Airlines re-think business model, insolvency looms

**Cash dries up for lease rentals, operations

**Carriers use wrong airplanes-Experts

 

 

Size they say matters. But in aviation, size no longer matters as airlines are re-thinking their business model. Some of them are at the verge of jettisoning their big, fuel guzzling B737 which is dominant in Nigeria’s aviation for small size, fuel efficient airplanes.

Consequently, aircraft lessors are considering repossessing their airplanes or cause the operators to return them for fear of defaulting in lease payment.

Already, aircraft lease for Nigerian carriers jumped up astronomically since the Dana Air incident in which over 120 people lost their lives in Lagos suburb of Iju Ishaga eight years ago.

Then, major aircraft leasing firms such as GE Capital Aviation Services (GECAS), International Lease Finance Corporation (ILFC), Cab Tree and Aercap raised lease on aircraft to Nigerian airlines by over 25 per cent.

But with the recent panic of near insolvency of airlines, the lessors  GECAS, ILFC , Cab Tree and others monitor seriously events in the country’s aviation sector and quickly react to safeguard their equipment.

 

There are indications that Nigerian carriers have exhausted cash to continue to pay for the leases as passenger traffic have continued to dwindle since Federal Government lifted ban on domestic air travel on July 8, 2020 as many of the airlines record far less than 40 passengers on each of their trips, a situation that has made their suffering to continue.

A top airline chief confided in Woleshadarenews that the initial enthusiasm that greeted re-opening of domestic flight operation has disappeared as they daily record less than 40 passengers on their B737 airplanes; amount he said does not cover cost of fuel with takes about 35 per cent of cost of operations.

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He however stated that some of them have to tinker with their business model to go for smaller, cost efficient smaller jets to remain in business.

It is feared that by the end of the year, only two carriers might survive as many including the big airlines are showing signs of insolvency.

Investigation by our correspondent shows that at the Lagos airport, many B737 dot the tarmac, just as many of them are still in storage for lack of usage occasioned by peoples reluctance to travel by air.

Nigerian scheduled airlines have about 65 airplanes, majority of them made up of B737 classics and few B737NG.

The breakdown shows that Dana has nine aircraft with two ferried out for maintenance offshore; Arik Air operates seven B737; Aero has five, but two are undergoing maintenance

Overland Airways has nine aircraft. One is outside the shores of Nigeria for periodic maintenance; Air Peace is reported to have about 24 aircraft; Ibom Air has four narrow body CRJ planes; Max Air six airplanes made up of three B737 and three B747 and Azman Air has three aircraft including A340.

Reacting to the bleak future of airlines in the country, a former Managing Director of Virgin Nigeria Airlines, Capt. Dapo Olumide painted a grim picture of the industry and called for urgent re-think by airline owners.

He said airlines’ problems are self inflicted wound with use of wrong type of aircraft for domestic operations.

He predicted that by the end of this year, there would be no more than two airlines flying because of huge overhead, querying how many of the aircraft are owned by the operators.

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 His words, “You are leasing these aircraft in dollars. You are not leasing them in Naira or India Rupees. The dollar that you leased them at the time was probably N360/$, now the dollar is N500/$. The problem of the airlines as they are now is self inflicted wound. They have wrong type of aircraft for domestic operations”.

“There is a CRJ that is doing direct flight from South Africa to Lagos. The CRJ only has 70 seats and it is doing nonstop from Johannesburg to Lagos and you are doing B737 with 120 seats Lagos to Abuja. Apart from burning more fuel, you don’t have the passengers. Abuja-Kaduna is 30 minutes in a B737. What type of economics is that? What is wrong with you? We understand that the reason many people set up airlines is not the reason we all know. They have their reasons such as getting foreign exchange and loans”.

“Why do you think Ibom Air is doing well? Ibom Air is doing well because they are having efficient aircraft. Even if you fly with 50 per cent load factor, that is just 30 or 40 passengers; does it mean you can’t find 30 passengers? Ofcourse you can. You don’t have to charge so much because your fuel burn is less than the B737. Your landing fee is less because of the size. Your parking fee overnight is less because of the size. That is why Ibom Air is making money and they have the infrastructure”, he added.

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He urged the government to help subsidise aviation fuel, but cautioned that airlines should not be handed cash because of fear that they would divert it to other business interest.

Director of Maintenance, Ibom Air, Lookman Animashaun, an aircraft engineer said the best option left for airlines was to re-fleet and come up with good business plans that could make them to remain in business post COVID-19.

He urged airlines with lease aircraft to return them and re-negotiate with the company to see if they could give them Embraer or CRJ planes or 50 or 60-seater aircraft.

“That will make them to manage their losses because the majority of operation costs go into fuel. All the passengers they are carrying in those big aircraft cannot buy fuel. If they are carrying 30 or 40 passengers how much is that at the rate of N25, 000. They are at a loss. Thirty passengers can’t pay for fuel of N750, 000 to and fro Abuja.

“They should rethink their business model now in the face of COVID-19. There is no way they can carry 100 passengers again for a very long time. Aviation fuel from Lagos is N205 per liter. From Abuja, it is N218. B737 uses three tonnes of fuel per hour which is about 3, 500 liters amounts to about N750, 000. The airlines will pay charges to FAAN, NCAA and what do they have left?

Wole Shadare