Developing an innovation-driven policy framework towards effectiveness and value creation in an ailing firm: A case of Arik Air

BACKGROUND

New trends in air travel, especially in emerging markets, show that the aviation sector makes significant contributions to the economic development of nations through bi-lateral and multilateral trade agreements (Zacks., 2018). The service industry is projected to record a 7% rise in profit margin by 2024, according to a 2019 financial forecast from Market Watch (MW).

However, most airlines are still struggling with safety issues and efficient performance, for instance, in the area of conducting timely checks and effecting repairs where and when necessary. According to the MW (2019) Press Release, the huge cost of maintaining or changing airplane engines and parts, including the increasing cases of flight restrictions around the world, are responsible for poor business performance among aviation companies (An et al., 2011).

The case of Arik Air, a Nigerian airliner which operates mainly from Lagos (Murtala Mohammed International Airport) and Abuja (Nnamdi Azikiwe Airport), is a good example of the importance of innovativeness and value creation in organizational growth (Jarvis., 2018). The airline company sprung into competitive business operations in Nigeria after purchasing rights over assets previously owned by Nigeria Airways on 3 April, 2006. Barely two months after the successful acquisition, Arik Air acquired a total of seven aircrafts comprising of two brand new Bombardier CRJ-900s, two used Boeing 737-300s from United Airlines, and three fifty-seater Bombardier CRJ-200s. Later in August 2006, Arik Air obtained international flight clearance from the Aviation Ministry on routes to London, Trinidad and Tobago, Amsterdam and Madrid. While flights to other international destinations were being reviewed, business activities commenced in selected Nigerian cities (Enugu, Calabar and Benin City) until the Federal Government of Nigeria commenced its business recapitalization process with deadline set on 30 April 2007 for all functional airliners within the country. The purpose was to improve safety measures, protect lives, and encourage delivery of quality services. Arik Air scaled through the procedures outlined by the Nigerian Civil Aviation Authority (NCCA) and was re-registered for business activities in April 2008. The company also obtained licences to the US (2008), London-Heathrow (2008), Johannesburg (2009) and Dubai (2004).

Unfortunately, the Arik Air’s problems started when purchase agreements for Boeing aircraft failed in 2011 and 2013, forcing the company to consider converting available planes to Dreamliner versions (Niyi., 2015). By 2017, Reuters reported that the company had suffered major financial setbacks and current indebted financial value stands at $145 million. Most of its aircraft are outdated, dysfunctional and unfit to fly and, as at 2019, no buyer has indicated interest to by the ailing aviation company since its takeover by Asset Management Corporation of Nigeria (AMCON) in 2017, when a Lagos High Court endorsed the acquisition.

CONTEXT

The global aviation industry operates mainly with wide-body aircraft such as Boeing B-class 747, 767, 777 and 787, and the Airbus A-models 300, 310, 330, 340, 350 and 380. Airliners ploughing busy routes, especially through connecting international airports, often use the Airbus and Boeing as the best options to maximize high passenger traffic. The aircrafts are also most suitable for long hauls. According to Market Watch (2019), more than 5,000 Boeings and Airbuses are currently used by airliners around the world, with about 2,500 more delivered to companies in Europe and North America by 2035. During this period, airline companies in the Middle East, Asia and Latin America will get nearly 5,000—a sign of rapid development in travel business whether the aircraft is used for military or civil aviation.

This steady growth and expected financial growth in larger markets (Europe, Asia and the US) tend to be elusive in Nigeria due to lack of innovation and poor delivery of services. However, BAA Training (2016) notes that the availability of low-cost carriers also presents a good opportunity for profitability, competitive advantage and sustainable growth. But Arik Air failed to leverage on technological developments and maximize same for cost-effective acquisitions. The major problem with Arik was leadership incompetence, lack of strategic management ideas, and unavailability of professionals with the drive and adequate knowledge to improve business in the highly competitive aviation market (Busari., 2015).

In addition, the Federal Government of Nigeria is yet to enact laws that comply with international aviation standards for the purpose of boosting business in the sector, attracting foreign investors, and winning back public trust. Recurring crashes in the country are some of the factors scaring stakeholders from identifying with the industry, thus Arik Air management needs policy changes that are capable of standardizing business operations, eliminating corruption, and infusing capital funds for optimal performance (Clark., 2019).

Aim of the Research

The purpose of this research is to assess current trends in the Nigerian aviation sector, particularly Arik Air, in order to identify factors responsible for the poor performance and proffer solutions on how ailing airliners can achieve competitiveness and sustainable growth.

