Airlines’ Insolvency Inevitable As Fleet Size Shrinks
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- Aero, others to cut workforce by 50%
- Arik, Dana struggle as Caverton records N2bn Q1 loss
Unless help comes faster, Nigerian airlines could close shop earlier than expected. While the Federal Government is not mooting the idea of another bailout fund to resuscitate their operations, eight years after over N150 billion was given to them, the airlines’ fleet size is shrinking by the day.
Their last ray of hope for bank funding seems to be fading. As at today, over 600 commercial pilot certificate holders are without jobs, owing to the fact that the number of airlines in the country has reduced by over 60 per cent of what it was a decade ago.
The airlines passing through financial turbulence are finding it difficult to approach banks to rescue them following huge indebtedness to various financial institutions.
Some of the loans are classified as non-performing and consequently, they have been refused fresh loans. Nigeria’s airline industry owes banks and government as much as $2 billion after funding rapid expansion with short-term loans, leaving some firms struggling, industry and financial sources say.
In Nigeria, commercial banks, which are profit-oriented and without huge financial base are reluctant to lend such long-term loans to airlines and this has hampered air transportation in the country. The situation is not helped with the risks associated with air transport in the country.
So, lack of adequate funding has led to the short life span of many airlines, in addition to bad business plan and technical failure; it has also led to the many air crashes suffered by airlines.
The airline industry in Africa’s most populous nation a few years ago saw explosive growth. Unstable currency of late has further minimised the survival prospect of carriers. The naira, which trades at N310 per dollar at the interbank market, exchanged at N410 per dollar last Friday.
Also, high cost of funds is also a direct hurdle to profitability in every sector, but it is hardest hit in aviation.
The explosion then saw older domestic names such as Aero, Chanchangi and IRS fighting competition from new players such as Arik, Dana and Virgin Nigeria. Chanchangi, IRS and Virgin Nigeria have all gone into extinction.
The expansion gave Nigerians a wider choice of airlines, many of them flying with relatively new and refurbished aircraft, helped reverse the country’s dismal reputation for air safety in the wake of
a spate of crashes. Consequently, Nigeria’s oldest airline, Aero Contractors, is at the moment operating with just one aircraft after five of its other airplanes were grounded at the apron of the Murtala Muhammed Airport, Lagos.
Already, Aero, which was one of the most stable carriers in Nigeria, has commenced the downsizing of its workforce by 50 per cent. Other airlines are said to be tinkering with the idea of cutting their workforce by the same number.
WoleshadareNews learnt that the Asset Management Corporation of Nigeria (AMCON), Aero’s owners, have concluded plans to divest from aviation. Caverton Helicopters was said to report first quarter loss of over N2 billion due to downward spiral of oil prices.
Caverton’s main customers, the oil firms, are finding it extremely hard to remain in business, hence having serious effects on the airline.
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