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Face to Face – Hadi Akoum

May 25, 2018

Head of Sales Airbus Sub-Sahara Africa

The future for the African airline industry

Mr Hadi Akoum is the Airbus Vice President for Sales in sub-Sahara Africa. At the recent Aviation Africa conference in Cairo, Guy Leitch sounded him out on the challenges facing the African air transport industry and what he sees for the future.

 

 

 

GL: Can you give me a sense of the importance of Africa to Airbus, and how it’s going? There was a strong expectation of good growth, but the post 2008 recession hit Africa hard, especially in mineral and energy prices, so it appears the expected boom has not happened?

HA: On the contrary, the post-2008 period has been characterised by a marked uptick in African business for Airbus, with 28 new African operators joining the Airbus family since 2010. All told, by the end of Q1 2018, there were 237 Airbus aircraft in service with 32 African operators. They include Ethiopian Airlines, which is signed up for 24 A350s, thanks to a repeat order placed last year for another 10 A350-900s. Similarly, RwandAir has taken delivery of two A330s, while Air Mauritius received its first of six A350-900s last year and will receive its first A330neo this year.

In west Africa, Air Cote d’Ivoire received its first two A320ceo aircraft last year, and Air Senegal recently ordered its first A330neo widebodies.  

Southern Africa remains an important market for us too, with SAA, Global Airways and Air Namibia all operating significant fleets of Airbus single-aisle and widebody aircraft.

 

In Africa, passenger volumes have not been as hoped, so we have seen gauge downsizing, which is the opposite of the up-gauging the rest of the world has been doing with their airliner fleets. With around 79 airlines in Africa, it would seem that the market cannot really support widebodies. So, for example, FastJet has moved from A319s to Embraers. Also, the LCCs – as the major users for narrow bodies – are struggling.

Current legislative restrictions to open skies are indeed preventing the full growth and expansion of airlines. FastJet’s experiences in Tanzania and Kenya demonstrate this. To make money with aircraft you have to use them. If the business plan is based on 13-15 hours daily utilisation across, say, three countries, and you get rights for flights that generate only eight hours a day, then the planes become sub-economic. But it can be done. FastJet started the Mwanza-Dar es Salaam sector, which had almost never been flown before. During the past year, they have been flying that sector 3-4 times per day.

 

But the yield was too low – people just couldn’t afford the airfares.

Yes, but it would have worked if they could have had 12-14 hours utilisation on their fleet. That would have enabled them to achieve costs that would have made the ticket prices low enough to create real market demand.

 

Nico Bezuidenhout [FastJet CEO] says that he can’t fly into many African airports in the dark. That also cuts down on utilisation. So, is Africa still what you hoped it would be?

Africa is still very challenging, but the continent has great untapped potential, and the benefits of aviation for Africa are enormous. 

Unfortunately, today barriers such as high taxes, disproportionate airport fees and inadequate or inappropriate infrastructure, are hindering growth. The potential of Africa’s air transport market could be unlocked by clearing these obstacles, lifting caps and removing other limitations that restrict access and connectivity for Africa’s markets.

Airbus is optimistic the African Union’s recently-announced Single Africa Air Transport Market (SAATM) and Africa Continental Free Trade Area initiatives will uncork the bottle.

 

Can I then say that the real issues are restrictive bilaterals and the lack of liberalisation, plus high taxes and levies?

Yes, these are among the key issues.

 

Talking about downsizing, have you sold any A350-800s in Africa?

No, but we no longer offer the A350-800. Instead we have focussed the A330neo for that specific segment and achieved a healthy number of orders.

 

There is a strong pushback developing in South Africa against what some think of as the over-liberalisation of the country’s skies at the expense of domestic carriers. Thus, foreign carriers are flying directly to Johannesburg, Cape Town and Durban whereas before they flew to Johannesburg only and South African airlines carried their passengers internally.

People like to say that the Gulf airlines are dangerously dominating local airlines, but look at the dynamics – they have stimulated growth in the market by bringing even more passengers to the country.

 

You will be pleased to know then that I have just completed an interview with SAA’s new CEO, Mr Vuyani Jarana, and he doesn’t have a problem with Gulf Three competition. He says the sky is big enough and we need the foreign airlines to bring tourists to grow the entire economy. Moving on to direct government regulation, do you find the African regulators a problem?

Too often, governments view aviation as an easy source of tax revenues. Air transport’s broader economic benefits are not always fully appreciated or leveraged to drive trade, commerce, tourism and their potential to create and support jobs and skills.

