DE-VIRGINING VIRGIN NIGERIA

After the demise of Nigerian Airways, a business agreement with Virgin Atlantic and the government of Nigeria gave birth to Virgin Nigeria. But the relationship was not  to last for long. Virgin Nigeria is now being de-Virgined and a series of other issues are arising. Kenneth O. Eze writes

 

July 7 has come and gone without any visible sign of the rebranding of Virgin Nigeria. The Nigerian airline still has its offices and aircraft adorned with the “Virgin” sign. And people are beginning to wonder. But Francis Ayigbe, the airline’s Corporate Communications Manager, told M2 that the de-branding is a process that was meant to commence from July 7, 2009 and not end thereon. He, however, would not give a time frame for the process, maintaining that it remains a process not an event.

Kudi Scott-Igbene, who spoke for Virgin Atlantic, said her airline does not want to make further comments on the matter. According to her, “the ball is now in the court of Virgin Nigeria.”

The atmosphere is becoming even hazier for the airline with Guaranty Trust Bank going for the jugular over the airline’s indebtedness to it in the region of US$9.2m, for which the bank is seeking judicial intervention to liquidate the airline on insolvency allegations.

Evolution of Virgin Nigeria

Questions will continue to arise on the effectiveness of businesses set up or being run by the government. Issues bordering on the incompatibility of politics and enterprise led to the demise of Nigeria Airways. The Airways was replaced by Virgin Nigeria Airways in 2004. The airline traded under the brand Virgin Nigeria, modelling itself after its parent company, Virgin Atlantic.

It will be recalled that Virgin Nigeria was established on September 28, 2004 by the Nigerian government and Virgin Atlantic as a replacement for defunct Nigeria Airways.. For several reasons including, but not limited to, structures and need to put agreements in place, the airline started operations on June 28, 2005 from Lagos to London Heathrow using an A340-300.

The BBC reported that “Virgin Atlantic paid $25m for a 49% stake in Virgin Nigeria, with Nigerian investors making up the rest.”

Today, this relationship has gone sour, with the divestment of the later. The divestment is traced by the BBC to not-so-pleasant relations between the airline and the government following the exit of President Obasanjo from power.

Under President Umar Yar’Adua who succeeded President Obasanjo in 2007, the airline watched in disbelief in 2008 as it was stripped of a special deal allowing it to operate domestic flights from the international terminal at Lagos airport.

The airline felt it had a case and approached the courts for an interpretation of the agreement entered into with the Nigeria government, but the government had no time for any niceties and, in what Richard Branson, the Chairman of Virgin Atlantic described as “mafiioso tactics”, according the BBC, “hammer-wielding men demolished their lounge.”

Following these remarks by Branson, the Nigerian government voiced the opinion that the airline was “orchestrating negative propaganda.”

The tone appeared set for the airline to reconsider its adventure in Nigeria.

Build-up to the Divestment

Virgin Nigeria was created with the support of former President Olusegun Obasanjo owing to the yearning to keep the Nigerian flag flying in the skies after the collapse of the Nigeria Airways. With corruption and politics being perceived to have weighed heavily on the demise of the former national carrier, the former president considered an entity powered by individual investors a better option.

He midwifed the investment of Virgin Atlantic in Virgin Nigeria Airlines Ltd. Virgin Atlantic offered its brand and technical expertise to ensure the smooth take-off of the airline in a bid to assist it measure up to the standards of the brand world-wide.

All went well during the tenure of President Obasanjo. An agreement that Virgin entered into with the Nigerian government conferred on it the privilege to operate its local flights from the Murtala Mohammed International Airport, Lagos.

Confusion arose with a conflicting agreement signed between the government and Bi-Courtney in respect of the Murtala Mohammed Airport 2 (MMA2). The construction firm with the support of financiers reconstructed the airport that was razed down. This was with an agreement that government would compel all airlines in the country to operate their domestic flights from the MMA2.

