By Chinelo Obogo, talktonelo@yahoo.com
For over 12 months, foreign airlines and the Central Bank of Nigeria (CBN) have not found a common ground on the vexed issue of repatriation of trapped funds accrued from international ticket sales.
While the computated figures were being reconciled, naira devaluation got into the mix and destabilised the peace hitherto enjoyed in Nigeria’s fragile aviation sector. On the flipside, the disagreement has led to a worrying spike in ticket prices as foreign airlines locked the lower inventory and made the higher fares available.
Nonetheless, the Central Bank of Nigeria, last week, said it has cleared all valid inherited foreign exchange obligations, including those of foreign airlines. It further explained that their remaining revenue was currently held in commercial banks where repatriation requires acquiring US dollars through the Investors and Exporters (I&E) window. But the rapid depreciation of the currency may be discouraging airlines from selling their naira holdings at a loss.
Timeline
In June 2023, the International Air Transport Association (IATA) warned that rapidly-rising levels of blocked funds were a threat to airline connectivity in the affected markets, while revealing that the industry’s blocked funds increased by 47% to $2.27 billion in April 2023 from $1.55 billion in April 2022.
The aviation body urged governments to abide by international agreements and treaty obligations to enable airlines repatriate their funds arising from the sale of tickets, cargo space, and other activities. IATA’s Director General, Willie Walsh, said airlines cannot continue to offer services in markets where they are unable to repatriate the revenues arising from their commercial activities in those markets and urged governments to work with the industry to resolve the situation so airlines can continue to provide the connectivity that is vital to driving economic activity.
In April, 2023, five countries accounted for 68.0% of blocked funds and these comprised Nigeria ($812.2 million), Bangladesh ($214.1 million), Algeria ($196.3 million), Pakistan ($188.2 million) and Lebanon ($141.2 million).
On January 7, 2024, the CBN revealed that it had disbursed $61.64 million to the airlines through various banks, bringing to $2 billion the total backlog cleared in three months.
On January 30, 2024, the CBN again, said it had concluded the payment of all verified foreign exchange (FX) claims by airlines with an additional $64.44 million to the concerned foreign aviation firms.
On January 30, 2024, IATA responded saying it welcomes the CBN’s announcement that it has released an additional $64.44 million, but disputed the claims by the apex bank that all outstanding backlog had been cleared. The aviation body insisted that approximately $700 million remains blocked with Nigeria’s commercial banks.
“The International Air Transport Association welcomes the CBN’s announcement that it has released an additional $64.44 million in blocked airline funds. We are consulting with our airline members to verify the release of their revenues. While this development is encouraging it’s crucial to recognise that approximately $700 million remains blocked with Nigeria’s commercial banks. As such there’s a considerable journey ahead in fully addressing the issue.
“This is exacerbated by the devaluation of the Nigerian Naira, which has dropped significantly against the US Dollar. Airlines should not be unfairly penalised by the lower exchange rate. We will continue to monitor the situation closely and work with the government to ensure that the environment remains conducive to ensuring Nigeria’s connectivity to international markets,” IATA said.
On March 20, 2024, the Director of Corporate Communications at CBN disclosed in a statement that the financial regulator recently concluded the payment of $1.5 billion to settle obligations to bank customers, effectively settling the residual balance of the FX backlog. But the President, Association of Foreign Airlines and Representatives in Nigeria, (AFARN), Kingsley Nwokeoma, insisted that CBN still owe the airlines. “If they say they have cleared the trapped funds, they should show us figures. They should tell us how much have been cleared. The last I checked, the status quo still remains the same,” Nwokeoma said.
On March 26, the CBN Governor Olayemi Cardoso again insisted that a reported FX backlog of $2.4 billion remains invalid for settlement as all the verified FX backlogs have been settled, and that security agencies are currently investigating the “dubious” transactions to prosecute culprits.
The issues
The conversation on the amount of trapped funds have dominated Nigeria’s aviation due to the fact that it has contributed to the increase in the cost of international flight tickets. In January, Daily Sun reported a significant correlation between the trapped airline funds and rising international flight ticket costs. This, coupled with the naira devaluation, resulted in a 40% decline in Nigeria’s air travel market share within a year.
Prior to May 2023, airlines collected ticket revenue in naira and converted it to US dollars through the CBN for repatriation but the rapid devaluation of the naira against the US dollar caused them to hold onto their naira revenue earned from ticket sales as converting at the prevailing exchange rate resulted in significant losses compared to the original dollar value.
