Thursday, July 25, 2024
InterviewPowering African Aviation Lift-off

Powering African Aviation Lift-off

Raphael Kuuchi is the consulting director for the Government, Legal, and Industry Affairs department at the African Airlines Association (AFRAA). Based in Nairobi, AFRAA is an umbrella of African aviators. With his vast experience, Raphael served the industry for decades at operational and managerial levels, including as IATA Vice President for Africa.

From May 7 to 9, 2023, he was in Addis Ababa for the 11th Aviation Stakeholders’ convention, which was held under the theme ‘Changing the African Narrative.’

Ashenafi Endale of The Reporter sat down with Kuuchi to discuss issues concerning the African aviation sector and the challenges it faces. EXCERPTS:

The Reporter: African airlines represent approximately two percent of the global aviation industry, while non-African airlines dominate the African market. What are the AFRAA’s plans and goals for reversing this circumstance?

Raphael Kuuchi: First and foremost, the share of Africa’s air transport compared to the global industry did not just start at two percent. It was much bigger than that, and for a significant amount of time, in the 70s and 80s, African airlines, particularly on intercontinental routes, were doing 40 percent of international operations and traffic while non-African airlines were doing 60 percent.

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Today, African airlines’ share of intercontinental traffic has come down to just 20 percent, while the non-African airlines share is 80 percent, and the trend continues to go down.

There are many reasons why this is the case. Many of the African airlines that were set up after independence in the 60s became big airlines in the 70s and 80s, but, unfortunately, because of poor management, political interference, a lack of capital to grow, and many other elements, they did not continue to grow.

Also in the 80s, African countries had a lot of economic challenges and had situations where the World Bank and the International Monetary Fund (IMF) came in to help under the condition that the government had no business running commercial entities. So, some of these countries had to sell their airlines or close them because they weren’t making money and their government couldn’t intervene because of the institution’s restrictions, which resulted in the loss of many of the airlines in Africa.

Subsequent to this, traffic began to go down, and the private airlines started to come in and fill in the gap, but these private airlines were way too small in capacity; they didn’t have enough resources, and often times, their interest was operating in a very narrow network to be effective, and they were not ambitious enough to grow and become big enough carriers.

AFRAA has realized the danger of the African airline industry not continuing to grow and has stated that it is taking certain measures. Last year, in June and July, there was the African Air Sustainability Laboratory, which was held in the Nairobi AFRAA headquarters. This brought together stakeholders not only from airlines but also from tourism, trade, and the financial sectors to really try and diagnose the problem of African airlines and how we can find solutions to address it.

One of the key areas identified was the need for us to grow the traffic of African airlines from what it is today, particularly on our intercontinental routes. The understanding was that on the regional routes, if it is fully implemented, it can help our airlines take control of our inter-African routes.

The intercontinental routes are where we think we have the problem and where we plan to increase the traffic from 20 to 30 percent by 2027. In order to achieve this, a number of measures were outlined, and a task team was mandated to try and address the issues so we could move to that level.

Why is the implementation of the Single African Air Transport Market (SAATM) delayed?

SAATM is not delayed. It is not a project; it is a program, and it doesn’t have a start or an end date. Even if all the countries open up and SAATM is implemented, there will still be issues with one country against another, and you will still need time to fix them. Its implementation is not as fast as we would like.

Since it was launched in 2018, we expected that by now, all 55 countries would have signed the SAATM commitment. But today, we only have 36 countries that have signed.

Now we are looking at how these 36 countries regularize their aviation regulations and laws internally. Every nation has its own aviation laws that the parliament passes, some of which have implications for other airlines arriving and departing.

In some countries, there is a need to go back to their parliament and amend the laws related to air transport for other countries to operate SAATM within that country.

Does SAATM not align with the African Continental Free Trade Area (AfCFTA)?

There is a link, but the two of them work separately. For now, we have a program to work them together, but SAATM is meant to liberalize air transport while AfCFTA is meant to liberalize trade.

The reason its implementation is delayed is because we have some of these restrictions in the 36 countries that are legal, which they need to deal with first. In some cases, there are also operational reasons between the civil aviation authorities and the national operators who are in the country.

There are infrastructure issues that need to be addressed. Also, there are safety concerns, and some believe that if they open their market when they are not ready, they could be risking their air safety record.

After listening to all of these issues and understanding them, we can find ways to address them in order to help the market, which is what we are doing now. Nowadays, African civil aviation commissions are organizing conferences on a country-to-country basis called roadshows, where they engage with the aviation community of a country and try to find out why they have signed onto SAATM. But their market is still not growing, and they are still not allowing all the African players to come in.