Objectives of the Research

In line with the aims listed above, the objectives of this research are:

1. To conduct a thorough review of relevant literature on conceptual terms such as innovation, policy and value creation, and discuss the concepts as it relates to Arik Air and the aviation industry in Nigeria.
2. The assess the current business environment for Arik Air and other aviation companies in Nigeria using valid data collated from reliable research institutions, government agencies, libraries, company websites, journals etc.
3. To identify and extensively assess the internal and external factors responsible for Arik Air’s collapse, including the earlier sources of competitiveness and business management approaches credited for sustainable growth.
4. To proffer a workable and fail-proof risk management framework capable of reviving ailing companies in the aviation industry and develop a guide to aid implementation of suggested strategies.

Research Questions

The main research question for this study is, “How Can Ailing Companies in the Aviation Industry Achieve Effectiveness and Create Value with Innovation Driven Policies?”

In line with the subject, other sub-questions are as follows:

1. What is the implication of Arik Air’s financial problems to the government, investors, and other aviation companies in Nigeria?
2. What is the history of reforms in the aviation sector and their impact on local/international aviation business?
3. What are the challenges, achievements and prospects for Arik Air, Nigerian aviation companies and stakeholders?

Research Problems

The identified research problem for this study is limited source of verifiable data on Arik Air and the Nigerian aviation industry.

PROPOSED METHODOLOGY

Research Philosophy

According to Sekaran and Bougie (2010), a research philosophy provides an insight into the background of any research, including its understanding and nature. This “broad framework,” in the words of Cohen, Manion and Morrison (2000), contains the theories, beliefs, perceptions, practices and understanding of a research procedure. The research thus adopts the concept of Positivism, which is objective in nature and entails use of the scholar’s viewpoint to access social world. This approach is not subjective in nature. Instead, it supports collection of numerical data and empirical evaluation (Saunders et al., 2007). Additionally, the concept of Interpretivism, Pragmatism and Critical Realism are necessary in any management research because it encourages understanding of people’s beliefs and attitudes in order to juxtapose findings to the research problems. This approach guarantees valid results from studies on specific business situations, especially those that require inputs from a large number of research participants.

Research Approach

Accordingly, the research approach for this study will be Deductive (for testing of the validity of hypotheses) as well as Inductive (to formulate new theories from findings) (Bryman., 2015). These approaches will be useful in making conclusive statements and suggestions on innovation, policy and organizational effectiveness within the context of Arik Air’s business environment, including the aviation sector in Nigeria.

Research Design

In order to thoroughly explore existing results from researches on innovation, performance and value creation in the aviation industry, the scholar will adopt a mix of exploratory and conclusive research designs to understand Arik Air’s shortcomings, challenges and potentials as well as ensure development of reliable strategic roadmaps that are capable of reviving ailing airlines (Kasi., 2009).

Research Methods

The researcher will adopt a mixed-method approach, with concentration on available qualitative data collated from research findings conducted by the NCAA and other relevant agencies. To support an objective analysis of the subject and enhance quality of research results, the scholar will also use quantitative data gathered from randomly selected survey participants who showed willingness to provide answers to semi-structured questions and/or questionnaires. Further, both quantitative and qualitative analyse data s are necessary because they are pivotal in the researcher’s effort to achieve the research aims and objectives (Cooper & Schindler., 2008).

Sampling Methods

The researcher will use the probability sampling method for its high accuracy and reliability level. This is also most suitable because its derivatives—the Simple Random Sampling is commonly used for selecting a sample that is highly representative of the entire population; Stratified Random Sampling aids segregation of the sample into smaller groups, especially when respondents are heterogenous; and Systematic Sampling provides selection of sampling subjects according to geographical locations. Sampling data will be sourced from annals published by Arik Air, including other secondary sources and relevant individuals with quality experience in the aviation sector (Holden & Lynch., 2004).

Sampling Size and Population

To get fair and unbiased results from this study, no sample size will be pre-selected. This mainly quantitative research will use a total of three sampling groups comprising of high-rank officials in the aviation sector, former employees of Arik Air, and policymakers in the Nigerian aviation industry. The selection was spurred by their first-hand experience in aviation trends, especially within Nigeria. Their objective knowledge is expected to help eliminate bias and support research aims and objectives.