For instance, an economy class ticket which sold for N400,000 (equivalent to $1,200 at the time) would have lost substantial value upon conversion due to the naira’s devaluation, so airlines opted to retain their naira in anticipation of a more favorable exchange rate. However, this strategy led to a reduction in the availability of lower-priced tickets as airlines blocked their inventories causing economy class tickets to surge to N3 million.
Still, the CBN maintains it has settled all obligations and Daily Sun understands that airlines’ remaining revenue is currently held in commercial banks where they would have to get US dollars through the Investors and Exporters (I&E) window for repatriation purposes. Airlines would then have to negotiate with Nigerian commercial banks to access their funds and potentially secure a more favorable exchange rate.
IATA’s Nigerian representative, Dr. Samson Fatokun, clarified that it does not contradict the CBN’s latest claims regarding settled debts but that they will issue an official statement after verifying the information with member airlines.
Way forward
Speaking on how such crisis can be averted in the future and measures that can be taken to restore foreign airlines’ confidence in the market, an aviation expert, Amos Akpan, told Daily Sun that the Nigerian government should prioritise both the interests of Nigerian travelers and domestic airlines while fulfilling their financial obligations to foreign carriers.
“The guidelines as issued by CBN is that airlines will present evidence of payment for local obligations – taxes, personnel remunerations, rents, payment for contract services – covering the period of sales they desire to repatriate funds. Then they will be granted the equivalent of the foreign currency in naira. There is no mention of the case of fluctuations in exchange rates. This omission leaves room for the airlines’ bankers to negotiate. It is also a grey area regarding the CBN fixed rate and the I & E window. The choice is that of the airline and their bankers. This seems unfair as the airlines are guided by an exchange rate on the date of sales at the time of sales. There is always room for renegotiations. Each airline did their negotiations at designation as it fits its business interest. It is not one document issued for all airlines at designation. That is why their airports of entry differ; their flight frequencies differ, their model of representation differ. It is not one document for all.
“This is business; if it is not profitable they airlines will not continue to operate here. If conditions are not favourable, they will discontinue as some airlines have done. It’s not charity, they are not on a patriotic mission to Nigeria. In my opinion, the Nigerian government should first protect Nigeria’s interest traveling public and local airlines; then they remain fair to foreign companies by honouring their obligations to them.
“Aviation in particular earns foreign currency so we need to know how much is earned per period. This will help us know the difference between what we have earned as forex against the demand for forex payouts to foreign airlines. Don’t promise what you don’t have and what you have no capacity to deliver. Work on developing your capacity to meet your desired results. Aviation agencies receive payments in foreign currencies for the services they tender. Let us know the total amount received in 2023 so that we can match it against the total amount required for transfer by foreign airlines in 2023 Grow allied aviation services beyond Nigeria to earn forex. Like be able to provide maintenance to aircraft from other countries. Like our domestic companies offering handling services in other countries,” he said.
Also speaking to Daily Sun, aviation security expert, John Ojikutu wondered where the forex earned by aviation agencies is domiciled and urged for accountability from the government and fulfilment of its international obligations.
“The first thing that needs to be done is to find out how much was paid by these foreign airlines as service charge to the commercial aviation service providers before the new rate. That money must be accounted for by the aviation agencies, fuel marketers and the ground handling services. That amount by my calculations from the traffic figures is not less than $2bn and these forex earnings in aviation must be domiciled in the CBN. What has happened or has been happening to the forex earnings in aviation since then? What is the mode of payment in BASAs we signed? Go into the records, it is this attitude of not complaining with the IATA BSP that got the Nigeria Airways out of IATA and eventually led to its total collapse. What the country is dealing with is our credibility in the agreement with international community and not a national problem. If we can give government money as intervention funds, subsidies, palliatives, to the various sectors of our economy, we must find credible solutions to our international commitments,” he said.
Aviation analyst, Olumide Ohunayo, told Daily Sun that the government must always ensure it keeps to the terms of engagement when it enters into any agreement. He said: “Much as we must accept that our inability to operate has given them airlines these huge funds that are now being repatriated, you cannot blame them because without the foreign airlines, we would not have been doing international travel because we don’t have our own airlines. So we must appreciate the foreign airlines. For them to be here, there has to be an agreement, reciprocity and the ability to repatriate funds for their tickets. These funds are supposed to be repatriated at the prevailing exchange rate. If at the time they sold at N480, they should get it at that rate. But unfortunately, it piled up over a long period of time and the money got stuck. The CBN said they have cleared it but the ones in the airlines’ bank accounts are trapped. At the I and E window, it is at over N1, 200. The government has to find a way of the engaging the airlines and the operators have to be careful. They may decide to do a trade and barter rather than wait for the I and E window which would be a huge loss to them.”