Rethinking the options for operating a new national airline

The lead story in the Graphic Business of September 2 - 8, 2014 attributed to the business magnate, Alhaji Asoma Banda gave much food for thought about the propriety of setting up a new national airline.

The main subject of commentary in this article relates to the second part of the respected Alhaji’s views on the rationale for setting up a new national airline.

Among some of the factors for which Alhaji Banda counselled against the setting up of a new national airline is the dire economic straits that the nation finds itself in at the moment. Alhaji Banda wondered where the money for the establishment of a national airline was going to come from considering the economic crunch that the nation is facing at the moment. 

Alhaji Banda is also of the view that  the numerous projects the government  is undertaking currently like the upgrades of the Kumasi and Tamale airports into international airports and the development of the Boankra  inland port does not give the government the financial muscle to embark on the establishment of a new national airline now.

However, in a sharp rebuttal, the Chief Director of the Ministry of Transport debunked Alhaji Banda’s claim asserting that the new airline to be set up is to be a public private partnership.

Down  memory lane

There is no doubt that many Ghanaians and foreigners alike who patronised the defunct Ghana Airways have nostalgic moments about the former national airline. Many relish the expertise with which Ghana Airways pilots plied their trade. 

Nevertheless, it is now a notorious fact that the defunct Ghana Airways and other African airlines were bedevilled with so many problems that they eventually folded up under the weight of inefficiencies, political interferences, pilfering and managerial incompetence among a myriad of factors. Mention could also be made of once vibrant African airlines like Nigeria Airways and Kenya Airways which run aground. 

It is however worthy of note that Kenya Airways has been resuscitated from its troubled past and is now the third most vibrant airline in Africa behind South African Airways and Ethiopian Airways. 

Is Ghana in need of a national airline? 

I deem the comments of Alhaji Asoma Banda most appropriate regarding the timing of a new national airline at this moment. As was pointed out rightly by Alhaji Asoma Banda, will the nation be better off by establishing a national airline at this critical time rather than developing critical infrastructure in other areas of the economy. 

There is the critical and urgent need to complete important infrastructural projects in the aviation and transportation sectors like the Boankra inland port, the upgrade of Kumasi and Tamale airports and the rejuvenation of our railway transportation.

It would also be recalled that the government has also put on the drawing board its plans for a new international airport around Dodowa in the Dangbe-East district to make for a more expansive airport in comparison to Kotoka International Airport.

Financing for the new national airline

Even though the government has stated unequivocally that the funding for the new national airline would be done on the basis of a public private partnership, it is obvious that such an arrangement does not appeal to Alhaji Banda and a number of his compatriots. 

The reason is that the defunct Ghana International Airlines (GIA) which was touted to replace Ghana Airways as an example of private public partnership suffered a devastating blow as it soon crumbled down like the previously much touted STX housing project. The collapse of these two enterprises was attributed to boardroom wranglings. In the case of Ghana International Airlines, it even led to the prosecution of two former ministers, Dr Richard Anane, Dr Akoto Osei and Sammy Crabble who was a key executive of the airline.

Even though the government has made the case that 90 per cent of the equity in the new airline is going to be taken up by its strategic partner with the government only providing 10 per cent, the question which demands an answer is why should the government bother itself if it is not going to provide the bulk of the equity or even a substantial part.

Though, certain advantages would accrue to the country in its investment and tourism drive with its own national airline, it would be worthwhile for the government  to consider other options for the establishment of a new national airline.

Options for establishing a national airline 

It must be emphasised that within the past few months, a few of the airlines which were operating in the country have pulled out due to low passenger throughput and high cost of operations. Mention could be made of Royal Jordanian and Air Namibia which have ceased operations in the country as well as Fly 540 which also ceased operations on the domestic routes. 

It is also on record that presently, some of the domestic carriers are contemplating pulling out of the domestic market due to high cost of operations. 

Having regard to these factors, it would be appropriate for the government to consider the possibility of exploring other options for the establishment of a new national airline. 

Firstly, the government could have a meaningful partnership with an indigenous local airline and increase its capacity to fly regional and intercontinental routes. 

A successful partnership between the government and a local airline would turn the local airline into the national airline that the government intends to establish. This will also help to boost local entrepreneurship capacity and contribute to the growth of a home grown indigenous airline to compete favourably with any of the international airlines flying to Ghana. 

Alternatively, the government could set up a new airline without buying or leasing an aircraft but enter into a host of strategic alliances with other airlines. 

For example, the new national airline could enter into a code share agreement with an international airline and operate in and out of the country on a block space agreement. Mention could be made of the successful code share agreement between Ghana Airways and Ethiopian Airlines with the provision of aircraft by 

Ethiopian Airlines with Ghana Airways cabin crew on board. The block space agreement would enable the national airline to be allocated specific number of seats on its partner airline on a code share flight whether or not the flight is full. 

Here, mention could be made of the successful block space agreement between British Airways and American Airlines which allows American Airlines passengers to fly on British Airways flights with American Airlines tickets. 

Another successful code share arrangement is the one between Qantas, British Airways and Air France.

Also Cathay Pacific Airlines had a successful partnership alliance with Lufthansa which allowed the operation of cargo services between Hong Kong and Germany on Lufthansa flights.  

A new national airline could be set up with the strategy of co-mingling of assets. This is a situation where two or more airlines which have entered into a strategic partnership share certain facilities together. 

The facilities may be aircraft maintenance bases, staff, traffic rights, check in facilities at departure halls among others. Co-mingling of assets could also cover ticketing and reservation facilities. Thus, the new national airline could operate check in counters at the Kotoka International Airport for passengers flying on the aircraft of its strategic partners. 

It could also set up catering and reservation outfits in partnership with its alliance partners with each partner having equity in the catering and reservation business. Mention could be made of Galileo and Amadeus which are successful airline reservation systems and owned in common between British Airways, United Airlines and American Airlines.

The new national airline could also adopt the policy of pro rate agreements by entering into an agreement with an airline which flies a route which is relatively underserved like Accra – Lisbon-Accra, Accra-Windhoek-Accra, Accra-Brussels-Accra. 

In this situation, both airlines will provide the code for the particular flight which will be operated with the aircraft of one of the partners. Each airline would check in its passengers separately at its departing terminals but board the same aircraft. 

Moreover, every airline would advertise the route on its own and make its own reservations and even offer promotional fares on its tickets. Such a strategy could have boosted the Accra-Windhoek-Accra route and lead to the sustenance of the operations of Air Namibia flights in the country by now. 

The pro rate agreement was successfully operated between Cyprus Airways and KLM between Larnaca and Amsterdam with Cyprus Airways aircraft which also had a KLM flight number with KLM passengers on board.  

Even though a national airline gives a sense of pride to a nation and helps to boost its trade, investment and tourism sectors, it would be appropriate for the government to consider other options rather than setting up a fully-fledged national airline under any guise in view of the nation’s present difficulties and its past experiences with the operations of Ghana Airways and Ghana International Airlines.  

The writer is a lawyer with specialisation in international business law.

Email:   guymilo@yahoo.com