When the Federal Government of Nigeria launched an economic policy featuring economic liberalization and privatization of the public enterprise sector it selected Nigeria Airways as one of the first parastatal enterprises to be privatized. The International Finance Corporation (IFC) of the World Bank Group and the Bureau of Public Enterprises (BPE), the governments privatization agency, selected Nathan Associates as the technical consultant for this transaction. Nathan Associates prepared a due diligence on Nigeria Airways; analyzed strategic options for privatization; developed a business plan and route structure for the privatized airline; and suggested strategic partner airlines.
Our due diligence consisted of an analysis of Nigeria’s aviation market, Nigeria Airways’ operating environment, commercial agreements and contracts, staff and pension obligations, and a valuation of core assets. We also performed due diligence of the carrier’s four subsidiariesa ground handling services operation, an airline flight kitchen, a property management company; and a printing operation.
Strategic Options for Privatization
Nathan Associates defined three options for privatization of the Nigeria Airways:
- Immediate liquidation of operations;
- Turnaround of the carrier over a 2- to 3-year period through a management contract, to be followed by a privatization; or
- Organization of core aviation assets into a legally constituted New Company, to be privatized through a trade sale of shares to a strategic airline partner.
The New Company approach was determined to be the most favorable.
Operating and Business Plans
Using the market analysis prepared during the due diligence, we developed an indicative operating plan for a privatized New Company. The plan featured a detailed market penetration program, a fleet plan, a complete schedule and proposed fare structure, and a company organization and staffing plan. Operating statistics and an outline of pro forma financial results for the New Company were forecast for a five-year period.
We also prepared various analyses to assist the governments aviation policymakers or to buttress the IFCs appraisal of privatization benefits. We evaluated the effects of introducing dual designation of air carriers on the London-Lagos route. Our analysis dealt with the operating and financial effects of increasing capacity in the London-Lagos-London market, and stressed how such increases would hurt Nigerias local airlines. For the IFC, we outlined the benefits of developing hub operations at Lagos.
To illustrate the viability of the New Company and to guide future strategic partners and investors, we developed a route structure and five-year business plan. This plan included proposed routes and fare levels; aircraft, equipment and staffing projections; training needs; investment needs; cost-of-capital calculations; and cash-flow analysis.