IATA: 25% loan interest, airlines’ insurance premium in Nigeria highest in the world

  • Nigerian airlines set up to fail from start
  • Why carriers are not profitable

Wole Shadare, Geneva, Switzerland

The International Air Transport Association (IATA) said that 25% interest on loans which it tagged ‘ridiculous’, high airport taxes and insurance premiums which it said is six times more than anywhere in the world would do incalculable damage to aviation in Nigeria.

IATA’s Regional Vice President Africa & Middle East, Kamil Al-Awadhi at a media presentation with African journalists at the IATA Global Media Day in Geneva, Switzerland on Thursday also bemoaned the ranking of two Nigerian airports emerging as the most expensive in the world including jet fuel which is considered costly and higher than elsewhere in the world.

He disclosed that the country’s carriers are set up to fail because of the huge challenges they face from the outset because of the many challenges stacked again.

Some of these challenges have seen more than 60 airlines go into extinction in the last 30 years as many of them begin to show signs of weakness a few years after they are set up and eventually give way.

Virtually all the country’s carriers are wobbling and show signs of threat to their existence as many of the encumbrances highlighted by the IATA chief have conspired to make things difficult for the carriers.

Al-Awadhi stated that any airline in Nigeria operating outside of Nigeria has a cheaper operating cost and better prices than Nigerian airlines, further highlighting why it is very difficult for African airlines in general to make a profit.

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“Every airline has its challenges and it depends on where it operates. To answer this question, I will use Nigeria as an example. Nigeria has two most expensive airports; their fuel is higher than elsewhere in the world, and insurance is six times more expensive than anywhere else in the world.”

“The interest on loans is 25%. It is ridiculous. It is the highest interest I have ever seen. When you set up these airlines, you are already disadvantaged. Any airline in Nigeria operating outside of Nigeria has a cheaper operating cost and better prices than Nigerian airlines. You can see why it is difficult for African airlines to make a profit.

“IATA is identifying why these costs are high and we are trying to tackle them one by one by seeing how they can reduce the costs. We are expecting that the operating costs of the African airlines will be lowered and they can become profitable”, said Al-Awadhi.

IATA is identifying why these costs are high and we are trying to tackle them one by one by seeing how they can reduce the costs, hoping that the operating costs of the African airlines will be lowered and they can become profitable.

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Al-Awahdi’s view on high insurance premiums for Nigerian carriers was recently corroborated by the chairman of Air Peace Airlines, Mr. Allen Onyema who lamented that despite the highest safety standards implemented in the aviation industry, Nigerian operators pay the highest insurance premium in the world.

Aviation Metric’s investigations show that while Nigerian airlines pay between 10 percent and 12 percent of the value of an aircraft to insure it, airlines operating in Ghana, South Africa, and other African countries pay 2-3 percent.

Airlines operating in Europe and the United States pay between 0.5 percent and one percent to insure the same aircraft.

For instance, airlines operating in Nigeria pay an average of $1 million annually to insure a B737-300 aircraft while airlines in Ghana or the United States pay between $200,000 and $300,000 to insure the same aircraft type.

The scarcity of foreign exchange in Nigeria has continued to worsen the situation for airlines as they have to pay for insurance in foreign currencies.

On blocked funds, the clearing house for 310 global airlines listed Nigeria as the country with the highest amount of airlines’ blocked funds at $792 million followed by Egypt ($348 million); Algeria ($199 million); AFI zone ($183 million) and Ethiopia $128 million.

He disclosed that while Ethiopia has mapped out a strategy to defray the debt by the two countries’ Central Banks engaging each other, he said that Nigeria remains dire.

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Al-Awadhi said, “Ethiopia is seeking a way to resolve this issue even though the blocked fund is rising. The first step for us to solve these blocked funds is for both parties to engage. If parties don’t engage, it is very difficult to move forward. I have not been able to engage with Nigeria’s CBN Governor. He said he would engage with me when he had a solution. He is not promising but I have engaged with the Aviation Minister who is very understanding, new to the position, or maybe wowed by the situation he inherited will help to resolve the matter.”

Airlines

“The airlines in Africa are owed $34 million. That $34 million is blocked. Depreciation has set in on the money. They have already lost $10 million because of depreciation. That is not fair for the airlines because they have paid all the dues to the operators of the airports. Every due has been paid for. They carry Nigerian officials on these flights and they can’t get their money.”

Wole Shadare