US embassy cable - 04ABUJA2119

UNCLAS SECTION 01 OF 03 ABUJA 002119 
 
SIPDIS 
 
PASS DOT FOR OIA, ALSO FAA 
 
E.O. 12958: N/A 
TAGS: EAIR, EINV, PREL, NI 
SUBJECT: GON AVIATION MINISTER RESTATES CASE THAT VIRGIN 
NIGERIA AIRWAYS IS A NIGERIAN AIRLINE 
 
REF:  ABUJA 1670 
 
Background.  Following a September 27 meeting with the 
Embassy's Economic Counselor, on October 14 GON Aviation 
Minister Mallam Isa Yuguda presented a lengthy written 
defense of why the USG should consider the proposed Virgin 
Nigeria Airways a Nigerian airline.  In his letter, Yuguda 
pleaded that the airline not be affected by or involved in 
the US-UK dispute over landing rights in the United Kingdom. 
Yuguda restated his case to Embassy economic officers 
informally on October 21.  End background. 
 
Summary.  Yuguda's letter of October 14 (FMA/LU/2004/1/119) 
was a reply to the Ambassador's interagency-cleared letter 
of October 4 concerning the planned launch of Virgin Nigeria 
Airways.  In his reply, Yuguda asserted the following 
points. 
 
-- Nigeria's private sector (Nigerian institutional 
investors and the Nigerian public) will hold 51 percent of 
the airline's stock. 
 
-- "Substantial ownership," or "majority ownership," as well 
as "effective control" of the airline will remain "at all 
times" with Nigeria or its nationals. 
 
-- The status of Virgin Nigeria is "completely separate and 
distinct" from the UK-based and -registered Virgin Atlantic 
Airways. 
 
-- "Nigerian Eagle Airlines PLC" is the name of the 
registered company concerned and that Virgin Nigeria is 
"simply a brand name" 
 
-- Virgin Nigeria is not one and the same with Virgin 
Atlantic.  End summary. 
 
The Aviation Minister's unedited reply to Ambassador letter 
follows below. 
 
Begin quote 
 
[1.] I wish to acknowledge with thanks, the receipt of Your 
Excellency's letter of October 4, 2004 in respect of the on- 
going discussion between my Ministry and officials of the 
United States Embassy on the proposed operation into the 
United States of America by the newly established Nigerian 
flag carrier Airline. 
 
2. I am particularly pleased to have met with Mr. Joseph 
Gregoire, the U.S. Embassy Counsellor for Economic Affairs 
on Monday, September 27, 2004 in my office when I had the 
opportunity to shed more light on the proposed arrangements 
between Nigeria and the Virgin Atlantic Limited on the 
establishment of an entirely Nigerian private sector 
Airline. 
 
3. It is indeed the desire of the Government of the Federal 
Republic of Nigeria that this new Nigerian flag carrier, 
will, ab initio operate on certain major routes (including, 
New York, London, Johannesburg, Jeddah and Dubai) under the 
existing Bilateral Air Services Agreements.  These routes 
have either been left unutilized for so long or are 
presently being unilaterally exploited by foreign carriers 
to the detriment of Nigeria. 
 
4. Having painstakingly gone through the content of Your 
Excellency's correspondence, I consider it most pertinent to 
provide further clarifications on the matter as certain 
representations alluded to in the correspondence are 
unfortunately not reflective of the situation at hand. 
 
5. Since the inception of this Administration, several 
efforts have been made by the Government of the Federal 
Republic of Nigeria to establish a world class Airline to 
address the existing lopsidedness in our bilateral 
operations with other countries and also to compete 
favourably with other Airlines on some regional and 
international routes.  I was therefore mandated upon my 
assumption of office, to ensure the establishment of a 
private sector airline.  Following a process of open and 
competitive bidding in line with all international norms, 
standards and rules of transparency, Virgin Atlantic Limited 
(V.A.L) and Virgin Atlantic Airways (V.A.A) emerged as 
Strategic Investor and Technical Partner respectively in the 
proposed Nigerian Flag Carrier. 
 
6. The proposed Airline, as designed, is to be entirely 
owned and funded by the private sector devoid of any federal 
Government's equity involvement.  To this end, the Nigerian 
private sector (comprising Nigerian institutional investors 
and the Nigerian public) are to hold fifty-one (51%) per 
cent equity in the Airline while the Strategic Investor and 
Technical Partner (V.A.L and V.A.A), because of the 
technical expertise and investable funds to be brought into 
the Airline, are to hold only forty-nine (49%) per cent of 
the Airline's equity.  Indeed, contrary to the 
representation in the letter under reference, 'substantial 
ownership,' or 'majority ownership' as well as 'effective 
control' of the Airline, will at all times remain with 
Nigeria or its nationals under the envisaged arrangements. 
 
7. Your Excellency, the Airline has been structured in such 
a way as to conform with Nigeria's obligations under 
existing Air Services Agreements.  The issue of substantial 
ownership and control by Nigeria and or its nationals was 
therefore of topmost consideration in the design of the 
Project.  Nigeria is also not oblivious of the Conclusions 
and Recommendations of the 5th World Air Transport 
Conference (organized by the International Civil Aviation 
Organization [ICAO] in Montreal, Canada in 2003) which 
provided guidance to States on the need for the relaxation 
of the traditional 'substantial ownership and control' 
requirement in favour of the designating State having 
regulatory autonomy over the Airline with the Airline having 
its registered place of business in the State of 
designation.  It is to be recalled further in this 
connection that a copy of the relevant Conclusions and 
Recommendations of ICAO on the matter was made available to 
the United States Embassy's representatives at a meeting 
held with my Ministry's officials on 7th September 2004 to 
further assist in the consideration of the matter.  A copy 
of the minutes of this meeting has also been forwarded to 
the United States Embassy. 
 
