Airlines on the precipice amid call for audit
Last week, the Acting Director-General of Nigerian Civil Authority (NCAA) ‘s disclosure that Nigerian airlines are not financially viable has sent a shock wave across the aviation industry. The regulatory body is simply stating the obvious that has since drawn the ire of airline operators, writes, WOLE SHADARE
The grim picture
The precarious state of Nigerian carriers was brought to the fore recently by no other agency than the Nigerian Civil Aviation Authority (NCAA). The disclosure by the aviation regulatory body has drawn the ire of the airlines who are piqued that the agency may be economical with the truth and not looking at the elephant in the room
The revelation aside from sending an obvious signal to the direction the sector is headed put to question why carriers that are not financially healthy can continue to operate.
A corporation that is not financially healthy is prone to cutting corners and one that is capable of endangering the lives of the flying public.
The Acting Director-General of NCAA, Capt. Chris Ona Najomo according to some stakeholders may have seen the books of the carriers forcing him to raise the alarm not of impending dangers ahead but one that calls for urgent solution.
But in a situation where the economy has hampered the operations of the carriers, how come the sector remains safe? How come the various challenges faced by the carriers have not in any way hampered safety? That is the question critics of Najomo’s statement are wont to ask.
Najomo who was represented by Director of Aerodrome and Airspace Standards (DAAS), Godwin Gyang Balang at the South-West Regional Air Transportation Summit in Lagos said the financial audit by the regulator indicates that “All airlines in Nigeria may go under”.
Najomo acknowledged that domestic airlines are facing significant challenges and are battling to remain operational.
He emphasized the NCAA’s commitment to supporting struggling carriers but not at the expense of safety standards.
Reaction
In a swift reaction, the Managing Director and Chief Executive Officer of Aero Contractors, Captain Ado Sanusi, faulted the claim by the NCAA that domestic airlines were in a poor state of health.
Sanusi said that if the operations of Nigerian carriers were to be grounded due to their financial status, none would survive given the results of the financial audit the agency carried out on the airlines.
He argued that if the NCAA had concluded that most airlines were in a poor financial state, it would be evidence of a larger, systemic problem rather than individual airline mismanagement.
He argued that rather than placing the entire burden on the airlines, the NCAA and the Ministry of Aviation should investigate and address the underlying causes of financial instability.
Sanusu further stated that excessive taxes and fees can cripple airline profitability, adding that airlines face operational taxes, charges for landing, airspace usage, and other regulatory fees, which increase their cost burden significantly.
Reducing these, he reiterated would allow airlines to operate more efficiently and become more financially viable.
Same page
Both Najomo and Sanusi are saying almost the same thing. The truth is that Nigerian airlines are said to be small, weak, fragmented and collectively smaller than the smallest airlines in Europe.
By extension, the carriers are financially unstable; an insinuation that no Nigerian carrier has ever made a profit in the last three decades makes the picture grimmer.
Many have equally said that should the NCAA carry out a thorough economic audit, no Nigerian carrier may probably be allowed to fly. What has happened is that the carriers have not fallen beyond the threshold of safety permissible by the regulator yet.
The lack of good corporate governance may have equally set the carriers back. At the moment, no Nigerian carrier is quoted on the stock exchange as some of the carriers that went to the stock market have gone extinct.
Drawbacks
Carriers like ADC, Albarka and recently Medview have since stopped flying. It questions the viability of the carriers and how sustainable they are to be profitable.
Nigerian aviation industry does not have good record of viable airlines. Many airlines that were established in the past went under within an average of 15 years and in some cases less than five years.
The domestic airlines in Nigeria today are very small. And, with very few exceptions, they are owned by single individuals, which is extremely unusual in the airline industry worldwide.
The ownership structure limits their growth because their capital source is limited to acquiring expensive aircraft. This has to change
Investing in the airline industry in Nigeria is considered very high risk due to the numerous failures of airlines in the past and the struggling financial performance of most of the current operators.
Despite the proliferation of airlines in the country, the entire fleet of Nigerian airlines combined is 40% of Ethiopian Airlines.
In the past, some airports received four flights a day but now it has reduced to one as load factors have plummeted in the last few months.
On the other hand, Capt Sanusi was right. So many things have conspired to make the airline business not profitable in Nigeria.
Just like the Aero CEO alluded, Nigerian airlines are operating in a very difficult environment. An airline cannot operate in isolation of the economy it is operating in and the Nigerian economy is in very difficult times.
The cost of financing is 25 per cent. That is killing to start with. You take a loan and you pay 25 per cent of whatever you make to the bank.
An airline operator who preferred anonymity said, “You are not talking of your expenses, your cost, and your current and long-term liabilities. Many of them are in a financial dire strait”.
Ex NCAA DG assertion
A former Director-General of NCAA, Capt Musa Nuhu equally said what Najomo said through Balang. Nuhu who spoke at the 7th Aviation Africa Summit in Abuja in September 2023 noted that what the carriers are currently going through is a reflection of the difficult economy they operate.
“You are not talking of your expenses, your cost, and your current and long-term liabilities. It is a very difficult environment for the airlines and we also sincerely sympathise with them and we will try and see where we have flexibility to make life easy for them.”
Nigerian carriers suffer from weak economies and stiff competition from international players, especially in trade, a position that economists seem to agree with.
Many of the carriers are constrained with huge debts hanging on their necks. The multiple charges are equally crippling but it needs to be understood that many of these charges are not from the aviation agencies, but are more in the cargo area.
But there are a lot of people who believe that the charges have nothing to do with aviation aeronautical charges. It is other organisations that are in the airport that put these charges.
Solution
Stakeholders need to all sit down as a team and see the damage these charges have done to the country.
Last line
Amid these mounting challenges, it is difficult for airlines to exist amid the high cost of operations and astronomical interest rates by financial institutions.
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