Experts: Lack of banks’ support hampers airlines’ growth

High interest rate by commercial banks, lack of alternative choice for credit facility and an over regulated financial system have been identified as some of the obstacles that hinder investment in the aviation industry.

Also, Nigeria’s poor credit rating prevent international financiers that could give long term credit facility at single digit interest rate to those who may wish to invest in airline business from doing so.

Speaking to Woleshadarenews in Lagos, Commissioner, Accident Investigation Bureau (AIB), Akin Olateru, an aircraft engineer, said there are lots of associated reasons why banks in Nigeria do not assist airlines.

He attributed the country’s volatile environment to resistance of finance houses looking the way of investment in the aviation industry. “You have to look at environment. Who gives airline finance in air transportation business? Will the bank support you with finance?” he asked. “We are such at a disadvantage. I believe that we are on the right track and, over time, we will surmount all these problems.”

Olateru’s position was corroborated by stakeholders in the sector who noted that investment in air transport comes with little returns on investment with huge capital outlay. They explained that to fund such businesses, banks must adopt a long term, single digit interest loans that would support the industry.

An airline chief who spoke to our correspondent on condition of anonymity, said that the present interest regime of banks makes it difficult for Nigerian airlines to borrow money and this has affected the acquisition and leasing of commercial aircraft in Nigeria.

“The present interest rate regime in Nigeria is not good for aviation. Take the over 20 per cent interest; you can’t do any business with that. So we need to do something about that”.

He said that many banks are yet to know how the industry operates, especially the value of the equipment (the aircraft) and that explained why the past funding of aircraft for airlines were not particularly successful.

This led to liquidation and the interference of Asset Management Corporation of Nigeria (AMCON), which today has absorbed the liabilities of these airlines.

He also remarked that banks may not be able to provide the credit support for airlines to acquire new aircraft because of the huge finance involved, noting that the banks would rather lose money by using it to train its staff to understand the sector than precarious exposure of their funds to the capital intensive aircraft acquisition.

Speaking recently, Chairman, Airline Operators of Nigeria (AON) Capt. Noggie Meggison, attributed the poor performance of domestic airlines to multiple taxes by various agencies in the aviation sector. He lamented that the system has failed to recognise the pivotal role airlines could play in bringing the nation’s economy out of challenging times.

Meggisson said the system is continuously manipulating, feasting on and pushing the financial envelope of airlines by inflicting multiple taxes and levies to the extent that airlines are now groaning under the pressure and some are going bankrupt.

He added: “AON has been screaming and complaining about the same issue over the years, which has culminated in sending over 27 airlines under in the past 25 years.