Appraising airlines, aviation agencies’ recurring debts impasse

WOLE SHADARE writes that the frequent airline debt crisis puts carriers and agencies on the edge

Face-off

The run-in between Nigerian carriers and various aviation agencies over settlement of debts is becoming a recurring issue that is threatening the smooth operation of airlines as their operations are frequently disrupted. Each time the Federal Airports Authority of Nigeria (FAAN), the Nigerian Airspace Management Agency (NAMA) and the Nigerian Civil Aviation (NCAA) wield the big stick; it leaves so much pain not only for passengers, but a big blow to airlines. For the past four years, virtually all Nigerian airlines have had not too pleasant experience from these three major aviation agencies, which put the total indebtedness of domestic carriers to about N100billion.

While other airlines are alleged being treated with kid glove, Arik, Nigeria’s biggest airline, has always clashed with the authorities with claims that the carrier is heavily indebted to all the agencies. Agreed that Arik is hugely indebted to the agencies, stakeholders are worried that the agencies, particularly the FAAN is at a loss to exactly what Arik owes. All over the world, airlines operate on debts, but what should not be tolerated; stakeholders said is allowing the debts to accumulate to a level that it becomes very difficult to reconcile. FAAN, through the unions alleged that Arik owes it N12.5billion, which the carrier swiftly dismissed.

Arik boss kicks

Chairman of the company, Sir Johnson Arumemi-Ikhide, accused FAAN of not adhering to the rules and regulations of the Federal Republic of Nigeria, describing the decision to resort to self-help in disrupting its operations as a violation of rule of law, considering the fact that the matter is in court. He accused FAAN of frustrating amicable resolution in spite the fact that they had paid N18.9billion, which he said was acknowledged by the agency in a letter sent to them. He apologised to thousands of the airline’s passengers whom he said were left stranded over the disruption of its operations. He however, announced that the airline resumed flight operations.

“We have been paying our debts regularly to FAAN despite the fact that the airport landlord had some amount of money to pay to it arising from the incident to its aircraft at the Calabar Airport some few years ago,” he said. Arumemi-Ikhide also displayed a letter dated February 3, 2016 acknowledging the lodgement of N11.4 billion to the coffers of FAAN from the airline.

He maintained that it had since the commencement of operations in October 2007, paid a total sum of N18.9 billion to the agency. He alleged that FAAN recently confirmed getting “a mysterious additional N7.5 billion in its account,” but insisted that the money didn’t come from Arik Air despite its insistence that the large sum was from the carrier.

Recurring issue

The same scenario played out four years ago when the FAAN through the same unions picketed Arik over unresolved debts settlement. The action led to excruciating pain for travellers. The agony was unbearable then because just three airlines, Arik, Aero, Overland were in operations then.

They lacked the capacity to provide air services to thousands of passengers, as Arik controlled over 60 per cent market share then. This situation forced the Presidency to summon an emergency meeting to resolve the imbroglio, which forced the sector to it’s kneels.

Former Minister of Aviation, Stella Oduah was forced to eat the humble pie after Arik alleged that the sudden shut down of its operations by the union was orchestrated by the Minister because of the carrier’s refusal to cede some shares to her. Oduah swiftly denied the claim, describing it as a pure blackmail to evade payment of what Arik owed.

The company was last Wednesday picketed by the Air Transport Services Senior Staff Association of Nigeria (ATSSSAN) over claim that Arik is indebted to the authority to the tune of N12billion. Same day FAAN was dealing with the airline through the unions, the NCAA directed all airlines (domestic & charter) operating in the country to forward in full un-remitted funds accruable to the Authority without further delay.

NCAA talks tough

Director-General of NCAA, Capt. Muhtar Usman, said the directive was with regards to the five per cent TSA/TCA collected at source from the air passengers by the airlines on behalf of the Federal Government of Nigeria. He noted that these sales charges are to enable all aviation agencies carry out their responsibilities of providing safe, secure and efficient regulatory services for the overall benefits of all aviation stakeholders

. The NCAA chief stated that it is imperative that all un-remitted funds are forwarded in full to NCAA immediately. The airlines must desist from using these funds “held in trust”.

He said the ongoing five per cent Ticket/Cargo/Charter/Sales Charges automation of payments, which offers real-time transparent transactions, must be completed within two months.

He said:“This will remove end. less reconciliation of data and reduce high debt profile of Airlines to NCAA. “Reconciliation of all outstanding debts must be completed within 60 days; the five per cent Ticket/ Cargo/ Sales Charges must be on Gross Ticket excluding Value Added Tax (VAT) and Passenger Service Charge (PSC) only.

All airlines must provide to the Authority the breakdown of the recently introduced ‘’Taxes+Fees’’ component on all passenger tickets, which include the amount due to each government agency.”

Bad debt

woleshadare.net leant that the said debts to the agencies, running into several billions of naira might not be settled in the nearest future, going by the present harsh economic realities the airlines are operating in. Meanwhile, huge operational costs, emasculating charges imposed by different agencies and the resultant heavy debt burden are sounding the death knell for most domestic airlines in Nigeria.

Some airlines are said to owe their workers in all categories, arrears of monthly salaries and allowances, a situation so fraught with danger that the Nigerian Civil Aviation Authority (NCAA), the regulator, may intervene to forestall the negative impact it could have on flight operations.

The airlines, according to industry watchers, are ‘bleeding profusely’ over the high costs of operation. To them, they are constrained by circumstances beyond their control, due to increasingly high operational costs of running the airline business in Nigeria caused by the scarcity and high cost of aviation fuel (Jet-A1) and, indeed, the multiple charges, levies and taxes imposed on them by the agencies.

Some of the airlines have suspended some routes either because they are no longer viable or because the cost of operating them is no longer tolerable.

Expert’s view

Chairman/CEO of Air Peace, Allen Onyema, recently described the Nigerian aviation sector as ‘dead on arrival’. He lamented the difficulties airline operators are going through in doing business in the country. His words: “The airlines in Nigeria are dead on arrival because of the harsh conditions under, which they operate.

Government policies are chief among the reasons for the under development of the industry. “Multiple taxation by government agencies, high cost of aviation fuel compared to elsewhere, high cost of overhead, prohibitive interest rates from banks, lack of easy access to foreign exchange, lack of night flying infrastructure in over 97 per cent of the airports in Nigeria, the people’s low purchasing power and the one directional passenger movement in Nigeria, clog the wheel of development of the industry in Nigeria”.

Conclusion

Unlike many service businesses, airlines need more than storefronts and telephones to get started. They need an enormous range of expensive equipment and facilities from airplanes to flight simulators and maintenance hangars. They also need to pay up their debts to maintain their integrity and keep the system going. The airline industry is a capital-intensive business, requiring large sums of money to operate effectively. Whatever arrangements an airline chooses to pursue, its capital needs require consistent profitability

Wole Shadare