Virgin Nigeria: Trouble ahead for Branson?

Jun 1, 2005

The armed security personnel permanently guarding Virgin Nigeria’s solitary Airbus A320 aircraft sitting at Murtala Muhammed International Airport, Lagos, indicate the problems besetting Nigeria’s proposed new flag-carrier, in which Virgin Atlantic Airways, UK, headed by Sir Richard Branson, has a 49% equity stake.

In May, a group in Nigeria calling itself the ‘Movement for the Actualisation of the Rights of Nigeria Airways Workers’ publicly threatened to mount violent action against Virgin Nigeria unless all the labour issues involved in the liquidation of the previous national carrier, Nigeria Airways, were immediately resolved. The group insisted that the former workers and pensioners of Nigeria Airways, which was shut down by the Government, must be paid all their wages, gratuities and pensions before Virgin Nigeria commenced services. 

The anonymous group’s threatening letter was widely distributed to top Government officials, foreign embassies in Nigeria, Virgin Atlantic, British Airways and other foreign airlines. Worryingly, the group specifically warned foreign nationals not to fly on Virgin Nigeria and claimed that it had mapped out strategies to thwart the new airline’s inaugural flight. “It is obvious that Virgin Atlantic is the direct beneficiary of the liquidation of Nigeria Airways,” the group said.

Virgin Nigeria has initially acquired two Airbus A320s and says it will add A340s to its fleet soon. Contrary to expectations in Nigeria, the new flag-carrier intends to commence domestic services first before launching long-haul flights. One of the A320s arrived in Nigeria on 25 April to perform a few ‘proving’ test flights on domestic routes for the Nigerian Civil Aviation Authority (NCAA).

One month later, at the end of May, the aircraft was still parked at the airport, with its foreign crew residing in a hotel in Lagos. The Bulgarian-registered A320 (LZ-BHD) is owned by the lessor General Electric Capital Aviation Services (GECAS) and has been wet-leased by Virgin Nigeria from Balkan Holiday Airlines, a Sofia-based holiday charter operator, reportedly at a cost of US$1,940 per flight hour for a minimum 300 hours per month (US$582,000 per month, excluding hotel costs). The second wet-leased A320 (LZ-BHB) has yet to be delivered. 

Meanwhile, another body in Nigeria called the Aviation Union Grand Alliance (AUGA), in a public statement, warned aviation industry stakeholders in the country to steer clear of Virgin Nigeria “to avoid any catastrophe.” AUGA is an umbrella group comprising of the Air Transport Services Senior Staff Association of Nigeria (ATSSSAN), the National Association of Aircraft Pilots and Engineers (NAAPE), and the National Union of Air Transport Employees (NUATE). 

In response, Nigeria’s Aviation Minister, Isa Yugada, has warned the former staff of Nigeria Airways who are threatening Virgin Nigeria to “stay clear of the new airline or risk the wrath of the law.” Virgin Nigeria, headed by Managing Director Simon Harford, has continued its preparations for take-off, which Richard Branson says will be around mid-July this year. 

However, to further compound matters for Virgin, in late May, a Lagos Federal High Court granted domestic airlines in Nigeria, under the aegis of the Airline Operators of Nigeria (AON), an order of interlocutory injunction restraining Virgin Nigeria, the Federal Government of Nigeria and its agencies from facilitating the take-off of the new carrier, pending the hearing and determination of AON’s suit. 

The injunction followed a motion exparte filed in Court on 12 May by AON’s legal counsel, Rickey Tarfa & Co. Joined in the legal action are Aviation Minister Yuguda, the Federal Ministry of Aviation, the Nigerian Airspace Management Agency (NAMA), the Nigerian Civil Aviation Authority (NCAA), the Federal Airports Authority of Nigeria (FAAN) and Virgin Nigeria Airways Limited. 

In its court action, AON referred to the Memorandum of Mutual Understanding signed between the Government of Nigeria and Virgin Atlantic Airways on 28 September, 2004, to establish a new national flag-carrier for Nigeria. It said that its member airlines have been struggling to gain increased access to international routes following Nigeria’s endorsement of air transport liberalisation agreements such as the Yamoussoukro Decision of 1999, the ‘Open Skies’ Agreement with the USA, and the Dual Designation Airline Agreement between the UK and Nigeria. 

