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How FG/Virgin Nigeria bubble burst

The widely-circulated media report on Monday that Virgin Atlantic, the owner of 49 percent share of Virgin Nigeria, has decided to sell its stake in…

The widely-circulated media report on Monday that Virgin Atlantic, the owner of 49 percent share of Virgin Nigeria, has decided to sell its stake in the company next month is not surprising to many observers in the industry. Reuters reported on Monday that Virgin Atlantic will pull its brand name from Nigeria’s national airline carrier and sell its stake in the company. This was immediately followed on Tuesday by the emergency meeting called by the Minster of Aviation, Mr Babatunde Omotoba to salvage the situation. It was a move many commentators felt was too little and perhaps too late.
The body language of Mr Richard Branson, the Chairman of Virgin Atlantic after the demolition of Virgin Nigeria lounge at the international wing of Murtala Muhammed International airport in August last year showed clearly that he had lost confidence in  the deal. Reacting to the demolition of their lounge at the airport, Branson said, “The behaviour of the authorities was similar to the way the “Mafioso” behaved in the United States in the 1930s. If Virgin Nigeria can be treated this way, can any company in the world seriously consider investing in Nigeria in the future?” he queried.
The deal which was struck with fanfare in 2005 by former President Olusegun Obasanjo’s administration was hailed by the brokers as a capable replacement for the moribund Nigerian Airways which was said to have been killed by corruption and inefficiency. Experts in the aviation sector had criticised the shoddy manner the deal was put together and the undue edge over other local airlines, especially the sole right given to them to operate both their local and international flights from the International Wing of the Murtala Muhammed Airport to the chagrin of other airlines. The special favour enjoyed by Virgin Nigeria was the beginning of their problem with other operators and the Yar’adua administration.
No love lost
The deal that brought Virgin Nigeria in 2004 never went down well with experts in the aviation industry. It will be recalled that the very week the deal was sealed and announced by the government, the Secretary-General of Aviation Round Table (ART) and now President of ART, Captain Dele Ore in a two-page statement titled, “Virgin Nigeria, the shame of a nation”, said “The preferential treatment given to Virgin Nigeria to operate our domestic routes as feeder into Virgin Atlantic will threaten the job of 30,000 Nigerians already employed by truly Nigerian airlines. Virgin is a mere cosmetic addition to Virgin Atlantic Empire. It is not a national carrier neither does it qualify to be called flag carrier because it only qualifies as a travel agent to Virgin Atlantic.
Airline Operators of Nigeria (AON) on its part petitioned former President Olusegun Obasanjo and the former Aviation Minister Professor Babalola Borishade over the violation of International Civil Aviation Organisation (ICAO)’s law by Virgin Nigeria.” AON argued that “Virgin Nigeria violated ICAO rule which stipulates that for an airline to fly international routes, it must have flown on the domestic for at least two years.” These observations were ignored by then government of Obasanjo.
The Yar’adua administration inherited the complaints of preferential treatment of Virgin Nigeria at the detriment of other players in the aviation sector. The president with his avowed principle of rule of law waded into the matter and found out that there was no agreement that allowed Virgin Nigeria to monopolise the international wing of MMA for all its operations. Former Minister of Aviation, Mr Felix Hyet, ordered Virgin Nigeria to relocate its domestic operations to the domestic wing of the MMA which Virgin Nigeria interpreted to be a violation of their agreement. Virgin Nigeria’s lounge at the MMA international wing was subsequently demolished in August 2008. Branson had argued that part of the agreement to set up the carrier for Nigeria included the ability to operate domestic and international flights from the same terminal. “To my utter dismay, authorities in Nigeria have chosen to ignore our contract, sending in heavies to smash our lounge with sledgehammer,” he argued.
Presidential spokesman, Segun Adeniyi, had explained after the demolition of Virgin Nigeria lounge at MMA international wing that over the years, public officials hardly bother about the interest of the people when entering into contracts and agreement on behalf of the government. He accused Virgin Nigeria of orchestrating negative propaganda. “The agreement over the international terminal was a non-binding personal deal with a former minister.”
The former Minister of Aviation and now Governor of Bauchi State, Isa Yuguda, who brokered the Virgin Nigeria deal, explained that Virgin Nigeria mistook the concession to use the terminal as agreement. “I must say with all sense of modesty that there was no agreement between us and Virgin Atlantic or Virgin Nigeria that it must be operating from the international wing. I took the initiative on the request of the core investor that Nigeria wanted a hub and the only way to develop it was to allow them to operate from the international wing so that as they fly passengers all over the world, the destination would be Lagos.”
