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JOURNAL OF RESEARCH IN NATIONAL DEVELOPMENT VOLUME 7 NO 1, JUNE, 2009

PRIVATIZATION - A STUDY OF NIGERIA AVIATION HANDLING COMPANY (NAHCo) PLC

 

A. O. Ajiboye and J. K. Olowookere

Transport Management Unit, Department of Management Science

Ladoke Akintola University of Technology, Ogbomoso

 

 

 

 

Abstract

The issue of mismanagement, bureaucracy and under-utilization of scarce resources in Nigeria’s aviation industry has led to huge wastage of resources and man-power potentials. To redress this situation, government had no other option than to pursue a privatization programme in the aviation industry. This paper aims at finding out the impact of privatization on the aviation industry in Nigeria. The National Aviation Handling Company (NAHCo) Plc.is used as acse study. The analysis was based on the data obtained from the company prospectus for sales of shares and the various annual reports and accounts as well as the write up in the news papers and news magazine. In conclusion, it was observed that the privatization has been justified since it brought upliftment to the company in all ramifications.

     

Keywords: Aviation; industry;  privatisation;  transportation.

 


Introduction

Transportation of people, goods and services has always been a fundamental component of the human society which enhances the exchange of resources, materials, information and services within and between nations. It is perceived as the engine of societal integration and growth in the economy. It can also be described as a major artery and vein that supports and sustains socio-economic development and growth of the Nigerian economy according to Ndikom (2006).

 

Transport is a key stone of civilization. The proliferation of industrial products increase in trade and ideas all depend upon movement. Personal mobility is one of democracy's most valued freedoms, and it is therefore not surprising that high proportion of our income is devoted to our movement and to the movement of goods that we purchase. The provision of transport infrastructure is very crucial to the socio-economic, political and cultural development of any nation according to Ajiboye (1995).Of major significant to the Nigerian economy however is the aviation industry. It has proved to be a powerful and indispensable catalyst in promoting close understanding and cooperation among the people of the World. Though the objective of airline as a national or private carrier was to operate scheduled and chartered services for the carriage of passengers, cargos, mails and other related business in the most reliable, efficient, affordable and profitable manner on domestic and international routes according to Filani (1975). Furthermore, aviation industry also has social, defence, security and political responsibilities to the government and people of the nation where the business is located especially during the period of dire need such as natural disaster and war. Air transport is a major undertaking in international scale and very vital to all aspect of World affairs. It links all the nations of the World, their business, their commerce and their personal lives as never before. Thus, it has been one of the most important factors shaping the economic and demographic pattern of the World including communication with other nationals and cultures.

 

Furthermore, air transport according to Banjo (1995) is pivotal to the nation's economy because it has successfully adjust rapidly to business, tourism,  sporting activities, increasing mobility etc while it has also successfully fulfilled society's demand for fast, safe, reliable, convenient, comfortable and economic means of transportation.

 

Air transportation is essential to the socio-economic development of all developing nations in which alternative means of communications are often non-existents. The World air transportation system which has progressed dramatically for over the past decades rest on four main pillars; cooperation, competition, communications and competence. Civil air transportation forms the backbone of most countries without which the socio-economic development amongst other things will not prosper. However, air travel has proved to be powerful and is a possible catalyst in promoting close understanding and cooperation among the people of the World while Chairman NAHCo (2005) believed that there is a symbiotic relationship between economic growth and aviation traffic growth. The growth in the economy can cost air traffic and an increase in air traffic puts pressure on the development of the aviation infrastructure and information technology.

 

Despite all the numerous benefits that can accrue from aviation industry globally, the issue of mismanagement and under-utilization of scarce resources in Nigeria has led to huge wastage of resources and man­power potentials which has gave the civilian administration of Chief Olusegun Obasanjo no other option but to pursue quickly the privatization programme of the aviation industry with particular reference to the Nigerian Aviation Handling Company (NAHCo) Plc.

The main aim of this paper is to find out the impact of privatization on aviation industry in Nigeria with particular reference to Nigerian Aviation Handling Company (NAHCo) Plc..  Privatization is the control or management of public enterprise with a view to reduce the usual weight of public ownership, control or management. However, in a strict sense, privatization means transfer of ownership and all the incidences of ownership including management of public enterprises to private investors.