Data Analysis

All information gathered from both primary and secondary sources will be properly analysed using descriptive statistical methods in order to arrive at valid conclusions and proffer workable solutions to the problems of Arik Air. Where necessary, the researcher will use a mix statistical tools such as frequency tables and simple percentages, among other mathematical methods. Findings will be added in the conclusion and recommendations part of this study.

Reliability of the Research

The selected research methods (quantitative and qualitative) will be useful in interpreting results and checking them against assumptions to ensure their validity and conformity.

Validity of the Research

The principles of reliability and validity and central in research. These cornerstones provide a solid defence against scepticism and, in this study, validity will be divided into “external” and “internal” to crosscheck how research outcomes conform can be replicated in other systems.

Ethical Issues of the Research

As advised, all ethical practices, standards and guidelines stipulated by the institution have been observed in this study. Further, processes and results have been checked to ensure that individual or group rights are not violated, thus, no negative social, psychological, physical or emotional harm is expected.

 

 

INTRODUCTORY BIBLIOGRAPHY

An J. Y., Yom Y. H. & Ruggiero J. S., 2011, “Organizational culture, quality of work life, and organizational effectiveness in Korean university hospitals,” Journal of Transcultural Nursing, Vol. 22(1), pp. 22-30

BAA Training, 2016, “Aviation industry – prospects and opportunities,” [Available Online: https://www.baatraining.com/aviation-industry-prospects-and-opportunities/]

Bryman A. & Bell E., 2015, “Business Research Methods,” 4th edition, Oxford University Press, p.27

Busari S., 2015, “Why Nigeria’s airlines are struggling to survive,” CNN, [Accessed Online: https://money.cnn.com/2016/09/16/news/companies/nigeria-airline-arik-air-africa/index.html]

Chigbo M., 2015, “Many financial and operational problems dog Arik Air of recent but its management insists that there is no cause to worry,” Real News, [Accessed Online: https://realnewsmagazine.net/featured/arik-airs-many-headaches/]

Clark O., 2019, “Arik adjusts schedule as aircraft depart for maintenance,” Flight Global, [Accessed Online: https://www.flightglobal.com/news/articles/arik-adjusts-schedule-as-aircraft-depart-for-mainten-458155/]

Cohen L., Manion L. and Morrison K.R.B., 2007, “Research methods in education,” 6th Edition. Routledge.

Cooper D.R. and Schindler P.S., 2006, “Business Research Method,” 9th Edition. Boston: McGraw-Hill Irwin.

Holden M. T. & Lynch P., 2004, “Choosing the Appropriate Methodology: Understanding Research Philosophy,” The Marketing Review, Vol. 4(4), pp. 347–409

Jarvis M., 2017, “Prospects are Excellent for Aviation Industry, Experts Report,” Newsroom, [Accessed Online: http://news.erau.edu/headlines/prospects-are-excellent-for-aviation-industry-experts-report]

Kasi P., 2009, “Research: What, Why and How? A Treatise from Researchers to Researchers,” 1st Edition. Bloomington: AuthorHouse.

Market Watch, 2019,  “Aviation Engine MRO Market 2019 Global Size, Growth Opportunities, Comprehensive Analysis, Competitive Landscape, Future Prospects and Potential of Industry With Regional Forecast By 2023,” [Accessed Online: https://www.marketwatch.com/press-release/aviation-engine-mro-market-2019-global-size-growth-opportunities-comprehensive-analysis-competitive-landscape-future-prospects-and-potential-of-industry-with-regional-forecast-by-2023-2019-02-20]

Niyi, 2015, “Arik Air May Be Bankrupt – Report,” Information NG, [Accessed Online: https://www.informationng.com/2015/09/arik-air-may-be-bankrupt-report.html]

Reuters, 2017, “Nigeria’s biggest airline Arik Air goes into receivership,” [Accessed Online: https://www.reuters.com/article/nigeria-arik-air-bankruptcy-idUSL5N1FU5TX]

Saunders M., Lewis P. & Thornhill A., 2012, “Research Methods for Business Students” 6th edition, Pearson Education Limited

Sekaran U. and Bougie R., 2010, “Research Methods for Business: A Skill Building Approach,” 5th Edition. Hoboken, N.J./Chichester: John Wiley and Sons

Zacks L., 2017, “Airline Industry Prospects Look Bright: Here’s Why,” NASDAQ, [Accessed Online: https://www.nasdaq.com/article/airline-industry-prospects-look-bright-heres-why-cm751683]

 

 

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