Virgin Nigeria’s new MD, Dapo Olumide, was the Deputy Managing Director of the airline and insiders say the airline may now be called “Air Nigeria or Nigerian Eagle, if it is finally rebranded.” Olumide said the airline had a very difficult birth. “Virgin Nigeria was capitalised with $50 million. As at that time, $50 million seemed sufficient bearing in mind the reservation of routes that was given to the airline, which was a source of revenue. Airline revenue is basically dependent on its routes. But if you want to set up a domestic airline, you need about $200 million. If you want to set up a long haul airline, you need about $400 million, to get aircraft, personnel, training, infrastructure, insurance and what have you. If you set up with $50 million, you can’t even capitalise. But it was not undercapitalised at the time because there was the point in the sector where there was early growth and a guarantee. There was huge investment in aircraft at that time in 2005”.
Olumide explained further that “The debacle about moving to MMA2; the huge investment that Virgin Nigeria put in place at the international airport was thrown away because they had to move to the new domestic terminal. That itself was a huge investment in setting up a base there”. He confirmed that Branson has pulled out of the airline. But with a caveat: “Virgin Nigeria will manage the airline because they have 49 per cent as at this morning.”
James Adokie, an aviation expert, said there should have been free flight-side bus links between the airport terminals facilitating movements and connecting flights, which is the best international practice instead of having one airline operating as a hub.
The Head of Communication, Virgin Nigeria, Frances Ayigbe, told Weekly Trust that the idea of Virgin Atlantic quitting Virgin Nigeria was mutually agreed upon. “Virgin Atlantic has 49 percent equity shares in Virgin Nigeria, but the case is not like pulling out like in the case of acrimony. The idea of Virgin Atlantic disposing off its 49 percent equity share holding was mutually agreed to by the management and board of Virgin Nigeria and Virgin Atlantic. The right to dispose of its shares by Virgin Atlantic is legitimate and in line with best business and industry practice. There is nothing illegal about this. This, of course, is in spite of how the media had portrayed this like a divorce case. It is not.”
On the issue of the demolition of Virgin Nigeria’s lounge, he said since the withdrawal of its operation from the international to the domestic airport, Virgin Nigeria continued to operate its flights. The decision to dispose of 49 percent shares is not related to moving its flight operations to the domestic airport. He further explained that the term of agreement was that Virgin Nigeria would operate a world-class airline in Nigeria, which it had been doing very successfully.
On the allegation that there has been sour relationship between the Yar’adua administration and Virgin Atlantic, Ayigbe said, “Virgin Nigeria board and management has held and continued to hold and cherish the relationship it has with Mr President, and see him as one who has been adding value to Nigeria and Nigerians. There has never been and will never be anything like a ‘sour’ relationship. It never existed and never will. The management and board of Virgin Nigeria holds Mr President in the highest regards,” he stressed.
On whether it is their competitors that are responsible for their present travail, he said the issue of competition and competitors does not arise. “Virgin Nigeria is in the business of adding value to the flying public. That is what the current Managing Director, Captain Dapo Olumide, is committed to. Looking at those you call our competitors is not part of our business plan or objective.”
Experts’ views on latest development
Captain Sam Akerele, Secretary-General of Aviation Round Table in a media chat said, “Right from day one, the case of Virgin Nigeria was shrouded in mystery. It was the hand of Esau and the voice of Jacob. The brand colour was that of Virgin Atlantic but the name was Virgin Nigeria. And this was not normal. This was not a proper arrangement. It was a clever trick played on the intellect of Nigerians giving them the false impression of a national carrier”.
According to Chris Aligbe of Belujane Aviation Konzult, Virgin Nigeria was formed to be a profitable carrier in the international scene. “Virgin Nigeria was not very ‘Nigerian’ nor was it very ‘Virgin’. It was only used as a feeder carrier to Virgin Atlantic,” he said. But Olumide added: “A brand is what you make of it. After all, Arik is a brand, Aero is a brand, but they don’t have foreign technical partners.”
The downward spiral of Virgin Nigeria’s brand has again left the nation without a national carrier. How the government intends to wriggle out of this one, only time will tell.