portuguese company from a Chinese one.

The signs are clear that now is the time - finally - to pursue these concessions if the government can summon up the courage of its convictions.

Concessionaires now offered control over non-aero assets and will benefit from 'special economic zones'

In its most recent statement, at the beginning of Jun-2021, the Nigerian Ministry of Aviation confirmed that the government was planning the concession of Abuja, Kano, Lagos and Port Harcourt airports to private operators for a minimum of 20 to 30 years.

Selected operators would be granted authority over non-aeronautical assets in the passenger and cargo terminals. While non-aero revenue streams have never been particularly strong in most African countries, that at least is a step in the right direction.

Furthermore, the ministry also announced the designation of Abuja Nnamdi Azikiwe International Airport, Kano Mallam Aminu International Airport, Lagos Murtala Muhammed International Airport, and Port Harcourt International Airport as 'special economic zones' under the Nigerian Export Processing Zone Authority (NEPZA) Act. The airports will be afforded more avenues to local and foreign direct investment, as well as the ability to generate revenue through non-aeronautical activities.

Companies operating out of the airports will also be subject to reduced taxes in the effort to create a more profitable trade environment in Nigeria.

Lagos is the biggest draw

As mentioned in the previous report, the majority of interest will be in the airport at Lagos, the biggest city by far, with almost 10 million people and an airport that is the fifth busiest in Africa in 2020, but still a comparative minnow in international terms.

In 2018, the last year for which 'normal year' statistics are available, Lagos International Airport handled 7.3 million passengers, and had been in decline for the previous three years.

Lagos Murtala Muhammed International Airport: passenger numbers/growth, 2009-2018

At Lagos 76% of seats are on unaligned airlines and most of them (almost 50%) are to/from Western Europe (led by the UK) and the Middle East, rather than within Africa.

The largest airline by seat capacity is Air Peace Hopper, a subsidiary of Air Peace which is based in Lagos. The airline operates regional services with Embraer ERJ 145 aircraft, held by the parent airline, Air Peace. It says much about the fluctuating state of route network development presently that an airline that did not even feature in this chart in Oct-2020 should now have over one fifth of the entire capacity,

Lagos Murtala Muhammed International Airport: system seats for all business models and airlines, week commencing 14-Jun-2021

Another statistic potential concessionaires will look at is utilisation, which is quite strong.

The chart below is for Thursday 17-Jun-2021 but is similar on all days, with only one hour having no arriving or departing seats, hence no services in that period.

Lagos Murtala Muhammed International Airport: system seats per hour for 17-Jun-2021

Overall it has to be said that Lagos does not compare too well with Ethiopia's Addis Ababa as a primary continental hub.

The latter airport at Addis Ababa has more than 10 million passengers annually - not much more than Lagos - but its international route network is considerably more comprehensive, and a new airport is to be built there to handle (eventually) up to 120 million ppa.

Kano's traffic is unpredictable

Kano is the second largest city, with more than two million inhabitants.

Its passenger traffic development has been up and down, swinging wildly between +55% and -17% in two successive years and with several, less exaggerated, swings in other years.

Again, full service carriers predominate (98%), and more than 90% of seats are on unaligned airlines and are 'full service' - there continues to be a dearth of low cost carriers in Africa, where high load volumes are often unachievable.

Utilisation here is poor, as the chart below chart shows, with activity in only nine of the 24 hours.

Kano Mallam Aminu International Airport: system seats per hour for 17-Jun-2021

More international flights at Abuja, the capital, but very limited long haul

Abuja is the capital city, with a population of one million. The city occupies a relatively minor role other than for government, like Washington, Ottawa or Canberra. It could therefore be expected that there would be a greater measure of international seats and indeed, they do amount to 25% of the total.

While the regional Air Peace Hopper is again the airline with the largest seat capacity, there is capacity from Emirates, Ethiopian Airlines, British Airways and Turkish Airlines.

This route map shows, however, that despite the connections offered by those airlines, there are no flights across the Atlantic or to Southeast Asia at all, not even to South Africa, which might be considered unusual for the capital of the continent's largest country, and even allowing for the impact of the coronavirus pandemic.

Centrally located, Abuja airport acts as more of a hub for Nigeria itself, and surrounding countries (Cameroon, Chad, Togo, Ghana, Côte d'Ivoire).

Abuja Nnamdi Azikiwe International Airport: network map for the week commencing 14-Jun-2021

Utilisation is at least better, with constant activity in each hour from 0700 to 2300.

Port Harcourt synonymous with oil exports

Finally Port Harcourt, the fifth largest city, with a population somewhere above 1.8 million.

Port Harcourt is a port and is synonymous with oil exports, which began in 1958, it being the chief oil refining location in Nigeria.

That fact itself will drive potential concessionaires to examine Port Harcourt as was the case in the Brazilian concessions with the airport at Macaé, the centre of the offshore petroleum industry in Brazil, which was won by Aeroportos do Sudeste do Brasil (Flughafen Zürich) in 2019.

There is greater consistency to Port Harcourt's passenger growth, in that it went downhill in three successive years, 2015 - 2017, before rallying with a 23% increase in 2018.

Port Harcourt International Airport: passenger numbers/growth, 2012-2018

But Port Harcourt airport is a 100% domestic, full service and 'unaligned airline' airport, with capacity split fairly evenly between Arik Air, Dana Air, Aero and the ubiquitous Air Peace Hopper.

Utilisation again is currently thin, with almost all operations squeezed into an 0800-1700 period.

Port Harcourt International Airport: system seats per hour for 17-Jun-2021

It might be advisable to offer Lagos first

As always, this report can only present a snapshot, but some generalisations can be made.

On its own, Lagos would be the most sought-after airport, but it will probably not be tendered solely - assuming it is tendered at all.

Perhaps it might be better if the government did just that, putting up its prize asset first and whipping up some demand for the other three airports later, once the benefits of the Lagos concession become better understood.

And then follow for smaller regional airports if it can, by which time local investors might want to be involved. That is broadly what happened in Brazil, where there is a far greater number of commercial airports and where São Paulo Guarulhos, Rio de Janeiro Galeão and Brasília airports were tendered early, generating enthusiasm for later concession tranches - despite allegations that economic prospects both for the country and the airports had been exaggerated in the early tranches, thus leading to excessive valuations.

And unlike in Mexico, where the three main regional airports were attached to smaller ones right from the start in the concession process, there is a lack of homogeneity between what could be 'anchor' airports in Nigeria's case.

There will always be factors militating against successful deals, though - such as the lack of air traffic for the country's size and economic performance, the almost total absence of a low cost airline mentality, the continuing hostility of trade unions and many politicians, and the underlying pervasive threat of corruption, which is an image that Nigeria still struggles to shake off.

Breaking News 25-Jun-2021

Nigeria's Minister of Aviation Hadi Sirika stated the government aims to complete the concession of Abuja Nnamdi Azikiwe International Airport, Kano Mallam Aminu International Airport, Lagos Murtala Muhammed International Airport and Port Harcourt International Airport in early 2022.

The government will invite expressions of interest from qualified companies by the end of Jun-2021 and bids will be evaluated in Aug-2021. Concessionaires are expected to be selected and approved by Feb-2022.