AON averred that the decision of the Nigerian Government to reserve the Lagos-London route, and four other key international routes – New York, Johannesburg, Jeddah and Dubai, exclusively for Virgin Nigeria for seven and a half years “is wrongful and amounts to a direct violation of Government policy on liberalisation and fair competition in favour of Virgin Nigeria.” The exclusivity given to Virgin Nigeria on the Lagos-New York route is contrary to the ‘Open Skies’ Agreement signed by both countries, it added.

AON also claimed that Virgin Nigeria “in connivance with the other defendants” is in breach of Nigeria’s aviation regulations which stipulate that “an AOC applicant shall not use a wet-leased aircraft for the initial commencement of its operations.” Among other things, AON is seeking a declaration by the Court that the shareholding structure whereby Virgin Atlantic holds Class A shares in Virgin Nigeria confers effective and de facto control of the new airline on the UK carrier. 

The issue of the shareholding structure of Virgin Nigeria is just one of the many controversies surrounding the new venture, which have called its long-term survival into question. In an open letter to Nigeria’s President Olusegun Obasanjo, an aviation veteran Captain Tanko Abdullahi, claimed that Virgin Atlantic and its shareholder Singapore Airlines own Class A shares in Virgin Nigeria, while Nigerian equity investors own 51%, Class B Shares. “The Class A shares (even though in minority) have superior voting rights thus rendering Nigerian majority shareholders ineffective to influence or direct the affairs of the airline,” he claimed. 

Captain Abdullahi added: “Who then owns Virgin Nigeria? The above structure confirms that it is Virgin Atlantic. This is also evident in the logo of Virgin Nigeria. Does this serve the economic interest of Nigeria? Can this now become the flag-carrier that Nigeria deserves? Virgin Nigeria had over six months to prepare, lease aircraft, train crew and launch her service but chose to wet-lease aircraft on the Bulgarian register with foreign crew. Even if only temporary, this is unacceptable and a violation of our regulations, for a project that had such a long lead time.” 

Reflecting the widespread disquiet in Nigeria, Captain Abdullahi said: “The management of Virgin Nigeria is dominated by expatriates at a time Nigeria should be increasing her local content in all sectors of our economy. Chief Executive Officer, Chief Financial Officer, Chief Operations Officer, Director of Flight Operations, Director of Engineering, etc, are all expatriates. Is this good for Nigeria? No real new jobs have been created by Virgin Nigeria. What we have is job migration as Virgin Nigeria is busy poaching staff from other airlines in Nigeria, thus adding no real value. The long-term job creation potential of this project has been grossly exaggerated.” 

According to Captain Abdullahi, Virgin Atlantic has entered into a management agreement with Virgin Nigeria whereby monthly management fees are paid to the UK airline by the new Nigerian flag-carrier. “Why would an equity partner with Class A shares want management fees except to further tilt the balance in favour of Virgin Atlantic and establish the basis for capital flight? Most equity transactions derive their reward from dividends. Why is it different here if Virgin has faith in the long-term viability of the project? This type of foreign direct investment is not in Nigeria’s long-term economic security interest.” 

The response of both Virgin Atlantic and Virgin Nigeria to this wave of criticism in Nigeria does not seem to have adequately addressed the gravity of the situation. Until the long-running financial obligations of Nigeria Airways are discharged, for example, Virgin Nigeria seems set to be dragged into countless legal actions by the unpaid staff, pensioners and local and foreign creditors of the former national carrier. There is also the potential danger to passengers posed by the threats of flight disruptions and violence from groups such as the ‘Movement for the Actualisation of the Rights of Nigeria Airways Workers.’ 

Virgin Nigeria says that it has nothing to do with the debt problems of Nigeria Airways. This is technically correct, but the reality is that the new airline may likely continue to be dogged by the problems of its predecessor until these problems are finally resolved – either protractedly through the courts, or swiftly by the Government of Nigeria. 

Visiting Nigeria in May, 2005, Richard Branson appeared to shrug off these problems and the mounting opposition to Virgin Nigeria, saying: “There is always opposition to anything new, but all I can promise is to deliver a great airline to Nigeria. Everything is being put in place to ensure that the airline begins operations in mid-July. In the first nine months we are going to be plying nine international routes. It is going to be one of the fastest expansions of any airline anywhere in the world.”


– By Nick Fadugba 

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