Airline operators are partnering with willing state governments to have easy access to finance and guarantees.
BusinessDay’s findings show that financial institutions are often willing to grant state governments loans primarily due to the legal and contractual obligations inherent in government borrowing.
Airlines are leveraging this advantage by joining forces with state governments to address the critical challenges of inadequate maintenance facilities, global shortage of aircraft and insurance challenges, which affect their ability to access dry lease aircraft from lessors.
Dry lease aircraft agreement is an aircraft lease agreement where the lessor provides the aircraft only – without crew, maintenance or insurance. The lessee assumes full operational responsibility, including hiring a crew, arranging maintenance, and securing insurance.
Part of this partnership has seen state governments launch new carriers under existing airlines, which would operate the carrier pending when the states complete the certification process.
Stakeholders have described the partnership as a win-win situation for both the airlines and the state governments.
“States are better capitalised than the private sector and have access to cheaper funding, credit and foreign exchange than the private sector as a sub-sovereign, which is why I’ve been advocating for the federal government to establishment structures that can be leveraged by the private sector and the nation,” Alex Nwuba, vice president, Aviation Safety Round Table Initiative (ASRTI), told BusinessDay.
“This model is a win-win for the airlines. It brings airplanes under them to pay staff and overheads, and for the state, it can quickly stimulate the economy, provide high-paying jobs for its citizens and drive investment, commerce, tourism and revenue,” he explained.
He said the new development will see the industry evolve and expand with the entry of the new players and competitors, noting that consumers will be better served.
Partnerships
BusinessDay’s findings show that Aero Contractors is currently in partnership with Cross River State and it is helping the state to operate Cally Air, the state’s airline.
Already, the state has two Boeing 737 aircraft, which are operated by Aero Contractors, and the airline is in talks with the Cross River State government to acquire additional operating aircraft.
The most recent is the partnership between new Enugu Air and Xejet airline.
Enugu Air recently designated XEJET as its operational partner pending the conclusion of its Air Operator Certificate (AOC) process.
Pursuant to this partnership, XEJET has completed a full variation process to integrate the EMB 170 aircraft into its Operations Specifications (OpsSpecs), in accordance with the Nigeria Civil Aviation Authority (NCAA’s) five-phase certification procedure.
Ibom Air, Akwa Ibom State owned airline, has partnered with Airbus and placed an order for 10 Airbus A220-300 aircraft and has already received two into its fleet.
Ibom Air is also establishing a maintenance, repair, and overhaul (MRO) provider for the African continent, mirroring the likes of EgyptAir, Ethiopian Airlines and Kenya Airways.
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Ibom Air is also working with Airbus Consulting on its maintenance strategy for the next six years to eight years, which include plans for full scope A220 work.
Ado Sanusi, chief executive officer (CEO), Aero Contractors, said the state governments are keying into aviation for political reasons.
“The moment you open a state airport and you have an aircraft that you say it’s an airline that serves the state, then you will have some political leverage. For me as an aviator, I think it’s a welcome moment, but it has to be done right.
“We have a fantastic relationship with the Cross River State government. They bought aircraft and dry lease it to Aero contractors. They told us the routes that we can operate commercially so that we can pay our lease rentals,” Sanusi disclosed.
He said since the two aircraft were dry leased to Aero, the company has never defaulted in its monthly lease rentals and this has built confidence in the Cross River State government.
He stressed that the aviation industry is delicate and disciplined and therefore requires professionals to run it successfully.
Samuel Caulcrick, former rector of the Nigerian College of Aviation Technology (NCAT), Zaria, said the current partnership of airlines and state governments is a win-win situation as the sub-nationals absorb the costs of capital, which is one of the key factors in airline operations.
He said getting the AOC for prospective airlines could take some time because it requires certain processes, noting that states that cannot wait for so long to get their airline running are going into partnership with existing carriers.