The privilege to Virgin Nigeria ran counter to the agreement with Bi-Courtney. The Nigerian government could not handle this properly as they watched helplessly while Virgin’s facilities were dismantled, with the matter still pending in court.

Chike Ofili, a brand communications/reputations consultant, opined that this matter should not have gone to court in the first place. His thinking is that “diplomacy would have resolved the issue.”

Dele Momodu, the publisher of Ovation Magazine, stated in the Pendulum, a column he maintains on Thisday newspaper, that “The facilities which were offered Virgin Nigeria at the Murtala Mohammed International Airport were cancelled because it was a privilege that ran counter to another agreement reached with Wale Babalakin’s Bi-Courtney over the Murtala Mohammed Airport 2.”

Kingsley Omose, a legal practitioner and thought activist opined that the genesis of this matter rested with the Nigerian government’s failure to separate between politics and economy. He thinks that government should have at least waited for the outcome of the matter in the court before forcefully evicting Virgin Nigeria.

Agreeing with Omose, Momodu wrote, “the incorrigibility of government was the cause of the confusion, and amidst controversy, Virgin Nigeria was compelled to move its domestic operation to MM2.”

It is Momodu’s thinking that the financial implications of the eviction might have contributed to Virgin Atlantic reaching this decision. “The money it spent refurbishing the decaying international airport was wasted,” he opined.

Ofili thinks that the forced eviction amounted to “wronging the wrong person. Nigeria would have done what it takes to keep a cordial relationship with a brand like Sir Richard Branson.” That act gave the Nigerian government an image of unwillingness to abide by the law, despite the rule of law stance of President Yar’adua’s administration. This marked a turning point in the relationship between Virgin Nigeria and Virgin Atlantic. According to Momodu, “this was the beginning of the end. Sir Richard Branson was livid, and he threatened to pull out of Virgin Nigeria.”

It was not only the international partners that expressed discomfort with the signals of uncertainty coming from the investment climate in Nigeria. The insinuation that the banks that gave financial muscle to the airline were compelled to review the viability of the investment appear to be laid to rest with reports that UBA is financing the acquisition of new aircraft by the evolving airline.

Unconfirmed reports claim that the technical partnership agreement reached between Virgin Nigeria and Virgin Atlantic virtually reimbursed the global brand of its investment in the Nigerian airline.

In the face of these, Channels television news quoted Babatunde Omotoba, the Minister of Aviation as assuring “investors in Virgin Nigeria Airline that their investments are protected and that the airline will not go under.”

Cancellation of flights on international routes followed the withdrawal of the aircraft hitherto deployed there. This was part of Virgin Atlantic’s investment in the airline. The Nigerian investors might have considered this a tactical withdrawal, as the investors knew the company was in urgent need of capital to continue in business.

Omotoba expressed the Nigerian government’s determination “not to allow any airline go under;” the major reason being “that if the face-off between Virgin Nigeria and Virgin Atlantic was not resolved, it would have negative impact on the nation’s economy.” The view is shared by Momodu and Ofili.

So soon after the expression of government’s intention to ensure that the airline remains a viable enterprise, Virgin Atlantic announced withdrawal of its personnel and technical expertise from Virgin Nigeria.

Subsequently, the Nigerian investors appointed Dapo Olumide to take over the affairs of the airline from Conrad Clifford as Chief Executive Officer. Olumide’s appointment became effective June 18, 2009 following the expiry of Clifford’s contract.

Olumide has assured the public that the airline would not suffer any loss from the de-branding. Additional funds needed to run the enterprise properly would be raised from the public and the airline would be listed on the nation’s stock exchange.

Supporting him, Ayigbe, the Image Manager of the new airline, in an emailed response to M2, volunteered that separation was contemplated from the outset by both parties (Virgin Atlantic and Virgin Nigeria).

Ayigbe further hinted that “the parting of ways was mutually agreed by both boards. He maintained that though the airline business was technical and required high competence, his assessment of available human resource was that “the local human resources have been running the company since 2007.”

