N4b Bailout: A Drop In The Ocean For Airlines

N4 billion stimulus package for Nigerian airlines amidst existential crises confronting them remains insignificant as the carriers need more urgent financial assistance. WOLE SHADARE writes

Better late than never

It took too long to arrive at whether or not Nigerian airlines need bailout. The general consensus among airlines and stakeholders is that the airlines need help. That help came two weeks ago when the Minister of Aviation, Hadi Sirika, announced that the Federal Government had approved N4billion for airlines as part of its desire to assist the carriers that have been dealt heavy blow by COVID-19.

Mixed grill

Not a few have expressed reservations about what N4 billion ($10.51 million) would do for airlines that are in serious financial and technical dire straits. To them, it amounts to a drop in an ocean. Others, however, commended the Federal Government for deeming it necessary to assist at a time the government needs all the resources for other sectors as well.

Yes, some did not agree that the carriers should be assisted with state funds because of how similar assistance to the airlines in the past went awry with claims and counter claims by airline operators that the money did not go to them but rather to commercial banks for the settlement of their indebtedness to the banks.

Nobody is sure if the over N80 billion largesse had been refunded or recouped by government. But the reality is that many countries in Africa and other climes have seen through the danger of standing aloof while airlines collapse before their very eyes.

Aviation’s critical role

Aviation all over the world provides the only rapid worldwide transportation network, which makes it essential for global business. It generates economic growth, creates jobs, and facilitates international trade and tourism.

According to Oxford Economics, the aviation sector in Nigeria contributes N119 billion (0.4%) to Nigerian GDP.

This total comprises; N59 billion directly contributed through the output of the aviation sector (airlines, airports and ground services); N34 billion indirectly contributed through the aviation sector’s supply chain; and N27 billion contributed through the spending by the employees of the aviation sector and its supply chain.

In addition, there are N 78 billion in catalytic benefits through tourism, which raises the overall contribution to NGN 198 billion or 0.6 per cent of GDP. The aviation sector supports 159,000 jobs in Nigeria.

This total comprises 44,000 jobs directly supported by the aviation sector; 64,000 jobs indirectly supported through the aviation sector’s supply chain; and 51,000 jobs supported through the spending by the employees of the aviation sector and its supply chain.

 

In addition, there are a further 130,000 people employed through the catalytic (tourism) effects of aviation. This underscores the importance of the industry to  any country and one that cannot be toyed with.

Struggle for survival

The problem of the airlines predates COVID-19. The truth of the matter is that Nigerian airlines and many other airlines in Africa have struggled to survive churning out profits barely enough to sustain a very capital intensive airline business.

The pandemic only serves to nail the coffin in a more devastating manner that offers little hope of existence as many carriers are at the verge of calling it a day. That is the more reason the International Air Transport Association (IATA) is relentless in its campaign that African governments must support their airlines to have any hope of survival.

Senegal, others show fate

Senegal recently announced $128 million in relief for the Tourism and Air Transport sector in the face of coronavirus pandemic.

Other countries that have chosen to bail out their airlines include Angola, Botswana, Chad, Egypt, Cote D’ Ivoire, Ghana, Jordan, Kenya, Morocco, Oman, Qatar, Saudi, Senegal, South Africa, Tunisia, UAE.

The sector had also seen a number of relief measures in terms of Airport and ANSP charges from ASECNA (ANSP covering 17 states in Central West Africa and Madagascar), Namibia Airports Company (8 airports), Ghana Airport Company (6 airports), Seychelles, Oman airports, AMM airport, DXB & DWC airports.Five international air transport and tourism bodies launched an appeal to international financial institutions, country development partners and international donors to support Africa’s Travel & Tourism sector.

The major stimulus from governments combined with liquidity injections by central banks would boost the economic recovery once the pandemic is under control

Challenges

Nigerian airlines’ are particularly weighed down by financial recklessness, corporate governance lapses, greed on the part of airline owners, alleged over-taxation by the government, unfavourable forex, serious issues in aircraft financing, among others.

