…How to avert looming disaster
From Uche Usim, Abuja
When Aero Contractors, one of the leading airlines on domestic routes, vacated the Nigerian skies on September 1, 2016, many were shocked because the death of the foremost airline, aside throwing about 1,300 workers into the job market, also exposed parlous state of the surviving local carriers on which experts have warned that they are close to extinction.
Daily Sun checks reveal that about N1 trillion debt is strangulating the domestic airlines, and with the Naira oscillating between N395 and over N400 to the dollar, analysts say they are living on borrowed time, as they precariously fly through their worst business climate in the history of civil aviation in Nigeria. This is because 90 per cent of their operations, especially the costly but mandatory ones like crew training, overseas maintenance and spares, require huge foreign exchange, now tough to source.
However, passenger and cargo tickets are sold in naira; which means they need so much naira to buy expensive dollars at the black market rate to operate. The average ticket for a an hour flight today is N23,000 (about $60) but a C-check (aside other minor checks) for a B737-500 (the popular aircraft in Nigeria) costs up to $800,000. More so, a litre of Jet A1 (which gulps over 60 per cent of their operational budget) goes for as high as N325, especially in northern airports and a B737-500 has capacity for about 40,000 litres, which cannot do more than seven hours service. Worse still, any attempt to jack up fares may lead to market resistance because recession has weakened the purchasing power of air travellers such that a good number of them now travel by road.
For the discerning minds, this simple analysis shows that local operators are already overstretched and may snap under further pressure. They are financially incapacitated, technically weak and operationally frustrated, no thanks to the myriads of blights plaguing them, the latest being the economic recession that has left them with broken wings with which they hang delicately in the skies.
According to the Executive Chairman of Arik Air, Joseph Arumemi-Ikhide, Nigeria is one of the toughest countries to do a successful airline business.
“The operating environment is harsh and domestic airlines are burdened with huge charges. We don’t enjoy much of government support. Go to the United Arab Emirate (UAE) and see how the government supports the carriers. Aviation is highly capital intensive. You need billions of dollars. You need a conducive atmosphere. The business is fragile. We’re in it to serve Nigerians. It’s not what you go into and expect to reap profit bountifully,” he said at a recent aviation confab.
Aside the aforementioned challenges, local carriers are burdened with huge debt, high aircraft cost, high insurance premium, poor access to loans, government’s policy somersault, exorbitant airport rent, airspace movement charges, high government taxes, poor management strategy by airline owners, among others.
On charges alone, the Federal Airports Authority of Nigeria (FAAN) collects landing and parking, passenger service charge, N2.50k per litre charge on Jet A1, Common User Terminal Equipment (CUTE) charge, avio-bridge charge, rent and service recovery charge. There are also on duty card charge, toll access payments, airside operator vehicle permit, electricity charge and remittance of five per cent for all tickets sold to the Nigerian Civil Aviation Authority (NCAA).
Aviation analysts insist that if the domestic airlines’ challenges are not urgently addressed, they may succumb to the temptation of cutting corners in order to remain afloat, the improved safety regulation notwithstanding.
The concomitant effect of treading that fatal path is that airplanes may begin to drop from the skies as witnessed between 2005 and 2006 when plane crashes became the rule rather than the exception.
Investigations by Daily Sun show that some domestic airlines no longer pay salaries as due, a development industry watchers describe as a disaster waiting to happen.
Stakeholders have called on NCAA to quickly carry out an economic audit on the airlines so that weak ones are grounded before they accidentally drop from the skies.
Aside debt owed staff, local operators also owe airport government agencies about N47 billion for services rendered, while they owe various commercial banks over N423 billion and offshore lenders about half a billion naira. Worse still, their shrinking operations do not offer any hope of repayment in the nearest future.
Airline owners have perennially lamented that the huge capital outlay required to run the business, coupled with its low yield, have made the sector commercially unattractive to Nigerian banks because they have penchant for quick returns on investment.
An airline operator who craved anonymity told Daily Sun that, “Nigerian banks prefer to loan money to a politician than an airline. They chase them (politicians) with loans but develop cold feet when we approach them for loans. How many people do politicians employ? What critical services do they render? An airline has at least 900 staff and ensures the economy runs.
“Who would have thought that an airline as big and successful as Aero could go under? It’s not easy operating here. Why won’t you owe? Yet you’re hounded and that’s why a lot of airlines go under. Though some lack good business models but the environment is harsh.
“Unfortunately, the government seems to be busy addressing infrastructure as if that’s all that matters. Without the airlines, of what use are the facilities? The revamp of facilities and the health of the airlines should be done hand in hand,” he lamented.