 

Conceptual Issues

The privatization and commercialization Act of 1988 and the Bureau of Public Enterprises Act 1993 defined privatization as the relinquishment of part or all of the equity and other interests held by the Federal Government or any of its agencies in the public enterprises. Although privatization is not defined in the public enterprises (privatization and commercialization) Act 1999,  we can assume that it is deemed to have the same meaning.

From the definitions above, three things are clear.

a.         For privatization to take place there must be in existence public enterprises which need to be converted into private enterprises.

b.     There is a general belief that private ownership, control or management             would be better    than public ownership.

c.       Finally, privatization is premised on the fact that there are problems with         public ownership of enterprises. And privatization is part and parcel of a          reform agenda to turn around these enterprises so that they can deliver             goods and services more efficiently and effectively.

Thus, the strategy to adopt private sector participation in aviation industry must be based on government objectives, the types of operation, the existing status of the airport facilities and the ownership of airport assets.

 

 According to Ndikom (2005) there are two types of privatization, these include total privatization policy and concession. Total privatization is a policy which shows an outright or complete transfer or sale of state ownership of public infrastructure into private hands. It means a total loss of state ownership of the infrastructure to private hands. Concession implies contracting out the management of the port to the private sector for a period of time. That is, the transfer of the operating right by the government to the private sector. The concession structure provides a framework for the government to retain ownership of port land and responsibility for licensing operators. Here, the government still remains the landlord.

Privatization of state owned enterprise has become a key component of the structural reform process and globalization strategy in many economies, according to Usman (2003). Hence several developing and transition economies have embarked upon extensive privatization programme in the last decade or more as a mean of fostering economic growth, attaining macro - economic stability and reducing public sector borrowing requirements arising from corruption, subsidies and subvention attributable to unprofitable state owned enterprises.

 

As of the late 1980s various attempts to examine the difference between public and private production had been undertaken in developing countries. A study by World Bank (2002) comparing the performance of fifty-three public and twenty four private Tunisian enterprises (in similar sectors) found that productive efficiency of public enterprises was not detectably different from that of private firms. However, a recent World Bank research project in contrast to earlier partial studies according to Usman (2003) examined the effect of diversities on all important factors. It also assesses the long run impact of privatization by isolating its effects on firms behaviour from concurrent changes. Such as changes in macro-economic policy, technology, demand structure or the regulatory framework and answering the counterfactual what would have happened to performance if ownership has not changed, the study found that privatization significantly improved domestic and international welfare in eleven of twelve disinvestitutures analysed while nine of the twelve were non-competitive. Productivity rose in nine cases and stayed the same in the other three.

 

Other studies, less vigorous but with broader coverage also found improvement after privatization. A study of forty one firms fully or partially privatized between 1981 and 1989 by public share offering in fifteen countries found substantial efficiency gains. The privatized firms increased returns on sales, assets on equity, raised internal efficiency, improved their capital structure, increased investment and marginally increased their work forces as a result of faster growth. However, in some other cases, for example Argentina, Chile, Niger and Tunisia, dynamic expansion and investment in modernization by the newcomers varied employment levels in several of firms investigated while similar results were found in an analysis of sixty-two privatized petrochemical and auto parts in Mexico, where privatization also helped reduce management numbers but allowed the remaining manages to be paid at more competitive rate.

 

History and Business of NAHCo Plc

The Nigerian Aviation Handling Company (NAHCO) was incorporated as a Private Limited Liability Company on December 6, 1979 under then Nigerian Enterprises Promotion Decree. The Federal Government's 60% ownership was vested in the Federal Airports Authority of Nigerian (FAAN) while four foreign airlines owned the remaining 40%. However, as a result of Government's privatization and commercialization policy, the Federal Government of Nigeria divested the 60% shareholding of the Company held by the FAAN through an Initial Public Offering (IPO). The company's 180 Million Ordinary shares of 50 kobo each were offered for sale at N5.50 per share. NAHCo was successfully privatized in August 2005 and subsequently listed on Nigerian Stock Exchange on November 27, 2006.

 

The company by December 31, 2007 according to 2007 Annual Report and Account, 60%, is owned by Nigerian Shareholders and 40% by Foreign airlines in the following proportion: British Airways 12.5%. Air France 12.5%, Lufthansa 7% and Sabena (in liquidation) 8% respectively. However the shareholding of the shareholders has changed drastically by February 28, 2008 with British Airways, Air France and Lufthansa Commercial Holding GmBH now holding 10.7%, 5.8% and 6% respectively while the shareholding of Sabena (in liquidation) has been bought over by Rosehill Group Ltd with 9.5% and the remaining 76% are owned by Nigerians.

