SEMINAR AVIATION IN TRANSITION CHALLENGES & OPPORTUNITIES OF LIBERALISATION

1. c AFRICAN AVIATION SEMINAR AVIATION IN TRANSITION CHALLENGES & OPPORTUNITIES OF LIBERALISATION 22nd – 23rd March, 2003 - Montreal, Canada PRIOR TO THE 5TH ICAO WORLDWIDE AIR TRANSPORT CONFERENCE Presentation by Nick Fadugba CEO, African Aviation Services Limited Publisher, AFRICAN AVIATION Magazine

2. c AFRICAN AVIATION AFRICAN AVIATION SERVICES LTD Company Profile 1. Aviation Publishing 2. Aviation Conferences 3. Aviation Consultancy With A Special Emphasis On: * Aviation Finance * Aircraft Leasing & Maintenance * Aviation Safety & Security

3. c AFRICAN AVIATION AFRICAN AVIATION MAXIM ‘Aviation Can Be A Vital Catalyst For Africa’s Economic & Social Development’ - Company raison d'etre

4. c AFRICAN AVIATION AFRICAN AVIATION Air Transport Liberalisation • The Underlying Theme of the 5th ICAO Worldwide • Air Transport Conference is Not WHETHER to • Liberalise but HOW to • Liberalisation is said to be Inevitable

5. c AFRICAN AVIATION AFRICAN AVIATION Africa’s Share of Global Air Traffic • Today, African Airlines have only an approximately • 2% Market Share of Global Air Traffic • If International Air Transport is further Liberalised • Will Africa’s Global Market Share be • Increased or be Reduced?

6. c AFRICAN AVIATION AFRICAN AVIATION Challenges & Opportunities of Liberalisation • Further Air Transport Liberalisation could provide • several benefits, such as enhanced air travel, economic • trade and tourism • But the Key Challenges are: How Air Transport Liberalisation • can be Structured and Implemented so as to ensure • that African airlines are not disadvantaged and • put out business and their staff put out of work?

7. c AFRICAN AVIATION AFRICAN AVIATION Africa: Socio-Economic Environment • Large & Growing Population • Mainly Small & Weak National Economies • Low Per Capita Income • Little Disposable Income for Air Travel & Tourism, etc. • Political Instability & Conflicts in Several Countries

8. c AFRICAN AVIATION AFRICAN AVIATION Key Challenges Facing Regulators in Africa • Implementing & Monitoring the • 1999 Yamoussoukro Decision on • Air Transport Liberalisation in Africa • Providing Effective Aviation Safety Oversight • Ensuring Equitable Economic Regulations • Harmonising Civil Aviation Regulations • Enhancing Aviation Security • Funding Modern Aviation Facilities & • Expanding Aviation Training & Education

9. c AFRICAN AVIATION AFRICAN AVIATION Air Transport Liberalisation in Africa • Is Any Progress Being Made? • Yes, Slowly but Steadily. • Thanks to the Efforts of Organisations Like: • The UN Economic Commission for Africa ( ECA) • The AU, The African Civil Aviation Commission (AFCAC) • ICAO, COMESA, SADC, ECOWAS & AFRAA, etc • Notably, Some African Governments Have Been • More Supportive Than Others

10. c AFRICAN AVIATION AFRICAN AVIATION Obstacles & Dilemmas • Some African Governments Are Reluctant • to Cede Control to Truly Autonomous • National Civil Aviation Authorities • Who Will Benefit Most From Liberalisation in Africa - African Airlines or Foreign Carriers? • Can A Developing Country Promote ‘Open Skies’ & Still Protect its Own Airline Industry?

11. c AFRICAN AVIATION AFRICAN AVIATION African Position on Liberalisation • It Must Be Consistent With the Yamoussoukro • Decision of 1999 • Foreign Investment – National Legislation • Should Determine the Level of Such • Investment • Market Access Should Continue to Be Based • on Bilateral and Multilateral Agreements • Must Be F air Competition & Safeguards

12. c AFRICAN AVIATION AFRICAN AVIATION African Position on Airline Franchising • African Governments Should Require Prior Authorisation & Verification of Any Franchise Agreement • Franchising Between African Carriers Should Be Authorised Subject To The Airlines Meeting the Designation & Eligibility Criteria of The Yamoussoukro Decision • Third Party Franchising Should Not Be Supported As it Adversely Impacts Competitive Position of African Carriers

13. c AFRICAN AVIATION AFRICAN AVIATION High Operating & Capital Costs • Insurance - High Premiums • Aviation Fuel - Up to 50% Higher • Lease Rates - 15%-30% Higher • Air Navigation - Most Expensive • Handling Fees - Very Expensive • Maintenance - Little Co-operation Source: The World Bank

14. c AFRICAN AVIATION AFRICAN AVIATION Internal Pressures • Mainly Small Domestic Air Traffic Markets • Low Load F actors • Higher Operating Costs than Other Regions • Government-Regulated Air Fares • Political Interference in Airline Decision-Making • Management Instability & Lack of Continuity

15. c AFRICAN AVIATION AFRICAN AVIATION External Pressures • Air Transport Liberalisation & Globalisation • Increasing Competition from Larger Foreign Carriers • World Bank/IMF Strictures on Government Subsidies • to National Flag-Carriers

16. c AFRICAN AVIATION AFRICAN AVIATION External Pressures (2) • African Market is Dominated by European Airlines • - BA, Lufthansa, Air France, KLM, etc • Asian Airlines Are Now Showing Greater Interest in Africa • - Especially South Africa • Threat By European Charter Airlines - Countries at Risk: Egypt, • Namibia, Kenya, South Africa, Mauritius, Tunisia, Morocco, etc • North American Airlines Have Minimal Presence in Africa • - Previous Attempts by USAfrica Airways & World Airways Failed

17. c AFRICAN AVIATION AFRICAN AVIATION Cape Town Convention • Gives Aircraft Lessors and Lenders the ability to repossess their assets worldwide in the event of default • Provides Aircraft Collateral Assurance • 60 Day Repossession / With Support of Governments • Should Expand The Sources of Asset-based Finance

18. c AFRICAN AVIATION AFRICAN AVIATION Airline Industry – Key Regulatory Issues • Airline Ownership & Control – Local or Foreign? • Airline Market Access – Free for All? • Airline Product Distribution • Fair Competition Versus Protectionism • The Provision of Essential Air Transport Services Vital • To National Economic Development

19. c AFRICAN AVIATION AFRICAN AVIATION Airline Growth Strategies • Strategic Investment By Foreign Airline Partner – • Kenya Airways / KLM • Airline Franchising – • BA/Comair, South Africa; BA/Regional Air, Kenya • Low-Cost Carriers – Kulula.com, South Africa • Joint Ventures – Royal Air Maroc/Air Senegal International

20. c AFRICAN AVIATION AFRICAN AVIATION Summary • Africa Has Made Some Headway in Implementing Air • Transport Liberalisation, But Still Has Much To Achieve • Air Transport Liberalisation in Africa Must Directly Benefit The African Aviation Industry

21. c AFRICAN AVIATION SEMINAR AVIATION IN TRANSITION CHALLENGES & OPPORTUNITIES OF LIBERALISATION 22nd – 23rd March, 2003 - Montreal, Canada PRIOR TO THE 5TH ICAO WORLDWIDE AIR TRANSPORT CONFERENCE Presentation by Nick Fadugba Email: nickfadugba@africanaviation.com