Once we know those things, the intention of AFRAA is to then see how they can help you address those difficulties in order for the country to open up the market. The conference was held in Nigeria last time, and they are going to hold one here in Ethiopia as well, with the intention of understanding the civil aviation and the operators here and what the limitations are so that they can take it from there.

You mentioned that the fact that the industry is state-owned is one of the factors contributing to its decline. On one side, they are heavily protected, but do you think the protection is helping them or putting them at a disadvantage?

Protection itself has never proven to help anybody or any situation. Let’s take a normal situation: if you have a child and you decide that you don’t want your child to go play because they might get hurt or allow them to go to school because they might meet a bad child, and you decide to keep them safe in your house, when that child becomes an adult, do you think they are going to be smart? No.

The more exposed you are, the more competitive you get, and that is one of the dangers of protection for a business because you don’t know how to compete. You need to be allowed to go out and fight with others, and if the government thinks it needs you, it can support you while you are trying to stand on your own two feet. Once you are able to stand alone, the government can let you handle your own affairs.

Member states’ laws and agreements address heavy taxation, tariff restrictions, and other issues. Can AFRAA force member states and national carriers to adopt them? Do you think AFRAA can treat all member states and airlines equally, including Ethiopian Airlines?

Starting with the issue of taxes, it is a very bad thing for the industry, and no one is saying airlines should not pay taxes. We are talking about not overtaxing the industry to the point where it is not competitive.

Taxing is okay, but when it gets to a point where the airline is no longer competitive, it’s no help. For instance, if you pay a USD 100 tax to go to a certain country and the other country also taxes USD 100, then to go to the country and come back, the tax alone would be USD 200. So, what are we doing to ourselves? As a poor continent, we are not encouraging people to fly.

Also, remember that taxes go to the government and don’t go to the industry. Because it goes to the government, it goes to the Treasury and is used for national budgets. Any time you want to talk about the government reducing taxes, the first thing that comes to the mind of the minister of treasury is, “If they take that one out, where do we get money to fill that hole?”

For AFRAA, our approach is to try to let the government understand that you can generate more money if you are very strategic in your taxation of the airline industry. By reducing the taxes, you are likely to attract more traffic. Reducing taxes is not the only solution, however, because there might be other elements that are also frustrating traffic.

For instance, if visa access is a problem, you still might not attract many people even if you reduce taxes if you don’t have a policy to let people come in easily. So you need to work on a number of things. We try to identify on a country-by-country basis what the issues are, and then we pick on those issues and then try and see what the government should do on each of those elements to attract more traffic. And with more traffic and lower taxes, you get more revenue.

That is what AFRAA is trying to do, but the process is slow because we don’t have the resources. The total strength of the AFRAA staff is limited, so they are not able to work on this as much. Also, most of the data that you need requires resources in order to get it. If you can’t buy the data and the implications of the taxes in a particular country, it will be difficult to do the analysis, and that is a challenge to put an end to this particular issue.

Do you think Ethiopian Airlines is highly protected?

I don’t think so, because an airline that is highly protected is one that is shielded from competition. Personally, I don’t think Ethiopian Airlines is shielded from competition. I haven’t heard of the airlines saying, “We want to fly into Ethiopia, but the Ethiopian government says no.”

If Ethiopian has its local market under control and is becoming a less attractive destination for new arrivals, that cannot be called protectionism. The airline already has control of this market; it will be difficult for other airlines to attract traffic, and because of that, they don’t want to come. That is not protection, in my view.

Airlines are overtaxed, causing them to overcharge their customers. 10 percent of Africans can afford the fare, I heard. Given these obstacles, do you believe that air transport will be one of the most important logistical means in Africa?

If taxes are brought down, more tax revenue go to the government because more airlines would fly to that country. It is better to collect small taxes from many airlines, than collect heavy taxes from few airlines. If the taxes are brought down, then airlines start charging less fare. The charges are what airport authorities collect to fix the problems at the airport. If charges are made commensurate with the level of service, then airlines are likely to be able to charge fair prices that will be attractive and competitive on the continent. Airlines are also businesses; they don’t want to charge below their operating costs if they are to be profitable.

So today, because of the high taxes not only on passengers but also on aviation fuel and the charges and fees that airports and other organizations charge, it is more difficult for airlines to actually add meaningful margins. We should also know that the problem is not only on that side.

Some of the airlines are not using the right type of aircraft for the right routes. It’s not only taxes, fees, and charges that are the problem; at times, some airlines don’t have enough capital and only have a few aircraft. If you want to fly to many places, you use those aircraft, but in some cases, those aircraft are ill-suited for the route.

There was talk about AFRAA members agreeing to form a collective fuel and spare parts purchasing system.