Impeccable sources that spoke to M2 at Arik Air corroborate Ayigbe’s position that the airline would have well equipped human resource to fall back on.

How Will The New Airline Fare Without Virgin Atlantic?

Ayigbe’s position that the airline has been manned by locals since 2007 points to a company that has been stable, even in the face of challenges. Reports are that the airline has added two aircraft to its fleet since 2007, with plans to add eight more.

But Ofili’s opinion runs counter. “Things will never be the same. How can you fight the wrong man?” he asked. His position is that the issues surrounding Virgin Nigeria would have a multiplier effect on the nation’s economy.

Sources at Arik tend to agree with Ofili’s view that the de-branding would affect public perception of the airline, “but that would be the farthest it can go,” they said. Their counsel is that Virgin Nigeria should consider itself “a child gaining financial independence from parents. Things may not be easy, but with determination, the child would definitely find his/her feet.”

Olumide, while receiving the second aircraft in a ceremony held in Lagos recently expressed delight that the aircraft was arriving at a time when the airline desired to integrate its operational business plan with modern aircraft in its fleet.

The aircraft, an Embraer 190AR, a modern 96-seater is part of the 10 ordered by the airline to boost its operations.

He was emphatic about the ambition of the airline under him. He said: “The arrival of the aircraft brings the number of Embraer aircraft to two. Another two are expected before the end of the year.”

To further underline the ambition, he disclosed that “the latest additional aircraft to the fleet of Virgin Nigeria will be further deployed on Virgin Nigeria’s growing domestic and regional network to meet passengers demand especially as the airline has embarked on an aggressive route roll out plan.”

Sources at Dana Airlines, as well as those in Arik agreed that “what becomes of the airline is a matter of the entrepreneurial spirit brought to bear on the business by the drivers.” “Olumide has been making bold statements. The best one can do is to give him a chance,” they maintained.

On his part, Ayigbe posited that “no new entity is being expected, just that the name Virgin goes of, the process is the same”, in response to a question on the chances of the new entity matching the service standards of Virgin Nigeria.

Against the backdrop of Ayigbe’s position that the airline has been run by the locals since 2007 and Momodu’s observation that the service delivery of Virgin Nigeria never matched that of Virgin Atlantic, it looks like the company might not have much problem sustaining the level of service it has offered in the last two years that the locals ran it, at least in the short run.

Core Implications of the Rebranding

With news that Interbrand, a foreign branding firm, has been contracted to build the image of the evolving airline, Ayigbe saw nothing wrong with that. His response: “It is not illegal.” He would not divulge the budget for the rebranding exercise, saying “a fairly sizable amount has been earmarked for this purpose.

The competitors that spoke to us made no claim to having an idea of the cost implication of rebranding or de-branding as the case maybe. Ofili doesn’t see anything wrong with employing a foreign firm to handle the branding. “The essential thing is that the logo must have a cultural badge. Though technology is playing increasing roles, the modern brand must also keep an eye on the global field. Can the brand go for competition? Can it go for exchange? These are issues that companies should take into account while making efforts to build brands,” he noted.

It seems that aside the general impact on the economy, which is hard to measure, the airline would continue to thrive given the right resources – capital, human and technical. Other airline sources that spoke to M2 posited that it is only in the mind that the issue of brand play up. So long as the airline has functional operations, it will not lack patronage based on branding issues, they said.

On his part, Momodu reasoned that the issue of re-branding and de-branding of the airline is only a matter of rhetorics. “Virgin Nigeria was expected to provide excellent services like Virgin Atlantic. But this was not the case. The aircrafts were inferior, old and rickety. The fares that were expected to drop never did. Passengers had to deal and cope with ill-trained staff, some of whom were as saucy as they come. They experienced all manner of difficulties in the process of checking in for their flights. Revenue plunged because of the recalcitrant attitude of the ground crew,” he maintained.

