15th October, 2012
More Nigerian airlines are dying in a choking business environment
When Bi-Courtney Aviation Services Ltd. completed the building of the Murtala Muhammed Airport Two, MMA2, five years ago, throwing the doors of the facility open to airlines and other investors to start business, things were looking good. But the modern terminal, which some months ago housed six airlines and other business outfits, is no longer as busy. Only two airlines, IRS and Aero Contractors, are currently operating from the expensive facility. The other four – Dana Air, Chanchangi, Air Nigeria and First Nation – have their operations put on hold for now.
Apart from Dana Air, which had to suspend its operations after the airliner’s plane crash in June, the rest have either ceased to function or are temporarily grounded. The survival of these airlines is greatly threatened by the harsh operating environment which is not exactly a new development. Many other airlines in the last two decades have come and gone, forced out of the skies by the stifling demands of operation. Such burdens include the very high cost of aviation fuel (Jet A1), premium airport and ticket sales charges, and payment of navigational charges. Currently, practically all the airlines are heavily indebted to the Federal Airports Authority of Nigeria, FAAN, the Nigerian Civil Aviation Authority, NCAA, and the handling companies.
Recently, Arik Air, despite its status as the biggest Nigerian airline, boasting about 100 domestic flights daily and 23 modern aircraft, suspended its operations for three days, over pressure mounted by aviation unions for the airline to pay its staggering debts. While Arik is the biggest player in the domestic scene, it is equally the biggest debtor, owing about N18 billion to various agencies in the industry. Arik’s debt to FAAN is in excess of N7 billion, while it is also required to pay N5 billion into the coffers of the Nigerian Airspace Management Agency, NAMA. It also owes NCAA N4 billion and $400,000. Aero Contractors, the oldest and one of the most reputable airlines in the country, is also not free of sizeable debts. The unions revealed that it owes NCAA N1.7 billion and $2mn, while the debt figure for IRS is put at N820mn. The accumulated debt figures, according to Ibrahim Adamu of Chanchangi Airlines, is evidence that “the aviation business is fast becoming just too expensive to run”. Airlines, he said, are finding it increasingly difficult to break even and taxi their path to profitability. Consequently, many of the domestic airlines are often unable to pay salaries regularly. To worsen their headache, banks are now wary of making loans available to the airlines to pay sundry bills as was hitherto the trend. Many of the airlines already owe the banks heavy sums, with the chances of the loans being paid back getting slimmer by the day in an inclement business environment.
Oil marketers have also closed the door to the opportunity granted airlines in the past, when they were readily offered credit facilities. At a point last year, debts the airlines owed marketers swelled to N10 billion, compelling the marketers to resort to transacting business of fuel supply on a cash-and-carry basis. The absence of maintenance facilities for mandatory checks in the country, which necessitates huge outflow of foreign exchange to acquire equipment, is also a drawback for the airlines. A national aircraft maintenance hangar project, proposed years ago, is no longer on the priority list. Experts are piqued that Nigeria, which boasts the largest and most modern commercial aircraft fleet (courtesy of Arik in particular), in West and Central Africa, lacks a maintenance repair overhaul, MRO, facility. Even the least of repairs are usually done abroad. Domestic airlines are also bogged down by high insurance premiums. Aviation insurance cost, experts say, is determined by an airline’s fleet size, business plans and performance, safety record and how underwriters perceive the carrier. Larger fleets attract lower insurance premiums. Nigerian airlines, with their usual limited fleet, are therefore at a disadvantage, and are charged high premiums. Perceiving them as high risk, insurance companies are wary of their limited capacity to endure and remain in business for long. Often, with the eventual death of many of the airlines, their caution has been justified.
Harold Demuren, Director-General of the NCAA, expressing fears over the state of the airline industry at a recent retreat, acknowledged that there were huge challenges in the industry already, and advocated for reduced charges. “We should discourage our airlines from going to our West African neighbours to use their facilities due to high charges,” he said.
For years, domestic airlines made several appeals to the government, seeking a bailout package to boost their operations. But when the government through the Central Bank eventually gave its nod, releasing bailout funds worth N200 billion that was accessed by some airlines, the money was not channeled into these airline’s operations. Captain Dele Ore, President of the Aviation Round Table, was against the granting of the fund in the first place. His fear was that most of the airline operators may divert the funds to other purposes. Lending credence to his scepticism is the current raging protest by sacked workers of Air Nigeria, who have petitioned the CBN to investigate the alleged disappearance of the N35.5 billion aviation intervention fund given to the carrier to strengthen its operations. The intervention or bailout fund was disbursed at a generous rate of about 5 per cent, as against the 18 per cent to 20 per cent that is the going market rate.
Ore maintained that the survival of Nigerian airlines depends on consolidation or getting into mergers. “They do not deserve a bailout because they partly brought the hardship on themselves. When about 16 of them should have consolidated to become one airline, and we would have had a fairly big, profitable airline, they decided to go it alone, just to be addressed as Chief Executive Officers. That is why they are in the state they have found themselves right now,” he told this magazine.
Evidently, most airlines in Nigeria are undercapitalised, with business plans not well-blended to reflect current realities and anticipation of future dynamics, particularly as the aviation industry keeps evolving. And because they have not maximised their potential, foreign airlines continue to milk the industry to their detriment.
Captain Mohammed Joji, Secretary-General of Airline Operators of Nigeria, AON, fears that the aviation industry might collapse completely if the government fails to intervene decisively on the Jet A1 issue. Joji remarked that the crisis in the industry has reached alarming proportions because of the surge in the price of the commodity. Demuren is embarrassed that Nigerian airlines often source for cheaper aviation fuel from Ghana, while Nigeria, the sixth largest crude oil producer in the world, cannot refine crude to provide airlines with fuel and reduce their agony considerably.
By Funsho Balogun. Published in TheNEWS magazine.