Forex, high lease rental stunt airlines’ growth

•NCAA wants forex priority for carriers

The over 40 per cent devaluation of Nigeria’s currency – the Naira coupled with the astronomical rise in the price of aircraft lease or outright purchase, have constrained Nigerian airline operators’ growth, WoleshadareNews has learnt.

This was disclosed by the Director-General of Nigerian Civil Aviation Authority (NCAA), Capt Muhtar Usman, on the sideline during the visit by the House of Representatives Committee on Aviation in Lagos.

The naira, which exchanged at the official and parallel markets at N197 and N230 per dollar six months ago before liberalization of the foreign exchange market, currently trades at about N315 and N460 per dollar.

The NCAA boss said that scarcity and inability to access foreign exchange are major headache of airlines, adding that most of their aircraft were on lease.

He stated that for the carriers to remain afloat, the aviation industry must be given priority in accessing foreign exchange, stressing that airline business was heavily dollarised.

For close to two years, rather than expand their operations, the country’s carriers’ seem stagnant or at best shrinking in equipment size and cutting down on routes, as they are unable to acquire more airplanes, occasioned by the sharp reduction in passenger traffic.

This is further compounded by the fact that 65 per cent of aircraft in operation in Nigeria are said to be on either wet or dry lease.

A wet lease is a leasing arrangement whereby one airline (the lessor) provides an aircraft, complete crew, maintenance, and insurance (ACMI) to another airline or other type of business acting as a broker of air travel (the lessee), which pays by hours operated.

The lessee provides fuel and covers airport fees, and any other duties, taxes, etc. The flight uses the flight number of the lessee.

A wet lease generally lasts 1–24 months; a shorter duration would be considered an ad hoc charter. A wet lease is typically utilised during peak traffic seasons or annual heavy maintenance checks, or to initiate new routes

Aside Medview, which is rapidly expanding operations and acquired aircraft to service some of its international routes, others have limited themselves to the few operations because of the astronomical increase in lease agreements.

Airlines lease aircraft from other airlines or leasing companies for two main reasons: to operate without the financial burden of buying them, and to provide temporary increase in capacity.

Fifty per cent of global lessor set are based in Ireland and in 2015, over $120 billion of new commercial aircraft was delivered worldwide.

GECAS is the largest aircraft lessor in the world by fleet size, according to the 2010 Airfinance Journal Operating Lessor Survey.

Apart from the effect of depreciating naira against the United Stated dollar, Nigerian carriers find it extremely difficult to negotiate aircraft leases because of the perception that Nigerian operators renege on agreement and most times the lessee double the cost of lease of their equipment.

An operator, who spoke under condition of anonymity, said for the new generation airplanes that are in high demand and popularly referred to as Next Gen (aircraft below 10 years), the lease has risen to $240,000 per month from $160,000.

Wole Shadare