Momodu’s position and that of other informed sources suggest that the airline would continue at the same pedestrian plane it had been on. Their revelations point to the notion that Virgin Atlantic might have made for safety long ago. Information could merely be leaking out to the public at a carefully managed pace.

How Will The Divestment Impact On Air-Safety In Nigeria?

Sources at the airline are of the view that Virgin Atlantic’s divestment from Virgin Nigeria would not affect safety issues in any way. The safety process and procedures remain as they are. The bulk of safety measures are not entirely within the control of individual airlines.

The sources gave kudos to Virgin Nigeria for introducing brand new aircrafts into the Nigerian airline industry, but pointed out that many of their competitors have caught up with it. According to them, that has become the standard and there is no chance of reversal.

The next major issues are structures and regulations. These issues, according to other airline sources, “do not fall within the control of private airlines. Their duty is to comply with regulations and policies issued by the Nigerian Civil Aviation Authority (NCAA) and Federal Airports Authority of Nigeria (FAAN).” Safety issues weigh high on Virgin Nigeria’s scale. Richard Murphy, the airline’s Director of Engineering, disclosed that the new aircrafts would not just be deployed immediately. “They would have to undergo safety checks by the NCAA as required by policy,” he explained.

His words: “The aircraft will further undergo mandatory test before being issued its certificate of airworthiness by the regulatory authority, Nigerian Civil Aviation Authority (NCAA).”

Informed airline sources that spoke to M2 affirmed that the entry of Virgin Nigeria to the aviation industry raised the bar on safety standards. As a result, “the regulators are operating efficiently now, like a task-force. Airlines know that there is no hiding place on safety matters. FAAN and NCAA have really come of age,” they said.

Judging from the foregoing, it could be said that the removal of the ‘Virgin’ in Virgin Nigeria and its consequences would have no impact on the regulatory efforts already in place by these up and doing agencies. “The onus is on airlines to meet these standards or face penalties.” M2 findings reveal that the regulatory agencies are well positioned to deliver on safety requirements to international standards, just as airlines are ready to play according the rules to maintain safety standards already attained in Nigeria.

How Will The Airline Cope As GTB Calls For Its Pound Of Flesh?

Guaranty Trust Bank (GTB) has filed a suit at the Federal High Court in Lagos against Virgin Nigeria Airways, alleging inability of the airline to service a loan of $9,194, 577. 36 (N1.3 billion). With the attendant uncertainties surrounding the de-branding and re-branding of the airline, coupled with the aggressive move by GTB to force it to close shop, it appears the airline is yet to scale more hurdles on its path to stability.

GTB is seeking an order of the court in the petition before Justice Dan Abutu, to wind up the affairs of Virgin Nigeria under the provisions of Sections 409 (1) and 410 (1) (b) of the Companies and Allied Matters Act (CAMA). Available information is that the relationship between the bank and the airline dates back to April 22, 2008, when two facilities were granted to the airline to finance the working capital and purchase of spare parts.

According GTB’s statement of claims, further facilities were granted on May 8, 2008. In all, the respondent was availed three facilities of $30 million, $10 million and N500 million, monies that the bank has reasons to doubt the airline’s ability to pay back; hence the desire for judicial intervention.

The bank alleges that the airline has become insolvent and is praying for “an order of the court appointing any fit, proper and credible person as provisional liquidator to take custody of all identified and traceable assets” of the airline. The bank avers that it would be in the interest of justice for the airline to be wound up over its inability to pay the debt.

Justice Abutu’s decision on the matter was expected late last week, as both parties were expected to present a report of settlement before the court.

Virgin Atlantic’s refusal to comment on these developments gives reason for concern. Sources at Arik Airlines, however, noted that the challenges are not peculiar to Virgin Nigeria. “The global meltdown has brought some challenges on the industry. Some airlines are downsizing and outsourcing, while others are taking some other measures to remain in business.” The developments may come with challenges but should motivate the new management to “add two hours to the normal 24 in a day, to achieve good results”, the Arik sources further stated..