8. In expatiating further on the issue of 'effective 
control' of the Airline, it is pertinent to mention here 
that it is the desire of the Nigerian Government, the 
Nigerian investors as well as the Strategic 
Investor/Technical Partner that the Airline should be 
effectively managed and controlled by Nigerians.  Amongst 
the many assurances given by V.A.L.  and VAA on this issue 
include the undertaking that the Airline will employ about 
twenty thousand Nigerians and the key management team will 
be employed locally amongst competent Nigerians. 
 
9. In addition to the foregoing, a Memorandum of Mutual 
Undertakings (MEMU), recently executed between the 
Government of Nigeria and the Strategic Investor and 
Technical Partner on 28th September 2004 which inter alia, 
set the legal framework for the commencement of operations 
of the Airline contains certain major representations on the 
employment of Nigerians in key management position to allay 
the type of concerns being expressed by the United States. 
Aside from having this provision entrenched in the MEMU 
(with attendant legal consequences in the event of breach), 
the Nigerian Government intends to closely monitor this 
undertaking to ensure full compliance. 
 
10. The United States has also indicated its objection to 
the proposed utilization by the Airline of aircraft and crew 
under a wet-lease arrangement.  Your Excellency, it is known 
to all and sundry in the airline business that the use of 
aircraft on wet lease cannot be economically viable for 
airline operations generally.  The idea of the use of wet 
leased aircraft is to enable the Airline commence operations 
as early as possible while arrangements are on-going to 
procure aircraft for the Airline and prompt deployment of 
the Airline's crew after requisite training.  The intention 
is that the use of wet leased Aircraft will be kept at a 
minimal period (for an initial six months to start with) at 
the early stage of the Airline's operations. 
 
11. Prior to addressing the issue of UK/US existing air 
services relationship, it is necessary to clarify the status 
of Virgin Nigeria which is completely separate and distinct 
from the U.K. based and registered Virgin Atlantic Airways. 
'Virgin Nigeria', contrary to the widely held belief is not 
the name of the registered Company for the Airlines.  In 
January 7, 2004, Nigeria registered a special purpose 
vehicle company, with the registered name of 'Nigerian Eagle 
Airlines Plc' with RC No. 501975 for the purpose of running 
this private sector flag carrier.  The shareholders of this 
Company have so far not opted for a change of its name. 
'Virgin-Nigeria' is accordingly not the registered name of 
the Company but the proposed brand name for the Airline. 
This brand name (which is still subject to ratification by 
all the shareholders of the company when finally in place) 
is to enable the Airline leverage on the highly successful 
and world reknown [sic] Virgin brand name. 
 
12. Your Excellency, I wish to use this medium to also 
express my deep concern about the attempts being made by the 
United States to link Virgin Nigeria, (which as explained 
above is simply a brand name) with the U.K. registered 
Virgin Atlantic Limited.  Of equal concern is the inference 
by the United States that Virgin Nigeria is one and the same 
with Virgin Atlantic Airways of the U.K. thereby connecting 
the duly registered Nigerian Company with the U.K./U.S 
deadlocked bilateral air services relationship resulting 
from the U.K. restrictive market and anti-competition 
posture. 
 
13. In relation to the above, I am of the considered opinion 
that the United States should kindly consider this matter 
most dispassionately devoid of any sentiment and not 
unjustly visit the problems being encountered with the 
United Kingdom on Nigeria.  This is particularly so having 
regard to the strenuous but modest efforts being made by 
Nigeria to establish a viable world class flag carrier.  At 
the end of the day, the flag carrier being set up by Nigeria 
is intended to accord with conditions set by the United 
States for Airlines flying to and from the United States.  I 
am accordingly most confident that the matter at hand will 
be favourably resolved.  Your Excellency's opening statement 
in the correspondence under reference that "the Government 
of the United States is interested in improving air links 
with Africa and would welcome direct air service between the 
United States and Nigeria by a new Nigerian Airline" is also 
indeed most reassuring. 
 
14. On the basis of the above explanations and 
clarifications, I would like to crave Your Excellency's 
understanding and cooperation, in enlightening further the 
Government of the United States, its relevant authorities 
and agencies on the true position of the matter with a view 
to removing difficulties and obstacles as well as paving the 
way for the prompt acceptance of the designation of the 
Nigerian flag carrier.  This indeed would go a long way in 
assisting Nigeria to harness the gains of the Open Skies 
Agreement signed with the U.S. in August 2000.  Nigeria on 
its own part is committed to the faithful implementation of 
the Nigeria Open Skies Agreement and has been positively 
embracing the U.S. requests emanating from this Agreement in 
the true spirit of the cordial relationship that exists 
between our two Governments. 
 
15. Finally, I wish to extend my profound appreciation to 
Your Excellency on the interest shown in this matter 
trusting that Your Excellency will positively intervene in 
this matter and ensure its early resolution. 
 
16. Please be assured of my highest esteem always. 
 
[signed] 
Mallam Isa Yuguda 
Minister of Aviation 
 
End quote. 
 
Comment.  Acting Economic Counselor and an Economic Officer 
met with Yuguda informally the evening of October 21. During 
their discussion, Yuguda was insistent, and apparently 
sincere, in his belief that Virgin Nigeria Airways would be 
Nigerian owned, operated, and directed.  Yuguda reiterated 
points from his October 14 reply concerning the "Nigerian 
content" of the proposed airline, and added that shares in 
the airline will be sold to the public in an initial public 
offering in Nigeria.  Yuguda restated his insistence that 
Virgin Nigeria Airways should not be permitted to become 
involved in the current US-UK aviation dispute.  End 
comment. 
 
FUREY