Stories by Louis Ibah

Stakeholders in the Nigerian aviation sector are bemoaning the inability of local airlines to access long term credits in Nigerian banks noting that the trend, over the years, has proved inimical to efforts to unlock the potential of the airline industry for national prosperity.

At the Aviation Colloquium 2017 organised by the Nigerian TravelMart in Lagos 2017 recently, stakeholders comprising airlines owners, regulators, bankers, airport managers, service providers, and analysts, faulted the low level of funding made available for local airlines by Nigerian banks demanding a change that would ensure increased credit availability to fund projects by airlines.

Investigation by Daily Sun revealed that an estimated N500billion owed the Federal Government, local and international lenders by Nigerian banks may have been responsible for the decision of Nigerian banks to stop new credit lines to local airlines.

Inadequate knowledge

At  the Aviation Colloquium 2017, speakers such as the Chairman of Aso Savings and Loans Plc, Mr.Ali Magashi; investment banker, Mr. Sero Abdulrasheed; and aviation analyst, Chris Aligbe while not faulting the huge indebtedness of airlines to creditors as problem, however noted that the banks had also failed to effectively comprehend the intricacies of aviation financing, especially as it concerned aircraft leasing and acquisition.

“In the past, the banks went into the aviation business without much knowledge of the industry and they ended up putting the industry in serious trouble,” said Aligbe. “There is no way we can’t say that they should also take the blame,” he added.

A top airline official had told Daily Sun that Nigerian banks want quick returns and because of this they fear issuing long term loans. “Airline projects like getting new aircraft require long term funding, like 10 – 15 years. But the kind of relationships banks prefer with airlines is to be their collection banks as a lot of cash goes through the airlines from air tickets sales on a daily basis,” the official said.

“The implication is that so many re-fleeting projects are suffering. Airlines continue to manage the few aircraft they have. And you witness a lot of rescheduled and cancelled flights on daily basis. And managing aircraft is not good as far as safety is concerned in the industry,” the official added.

On his part, Abdulrasheed, a top management staff with First Bank who spoke at the event said it was not just a problem of the unwillingness of the banks to grant long term credits, but more of a problem of the banks not having the right manpower to understand aviation financing. He said the risk associated with the aviation industry financing was what usually scared banks.

“Nigerian banks are still not able to put up a proper risk management processes to finance such projects like aircraft acquisition,” he said.

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“Commercial banks would rather be looking at financing the support services in the aviation sector. We do business with depositors fund and no commercial bank will be ready to risk such funds in any project where there is no enabling environment to guarantee returns,” he added. 

So if local airlines want to tap effectively into credits from Nigerian banks, they should take the extra step of creating a platform for the training of Nigerian bankers and finance experts to understand the aviation sector better. But this does not in any way take away the responsibility of Nigerian banks making the investments in the hiring of competent hands that understand the industry as well as also training and re-training staff to be able to study risks associated with the aviation sector.

Aircraft type

In no other aspect of the business do banks and airlines make the most financial error than in the acquisition of the right aircraft type for Nigerian routes.

According to Magashi, airlines owners most often take the decision to buy an aircraft without the input of the professionals. “There is usually no professional input in the purchase of an aircraft as the airline owner most often decides what he wants,” Magashi said. “And then there is no business model,” he added. He explained that an aircraft is a complex equipment that requires detailed study before any purchase is made. It is not something you log onto an internet or go on a exhibition and then end of picking the ones that captivates your imagination. Not all aircraft are suitable for the Nigerian terrain. Some are high fuel consumers like the Boeing 737-500 or 800 which is most common among local airlines. . Some require higher maintenance cost, while others take less to maintain. The turboprop aircraft has been widely recommended as most suitable for the short distance flight which is very characteristic of Nigerian routes. But most airlines would rather purchase the bigger Boeing aircraft type to satisfy the taste of passengers against their own business interest or profitability. And once a bad judgment has been made in the purchase of the wrong type of aircraft, the challenge of operating it and recouping the investment becomes herculean. And that explains why most airlines end up being indebted to creditors and possibly also going bust. The way forward therefore, is for airlines to be more realistic in the choices of the aircraft they seek to Purchase to deploy on local routes. The banks too, if they don’t have the right manpower, must always endeavour to hire knowledgeable consultants to advice on the most appropriate aircraft type that would yield returns on their investments.

Trust

Trust if often described as the best collateral between creditor and debtor and that exactly what has been lacking in deals between banks and airlines in Nigeria. the ugly trend  dates to the early 80s when the airline industry was liberalized to allow the participation of private airlines. There exist in Nigeria no private airline that is not indebted to any creditor institution, service providers, or even regulatory agencies in Nigeria. and it all boils down to mismanagement and misapplication of funds by the management of the airlines. It is estimated that local airlines are indebted to various creditors to the tune of about N500billion.

It is a development that has led to the Asset Management Corporation of Nigeria (AMCON) taking over the management of the affected airlines. Spokesman for the Nigerian Civil Aviation Authority (NCAA), Mr. Sam Adurogboye told Daily Sun that because most domestic airlines are run as monopolies, there is usually the absence of good corporate governance practices, and this tells a lot on the management of the airline financers. There abound cases where airline owners would take loans from banks for aviation sector businesses, but divert it for other purposes. Trust therefore has to be built between airlines and banks.

Managing Director/CEO of Air Peace, Mr. Allen Onyema said one way airlines can earn the trust of banks is to structure the loans in such a way that the banks can be taking out their monies maybe on a monthly basis from the incomes made from ticket sales to passengers.