The grounding of two of Nigeria’s eight airlines, Aero Contractors and FirstNation airlines, within a space of seven days, highlights the problems of the nation’s domestic aviation sector.
These airlines were grounded on account of having only one serviceable aircraft each, which contradicts the Nigerian Civil Aviation Regulations (Nig.CARS) which stipulate that no airline operator shall carry out scheduled commercial operations with only one aircraft.
Industry watchers say the travails of domestic airlines go beyond these to include funding, the impact of the economic downturn, unfavourable naira to dollar exchange rate, unfriendly regulation, cost of aviation fuel, as well as poor infrastructure.
They further say that the solutions would lie in creating financing models for airlines, creation of more friendly aviation policies, reduction of multiple taxation, addressing infrastructural gaps and refining aviation fuel locally.
Ali Magaji, an aviation finance consultant, said there were significant challenges for the industry as a whole to find finance for new deliveries.
“Today, most of the airlines owe the Asset Management Corporation of Nigeria (AMCON) substantial sums of money beyond the capacities of their balance sheets, which reveals that it is getting increasingly difficult for investors to source financing options,” Magaji said.
He explained that there is a very high interest rate regime from local commercial banks, poor credit rating to access foreign funding, over-regulated financial system impeding simple and genuine foreign currency transactions.
He identified financing models for Nigeria in the aviation sector and said these include targeted and effective subsidy from government, an Intervention Guarantee Fund with very low interest rate and longer tenure.
“There should be reduction of multiple taxation that impedes airlines’ revenue, lighting up of the airports and keeping them operational till midnight, to improve asset turnover and baseline revenue and easier access to foreign exchange from the Central Bank of Nigeria (CBN)” Magaji said.
Some airline operators in Nigeria are said to be unable to bring in their aircraft taken abroad for repairs and maintenance, as a result of rising maintenance bills on account of the depreciation of the naira.
Sources at the Nigerian Civil Aviation Authority (NCAA) confirmed this development, revealing that about 25 percent of existing aircraft owned by commercial airlines are on maintenance abroad or AOG (aircraft on ground) either because they are no more airworthy or are due for maintenance.
Investigations carried out by BusinessDay show that airlines generate revenues in naira but carry out maintenance and purchase of major aircraft parts in foreign currency. So, with the depreciated naira, the airlines are paying bloated fees to carry out mandatory C-Checks on their aircraft.
“Operational costs are stifling the country’s domestic airlines, such that they cannot afford to acquire hangars on their own”, Nogie Meggison, President, Airline Operators of Nigeria told BusinessDay.
Checks carried out by BusinessDay show that airlines pay between $500, 000 and $700, 000 for engine overhaul and about the same amount of money for C-Check maintenance on a Boeing 737 aircraft.
Also, the increase in the price of aviation fuel from N105 to N220 per litre in Nigeria is further affecting the profit margins of the airlines.
BusinessDay’s checks show that the eight domestic airlines operating in Nigeria need about 1.2million litres of aviation fuel daily, while about 21 international airlines operating in the country need approximately 1.8million litres of aviation fuel daily.
This shows that for both international and local airlines operating in Nigeria, N660million is spent daily on fuel.
“Aviation fuel price is also linked to neglect in repairing the pipelines and failure to revive the Warri refinery’s Jet A1 pipeline –hydrant system for supplying aviation fuel,” John Ojikutu, secretary-general, Aviation Safety Round Table Initiative, (ART) told BusinessDay.
Ojikutu mentioned that other reasons are costs of transportation, demurrage on the tankers and insufficient number of fuel dispensing trucks.
This situation has severally led to flight cancellations and high air fares, discouraging people from flying in Nigeria, he said.
Adamu Abdullahi, Director of Consumer Protection Directorate, said that the scarcity of aviation fuel would continue until the government begins to refine the product locally.
Some domestic airlines operating in Nigeria have disclosed to BusinessDay that the Federal Government’s announcement of zero duty and Value Added Tax (VAT) payment on the importation of commercial airplanes and spare parts is yet to be implemented.
Obi Mbanuzuo, accountable manager, Dana Air, told BusinessDay that despite the Federal Government’s promise to make the importation of spare parts into the country easy and without delay, it still takes a lot of days to get the spare parts out of the warehouse.
In a widely circulated publication, the NCAA reported that Nigerian airlines spend about USD$16.3 million every year on pilot recurrent simulator training for pilots, engineers and cabin crew, annually.
Airline operators say this huge sum will have been much less if the Nigerian Civil Aviation Authority, (NCAA) provided a simulator training school here in Nigeria, or allowed the pilots train once a year, as against twice a year abroad, as is done in other developed countries.
Approximately 70% of this cost is expended on acquisition of relevant visas, flight tickets, subsistence allowances, hotel accommodation and other sundry expenses. The actual simulator training requires only about 30% of the total cost.
Dana Air, for instance, has five aircraft in its fleet but it has 45 pilots, while Arik Air has 28 aircraft with over 250 pilots, each of these pilots travels overseas twice a year for simulator training.
Meggison said that an airline pays in dollars for the training; maintenance facility, pilots’ salaries, their flight and pay for hotel accommodation for the period the pilot spends in training.
Meggison observed that if the economic downturn continues and policies are not implemented to assist airlines stay afloat, then more airlines may go under.
IFEOMA OKEKE