 

NAHCo offers comprehensive portfolio of Aviation Handling Services to its customers. Such includes: cargo handling services, mail handling services, passenger and baggage handling services, provision of Inter-Airport Traffic Services and other ground-handling services such as provision of various freight equipments, facilitating aircraft marshalling provision of ramp services, carriage of goods, cleaning and on - the - spot servicing of aircrafts.

 

NAHCo's operations are carried out at its corporate headquarters, Muritala Mohammed International Airport, Ikeja Lagos State and other International airports across the country. The management structure is made up of the General Manager’s Office and three other divisions. Finance and Administration, Logistics and operations while the General Manager's Office houses the Corporate Affairs, Marketing and Strategy, Internal Audit and Company Secretary/Legal Adviser.

 

Methodology

The method of investigation for this study is essentially both descriptive and analytical in nature. It therefore relies heavily on the company annual report and accounts, and complemented by desk research. The approach involved mainly the analysis of the annual report and accounts. The data was gathered principally through the secondary source, notably the 2005 and 2007 abridged prospectus of offer for sale of NAHCo shares. Heavy use was also made of the annual report and accounts of the company from 2005 to 2007. Furthermore some write up on the company in the newspaper, newsmagazine and seminar papers were also considered.

 

 

Analysis of the Impact of Privatization on NAHCo

The operational performance of NAHCo has improved greatly since it was privatized in 2005. For instance, in 2003 the total flights handled by NAHCo was 7782, in 2004 it was 9967 and in 2005 the privatized year it was 9586 while it increased by 34% in 2006 to 12,879 and in 2007 it  increased to 16,564 flights, an increase of 29%. This improvement in operational performance has justified the privatization programme of the Federal Government of Nigeria.

 

Furthermore, the NAHCo shareholders’ funds rose from N610,272,000 in 2004 to N855,568,000 in 2005 which rose by 25% and to N1,199,686,000 in 2006 a rise of 34% and to N1,699,636 in 2007 representing an increase of 42% which are post privatization period while NACHo’s operating results has witnessed general improvements in all has areas as shown  in table 1. The indices of growth all went upward. For instance, the company’s turnover rose from N2.3 billion in 2004 to N3.05 billion in 2005 representing an increased of 34.7% and the audited results show that turnover grew from N 3.050 billion to N 3.245 billion in 2006 representing an increase of 6.3%. In 2007, the turnover grew from N 3.245 billion to N 3.661, billion, reflecting a 13% increase.

On profit before tax, the 2005 audited report shows that it was N457.7 million and 2006, it rose to N555.9 million an increase of 21.4% and in 2007 it rose by 41% from N 555.9 million to N 785.9 million while profit after tax also show an increase from N434.1 million in 2006 to N589.9 million in 2007.  The company’s current asset was N707 million in 2004, N1526 million in 2005, N1692 million in 2006 and N1.847 billion in 2007.  


 

 

Table 1: Operational performance of NAHCo (2004-2007)

 

2004

 N’000

2005

N'000

2006

N'000

2007

N'000

Current Assets

707,595

1,525,837

1,692,370

1,847.671

Stocks

159.217

97,580

69,229

60,910

Current Assets-Stocks

548,378

1,428,257

1,623,141

1,786,761

Current liabilities

1,219,036

1,512,934

1,602,898

1,868,484

Current Ratio

 

0.5805

1.0085

1.0558

0.9889

Quick Ratio    

0.4498

0.94403

1.0126

0.9563

 

 

 


On the issue of capitalization, the authorized and paid up share capital of the company according to the 2005 abridged prospectus was N150million divided into 300 million ordinary shares of 50kobo each. But this has increased to N500 million divided into 1 billion ordinary shares of 50 kobo each as a result of the hybrid offer of September 2007 which was 678% subscribed meaning almost 10 times more money than they asked for while the excess fund were returned to investors. This is a pointer to the confidence the investors and general public have on the company. The company now has over 84,194 registered shareholders. Little wonder NAHCo won the President’s Merit Award of the Nigerian Stock Exchange in the Aviation category of quoted companies since its introduction into the stock exchange on November 27, 2006.