Also, many governments invest lots of money – hundreds of millions of dollars – in airports. This is often money they need to pay back, so they are inclined to impose high taxes and charges, which makes air transport more expensive and dampens growth. Lowering taxes and charges will reduce the cost of travel, stimulate demand and result in more passengers, while still generating the required revenues to fund those investments in infrastructure and services.

 

The other manufacturers have support services divisions which provide background services to help the operators assemble business plans for AOCs. Do you also provide those sorts of support services?

We work with airlines – and in the case of state-owned carriers, with governments – and with the lessor, asset management, finance, risk and insurance communities to provide the most attractive solutions that support airlines’ fleet modernisation, expansion and profitability.

At an airline level, our Services division tailor-makes solutions to address our customers’ requirements for training, spares, upgrades, servicing and maintenance. Similarly, our analysts work closely with our airline customers’ network and fleet planners to extract the maximum value from their Airbus aircraft.

We are also working with all relevant stakeholders to raise awareness and spread the messages about the powerful social and economic benefits that commercial air transport, aerospace-related research, innovation and manufacturing hold for Africa. We draw attention to the fact that every job created in aviation creates six jobs in other sectors. So, the economy of a country receives much more for its investment in aviation than just a direct benefit to its the airline industry.

The bottom line is, if governments want to create jobs in their country, they should open their skies to facilitate and stimulate trade and connectivity, especially in those African markets that are not connected to each other by road, rail, sea or waterways. As the adage goes: “A kilometre of road takes you a kilometre. A kilometre runway takes you to the rest of the world!”

 

What particular support are you giving governments to make their airlines profitable or, possibly, to privatise them?

We are agnostic on ownership and we work with both private and state-owned airlines.

Airbus has a mutual interest in airline profitability. We want to see our customers prosper and acquire new Airbus aircraft to support their expansion and growth. This is why we work closely with our customers to find solutions to address their requirements and optimise their investments in Airbus aircraft, sharpen their competitiveness and become more profitable.

 

Does Airbus have an equivalent of the American Exim Bank to help finance aircraft sales?

Yes, we have the Export Credit Agency (ECA). It is made up of European and British funders.

 

Finance availability is a constraint in Africa. How many states in Africa signed the Cape Town Convention?

Unfortunately, very few African countries have ratified the Cape Town Convention, which is about guaranteeing security of tenure over moveable assets, like airliners, which are owned by lessors and banks. Airbus participates in the Aviation Working Group, which is working to persuade governments worldwide to ratify the Convention. Airlines based in those jurisdictions that have adopted it are able to take advantage of more favourable finance and insurance rates that are made possible by virtue of the lowered risk to the aircraft owners and financiers.

 

What would you like the African aviation industry to look like in, say, ten years’ time?

I often use the example of Latin America, which has clear similarities to Africa. Latin America was struggling for years and was dominated by North American airlines. In the mid-1990s they started opening their skies. It took about ten years to get real results, but they eventually achieved open skies and also allowed people in one country to invest in other countries’ airlines. What started out as a joint venture between Brazil and Chile, in the form of LATAM airlines, was subsequently expanded and now encompasses eight South American countries. In effect, the countries in South America got together and merged their flag carriers to create a strong multi-national airline. Today it is as efficient, if not more so, than many North American airlines. We also see low cost carriers succeeding there.

 

Are you saying they are as profitable as the US airlines?

The key point is the LATAM model is a profitable one and is a working example of collaboration, cooperation and consolidation. LATAM was profitable in 2016 and doubled its net profit in 2017 on the back of increased sales, while facing headwinds from large cost increases. They are definitely growing – as we can see by them buying more than 100 aircraft a year. By comparison, last year in sub-Saharan Africa, there were few new airliner sales.

 

Which brings me back to my first question: Is Africa still worthwhile for the big OEMs?

Yes, it still is. As you said, the crisis of 2008 and the drop in raw material prices caused a setback that stopped the dynamic growth we were expecting, and it hurt many airlines. Despite this, we have still seen growth and demand for aircraft and as I pointed out at the outset, we have added 28 new African operators to the Airbus family since then.

For the long term we are still very optimistic. All of the fundamental drivers for air transport are present – especially population growth and rapid urbanisation – and we are seeing reinvigorated movement by policy makers with initiatives like the SAATM, which is intended to provide lift-off for the continent.

 

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