Yes, the fuel purchase program has been running for a long time. I believe it has been running for over seven to eight years. It has saved the airlines huge sums of money, including several millions of dollars. In the aviation fuel business, if you have more volume, you get a lower price, and if you have fewer volumes, you get a higher price. So when you bring a number of airlines together and negotiate with the supplier, chances are you get a reduced price.

Let’s discuss repatriation and blocked funds. Reports show airlines were unable to repatriate their profits due to a forex issue. How is AFRAA addressing this?

To correct that, it is not actually capital and profit; it is actually sales revenue. Airlines are only registered in one place; Ethiopian Airlines’ registered head office is in Addis Ababa, and it does not have a registered office in Nairobi, for example, even though it has operations there, because it doesn’t need to have an office in Nairobi.

However, when the airline operates flights from here to Nairobi, the head office in this city will pay for all operations costs to Nairobi and all operations costs from Nairobi to Addis Ababa. The sales manager in Nairobi collects the sales there and sends them to the head office, from which the head office will deduct what is used for your route and account for the rest through the accounting system.

Unfortunately, in some of these countries, it is difficult for them to release this money. In some cases, the reason is genuine because some countries don’t have enough foreign currency, so they try to ration it. And if aviation is not given priority, they give health, education, infrastructure, and other things that they consider key items for the country’s priority gate payment, after which they can give them to the airline.

So, when countries have less foreign exchange, allowing airlines to move their money becomes a problem. In other cases, it is due to prioritization; if you don’t prioritize airlines properly, then you don’t give the airlines the opportunity to get their money out.

How much money have countries failed to pay so far? Yesterday, I heard someone from Kenyan Airlines mention that they owe USD 1.8 billion.

The USD 1.8 billion represents total blocked funds across the world. It is not just Africa that has blocked funds; we have blocked funds in Lebanon and Brazil.

What is owed in Africa is about USD one billion; I don’t know the specific figure that is blocked by African states, and the number of countries in Africa that we have blocked funds in is around 12 countries.

Competition and cooperation are additional issues. African airlines are fragmented, while non-African airlines are given preference and profit margins. Why are non-African airlines provided with more space, and can African airlines compete with them?

Because traffic rights are state-owned, it can be challenging for airlines to obtain them. To do so, your country’s civil aviation must apply through the civil aviation of the other country, which necessitates a government-to-government discussion. So, in some cases, when a country refuses traffic rights to a non-African carrier, it escalates to a diplomatic level. Through those diplomatic setups, you might have a market opening.

If that happens in Africa, it can unlock some of their markets, but in some cases, lack of market access in Africa is the result of airlines thinking that if they open up the market, they will not survive and somebody else will take their markets. I have always said, “Why don’t you want to work with the airline that is coming into your market in such a way that you both benefit?”

If an airline wants to come to my country, for instance, civil aviation can allow them to come under the condition that they will co-share on their flights. If they agree, then you can work together, and it will help us move forward, but to just say don’t come because you don’t want them to come is not healthy.

Usually, when there is an accident in the aviation industry, there are investigations by Boeing or Airbus. What is AFRAA doing on safety issues?

The civil aviation authority in whose jurisdiction the accident occurs conducts every accident investigation. The civil aviation agency where the accident happened is supposed to lead the investigations. However, the manufacturer has a role to play in trying to understand the intricacy of the aircraft and its operations.

Modern aircraft have systems embedded in them that release information directly to the manufacturers as they operate, so you have to have access to this information. In the course of the investigation, this information can help them, so that is why they brought in the manufacturer.

AFRAA does not have the expertise to undertake accident investigations, which is why they have stayed away until now. In any case, if AFRAA wants to investigate its own airlines, people will say that there is a bias, so it is not right for AFRAA to get involved.

The African Union has several targets related to connectivity and logistics. Which one do you think the aviation industry is achieving?

It is difficult to know which one they are achieving. I don’t know if they have a tracker. It is always good if you set targets, monitor those targets, and report on them yearly, whether they have gone up or gone down. But there is no tracker, as far as I know.

Do you see the aviation industry as a pure commercial sector or a state-dominated sector?

Aviation is supposed to be a commercial sector, and all commercial airlines operate as commercial entities. They are commercial in nature, but there may be interference that impacts their ability to operate.

For instance, if you have an airline in a country and the minister calls you and asks you for a ticket for their wife and children to travel, you cannot say no. What would you do? You are selling your tickets at commercial rates that will help you make money, but things like these will affect you.

Do you think private aviation companies in African countries are given a sufficient voice in AFRAA?

If you are a member of AFRAA, you have an equal voice. All members have an equal voice. If you are not a member, AFRAA is still willing to listen to you and take on your issues because they are not peculiar to you and might have implications for other AFRAA airlines.

[speaker]
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