Industry statistics show that the average life span of a domestic carrier is 10 years. Only airlines like Overland Airways and Arik Air have survived beyond 10 years in recent times. Others like Dasab, Air Nigeria, IRS, Chanchangi, among others, barely survived beyond 10 years.
In the past 20 years, a lot of airlines have packed up, including Triax, Sosoliso, Air Nigeria, Premium Air Shuttle, Gas, Okada, Sahara, Oriental, Chanchangi, Savanah, Harco, Harka, Holtrade, Intercontinental, Skyline, Easylink, Chrome Air, Fresh Air, ADC, EAS, IRS, among others. Only Arik, First Nation, Medview, Overland, Azman, Air Peace and Dana Air operate today.
On the foreign scene, United and Delta airlines have stopped flying into Nigeria due to forex issues as they cannot repatriate their sales overseas in foreign currencies as enshrined in the Bilateral Air Services Agreement (BASA).
The President of Sabre Network West Africa and the current President of Aviation Round Table (ART), an aviation industry think-tank, Gbenga Olowo, while commenting on the plights of local operators said the two major challenges facing them are strangulating costs and poor corporate governance by the airline owners. These two factors, he said, have resulted to high mortality rate in the industry.
He noted that in 2010, Nigerian airlines had 54 commercial operating aircraft but by 2013 the fleet had reduced to 39, pointing out that with declining fleet size, route expansion would be limited and robust schedule very difficult and down time for maintenance would impact negatively on schedule.
“The airlines are faced with so many operational issues without government attention. That is not all. There is no corporate governance in most of the airlines. One man owner calls all the shots and takes a lot of unwholesome decisions. The airlines are relatively small, weak and vulnerable to competition,” he said.
Today, no local airline runs on schedule. Flights are repeatedly cancelled or rescheduled under ‘operational reasons’. Flight delays are now part of the norm. Arik Air, the largest airline in West and Central Africa, had to scale down its operations due to the worsening Jet A1 scarcity. Most of the airlines have been forced to shed weight by reducing the routes they service and laying off staff.
What this means is that businesses are suffering because a lot of man hours are wasted waiting for flights that may end up being cancelled.
In seeking solution to the airlines’ problems, the Chairman, House Committee on Aviation, Nkeiru Onyejeocha, during a recent oversight visit to Lagos, asked the NCAA Director General, Capt. Mukhtar Usman, a barrage of questions: “How will the looming disaster be averted? We want to know the lasting solution to funding of domestic carriers. How can we fund the industry? We gathered that the government bailout given to the airlines in the past was mismanaged. How can the airlines get forex? How can the regulatory body, NCAA, ensure that there is corporate governance in the industry? We know that certain issues that border on the ownership syndrome of the airlines play important role in the funding of the airlines, but what actions can government take through NCAA to alleviate the problems of the airlines under the present economic recession. Are there measures being taken by NCAA to solve this problem. What of Aero Contractors; when is it coming back?”
Responding, Usman said: “One of the major challenges of both the local and foreign airlines is non-availability of foreign exchange. It was difficult for the foreign airlines to repatriate their money back to their countries. That was one of the reasons some of them stopped operating to Nigeria. In the BASA, which Nigeria signed with the countries where the airlines come from, it was agreed they will repatriate the revenues from the sale of tickets. So government should allocate forex to the industry. Domestic airlines need foreign exchange for aircraft maintenance, purchase of spares and training.
“What is happening is also affecting us because if the airlines do not operate and record revenues they may not be able to pay us our 5 per cent charge. That is the way NCAA is financed; we do not get money from government,” Usman said.
The NCAA boss also said the airlines need cheaper aviation fuel that has to be readily available.
Interestingly, the Minister of State, Aviation, Hadi Sirika, in collaboration with the Central Bank of Nigeria (CBN) has secured a $500 million forex window for airlines. Though not ripe for access, the money makes the operators get forex at the official CBN rate of N198 to a US dollar instead of the current N400 rate.
But industry watchers warned that the promise should not be another political stunt, even as they urged the government to speed up the release of the forex as time is running out on the airlines.
Sirika also said the government was talking to aircraft lessors to have offices in Nigeria to make aircraft acquisition easier for airlines, since most of them have lean fleet. He added that Nigeria was also working with offshore Maintenance Repair and Overhaul (MRO) organisations to build standard maintenance facilities in Nigeria so that local carriers will be spared the hassles of ferrying airplanes overseas for expensive but mandatory maintenance.
But the argument is that if other sectors of the economy are struggling to remain in business, why not the airlines? But an airline operator noted that airlines record tiny margin of profit at the best of times and with the Nigerian harsh environment, many of them operate at a loss.
“But aviation is not what you can ignore. If the airlines withdraw service now it will ground the whole economy, so you cannot treat it like any other business,” he said.