 

As part of its progressive achievements, NAHCo Plc in 2006 was admitted into the first ever international alliance of aviation ground handlers world-wide (Aviation Alliance) in order to profitably reposition its business and compete favorably in the international market. In addition to this, the Managing Director of the Company was elected to serve on the Board of International Aviation Handlers Association, Africa (IAHA Africa) at its meeting in Marrakech, Morocco were NAHCo where recognized for its frontline role as Nigeria’s foremost ground handling company.

 

Furthermore, since its privatization, NAHCo has spent over and $6million on equipment replacement and acquisition which has considerably improved service delivery and increased employee motivation. For instance in 2007 alone, the company spent over $4 million while it has planned to increase its investment in equipment replacement and acquisition to $6 million in 2008.

Health, Safety, Environment and Quality (HSEQ) issues are not only important to NAHCo, they are also compulsory for all staff and safety is on top of NAHCo’s list of core values while a new HSEQ Policy was formulated and it is being driven by a full fledged HSEQ Department, headed by a Management Staff. The operation staff are provided with. safety apparatuses such as ear muffs, hand gloves, safety booths etc which they are expected to wear regularly whenever they are on duty.

 

Since its privatization exercise, the management has took deliberate steps  to strengthen the capacity of staff by recruiting high flyers from the private sector and also enhancing the welfare and working conditions of the existing staffs while middle and senior management benefited from generic and job specific training  programmes within and outside the country. 

 

In fulfillment of the company’s promise to investors and stakeholders before the privatization to acquire functional and modern information and communication technology to support service delivery across all platforms, the Management and Board acquire and commissioned Oracle business suite on September 7, 2006 to process business data, analyze information and generate current performance metrics while the company also commissioned the Hermes computerization scheme in 2007 in order to automate cargo facilitation and improve the turnaround time and maximize revenues.                                        

 

The impressive performance of NAHCo has earned the company many local and international recognitions. Among these are International Gold Award for Excellence and Business Prestige (2005) by Business Initiative Directions, a Spain based organization, Nigerian Stock Exchange President’s Merit Award in Aviation category (2007), Aviance Alliance Membership (2007), International Star Award for Quality in Geneva, Switzerland (2006) and West African Direct Marketing Award by the Institute of Direct Marketing of Nigeria (2006).

 

 Before the privatization of NACHo in 2005, the company operates in four airports namely Lagos, Abuja, Kano and Port-Harcourt while not only sustains these airports after the privatization, it also added four more new stations in the country, namely MMA2, Calabar, Enugu and Jos airports which is 100% improvement. Furthermore, the company has ground handling agreements with 13 airlines both local and international before the privatization. But three years after the privatization it has signed business agreements with 27 airlines out of the 35 airlines operating in the country which is 231% increament according to Annual Report and Accounts of 2007 while it is exploring the prospects of opening up businesses in West Africa.

 

On the stocks market performance, since its listing on the stock exchange at N5.50 in 2006, NAHCo stock has maintained a phenomenal rise in price appreciation to a height of N70 in May 2007, thereby providing over 1000% capital appreciation for investors. Furthermore, in 2006 financial year, the shareholders received a bonus issue of 3 new shares for every 2 existing shares and in 2007 financial year there was a bonus issue of one for eight, meaning for every eight ordinary shares of NACHo you have will get one additional share while on the dividend paid out to the shareholders. In 2004 24kobo was paid, 30kobo each in 2005, 2006 and 2007 respectively. The investor has benefited greatly from investing in NAHCo since the privatization in 2005.        

 

Conclusion        

Despite the challenges of operating business environment, momentous changes and developments in NAHCo, following its change of status from a Federal Government Agency owned by the Federal Airport Authority of Nigerian (FAAN), to a commercial entity owned largely by over 18,000 individual shareholders and quoted on the Nigerian Stock Exchange. The new management has turned the fortunes of the company round in line with its new status as a public liability company.

 

 

The privatization exercise of NAHCo has re-engineered the company by retooling and refocusing the internal processes, orientating and re-orientating employees repositioning and strengthening the NAHCo brand in the market place, sustaining the market leadership position, deliver value to shareholders, enhance the quality of service delivery to esteem clients and winning new  businesses  and growing market share while it has become a reference point  in privatization programme of the Federal Government of Nigeria in particular and the World as a whole. There is no doubt NAHCo has been a typical success story

 

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