Banks that have attempted to fund the business in the past neither had the deep expertise nor carried out proper due diligence before committing their funds. Banks lack both the financial capacity as well as the expertise in personnel to critically analyse the business and its associated risks before throwing their money into aircraft/aviation financing.

Sirika said this much of the operators, as he lamented the constant death of over 100 airlines in the last 20 years, attributing their demise to poor business plan, wrong use of aircraft that are fuel guzzling and cost inefficient.

Records made available by NCAA show that no fewer than 100 registered airlines, scheduled and nonscheduled, have collapsed in the last 15 years.

High mortality rate

Among the carriers that have ceased operations are Associated Aviation, Allied Air, Hak Air, Kabo Air, TAT Nigeria, Belview, Sossoliso, Chanchangi, Sky World Express, Virgin Nigeria, ADC, Concord Airlines, IRS and Okada Air.

The high turnover in mortality rate, perhaps a record in global aviation, is often blamed on various reasons including unfriendly business environment, multiple charges, lack of government’s support, non-viable routes and low patronage. Indeed, Nigeria has about 180 million population and one of the lowest air traffic demands by population.

For instance, the air travel sector in 2019 transported a total of 15 million passengers in 2019. By implication, less than seven per cent of the population travel by air.

Fact is that at least 90 per cent of airplanes in commercial operations in the country are the B737 series, which is considered fuel inefficient and runs at a loss without 90 to 95 per cent load factor per flight.

 

2011 bailout for airlines

The N4billion in 2020 bailout fund pales into insignificance if one is to compare what was given to the airlines in 2011, which was put at over N80b.

The economy at that time was far better than what it is today. It was also a period airline business relatively thrived and at a period Naira had not depreciated to what it is today.

Did the carriers justify such funds? The answer is yes and no depending on the divide one falls. The airlines claimed that the money did not go directly to them and such could not be held responsible for its application. The Federal Government had in 2011 released N120 billion intervention fund.

 

        Aviation Intervention fund of 2011

Airlines                                  Amount                Status

Air Nigeria                             N35.5b                  Not in service

Aero                                        N20b                      Under receivership

Arik                                        N15b                      Under receivership

Kabo                                      N6.66b                   Hajj operation

IRS                                          N3.4b                      Not in service

Chanchangi                            N3.4b                      Not in service

Dana Air                                N618m                      In service

Caverton Helicopters           N1.348b                    In service

Overland Airways                 N805m                      In service

First Nation                          N271.7m                   Not in service 

 Odengene Helicopters        Unverified                 Not in service    

 

The money was released by the Central Bank of Nigeria (CBN) as part of a N500 billion intervention fund. Air Nigeria, re-christened from Virgin Nigeria, was the highest beneficiary, receiving N35.5 billion, which was supposed to be monitored by the Central Bank of Nigeria (CBN), as well as the Bank of Industry (BoI).

Other airlines that benefited included Aero, which received N20 billion, Arik Air got N15 billion, Kabo Air got N6.66 billion, IRS and Chanchangi Airlines got N3.4 billion each. Some of the least beneficiaries included Dana Air, which accessed N618 million, Caverton Helicopters got N1.348 billion, Overland Airways got N805 million and First Nation Airways got N271.7 million.

Ten airlines benefitted from the fund through loans with a tenure of 10 to 15 years. The beneficiaries were Arik, Aero, Air Nigeria, Chanchangi Airline, First Nation, Odengene, Dana, Overland, IRS, Kabo among others. Chanchangi, Odengene, Air Nigeria and IRS have folded up with tax payers’ money gone down the drain. The loans were not collateralized. Arik, Dana, Aero, Kabo, Overland are ones still in operation.

Expert’s view

An aviation expert who craved anonymity said the airlines did not apply the intervention fund judiciously, which he said made the status quo to persist.

“After years of government aid, it is appropriate to ask what has been accomplished. Was the bailout truly necessary, or did it simply ignore the economic realities of the airline industry?

Has the aid merely propped up weak and inefficient firms at taxpayer expense even though they will eventually fail?

Last line

The Federal Government may have done what is expected of it but N4b certainly cannot in any way rescue these carriers. The National Assembly needs to approve more funds for the rescue of an industry in dire need of help.

Google+