Iyayi: 5% TSC, CSC intended for aviation development but sector is in deficit

Roland Iyayi, a former Managing Director of the Nigerian Airspace Management Agency (NAMA), and currently President/CEO of Top Brass Aviation Limited and a member of the Airline Operators of Nigeria (AON), in this interview with WOLE SHADARE, speaks in support of more allocation to NAMA in the distribution of five per cent Ticket Sales Charge and Cargo Sales Charge because of the security of the nation’s airspace

You are aware of the face-off between the Nigerian Civil Aviation Authority (NCAA) and the Nigerian Airspace Management Agency (NAMA) over the 5% Ticket Sales Charge and Cargo Sales Charge. Not a few believe that the NCAA solely relies on it for its survival. Do you agree with that assertion?

It is cash in the NCAA’s coffers. What we are saying is that 5% is useful, but it is not directed toward its intended purpose. They are using it for an entirely different thing. It is intended for aviation development, but aviation is in deficit, and it has been for the past four or five decades simply because all that money has been used for purposes other than aviation. We need to look at the overall picture. We have people who are just talking, not because they know clearly what they are talking about. The emotions are charged because it’s money. All they want to see is that money is coming into our coffers. So, the money coming into your coffers, what are you using it for?

Are you suggesting that the purpose of TSC and CSC is defeated?

The purpose for which it was meant has long been overtaken by events. Somehow, surreptitiously, some individuals within the NCAA, when the act was being put together in 2006, went on to introduce it, and now it’s the law. In the recent amendment, the CAA made it even a criminal offence if an airline doesn’t remit; it is liable for a fine and a jail term. If you think that it is so easy, set up your system to collect your own money. Nobody has taken the time to look at the nitty-gritty. Everybody is emotionally charged. The money is useful. The NCAA needs it. What infrastructure does the NCAA provide? You train people. Your inspectors must be trained. Do we, in fact, train them adequately? People are scheduled for training annually, but I can show you people in the NCAA who haven’t been trained in three years. People are complaining. You have the NCAA management mobilising the unions to go and fight. Even the unions were paid to do what they are doing. So the point is, if people are arguing for the sake of being objective, it’s a different matter, but people are arguing because of what they get. For me, anybody can say anything; 5% is not relevant for our purposes. Today, the relevance of the 5% is actually not there. Except, of course, we now want to give it a new nomenclature and say maybe we’re talking about an aviation development fund. In that case, it will be money that will be ring-fenced and dedicated to the development of aviation because, as it says today, NCAA, in the last 4 years, has contributed an average of $500 million annually into the revenue account and that money is money taxed on passengers. So, what is the commensurate development in the industry? That’s the argument.

The NCAA is an industry regulator, and some say it has helped raise the country’s safety oversight. Is that not at variance with your position?

I ask: What is the role of the NCAA in the development of aviation? The NCAA has two units. One is safety and security oversight of the industry. The second one is the development of industry. But there is a thin line between the safety and security oversight and development. But over the years, particularly in the last three decades, the NCAA has focused more on safety and security oversight of the industry to the detriment of industry development. Then, the mindset of the agency has been geared towards revenue generation. So they continue to believe they are supposed to generate revenue for the government.

Could you tell us how the aviation industry got to the 5% TSC in the first place?

A lot of people talk about all these charges, not minding the history. When we talk about arbitrary charges or the multiplicity of taxes, it is because, as the FCAA evolved, different charges were introduced by the various entities that emerged from it. All these charges were part of the 5%. Nigeria Airways was not paying all of these charges. By the time they liquidated Nigeria Airways, it had a bill of over $9 million, which the liquidator later calculated as monies owed by Nigeria Airways to NAMA. The point is, ICAO provides that any charge in aviation must be strictly for cost recovery. That is the only way the airline industry can thrive. But in Nigeria, these are not charges; these are taxes. When you collect money, and you don’t use it for the purpose for which it was intended, and you put it in a consolidated revenue account, it is now a tax, and that is why the government is saying NCAA is the fourth largest contributor to the consolidated revenue and a great contributor to GDP. FAAN is the sixth. If you look at all of that put together, you are talking about $1 billion a year from aviation going into government coffers. To make matters worse, we don’t have the government investing $250 million in aviation every year. I gave a paper to the Vice President, who chaired the presidential advisory council. That paper was talking about how to remove aviation from underfunding shackles of. I said that, over a four-year period, aviation can be self-sustaining without relying on government funding if it’s allowed to stand on its own. In that paper, I provided a structure for an aviation development fund. I provided a paper for the ICAO and IATA Infrastructure Development programme that you tie those monies into, and then IATA, being the representative of the airlines, can say that in your system, these are the deficiencies, so we would focus more on providing this sort of infrastructure to make sure that those deficiencies are addressed. It was introduced because, at that time, Gen. Yakubu Gowon built an airport in 12 states. At that time, aviation wasn’t a ministry; it was a civil aviation department without sufficient budgetary allocation to address those issues. That is the history of where we are coming from. So the 5% was intended to fund the development and maintenance of the infrastructure built by Gowon. But today, it is seen as money for the boys.

But these are laws that have been made over the years. Can it be changed?

When people talk about all these things, they do so in isolation. Talking about the fact that that is what the law says. Who made the law? The law didn’t make itself. We made the law. The reason we made the law is that it is convenient. They are supposed to take money from passengers and other sources to develop the industry. If you have that, you’ll have more traffic. I’ll give you an example. There was a time when NAMA was losing plenty of money due to overflight charges we collected from international airlines for using our airspace. Why was that? Because they said our infrastructure on the ground was inadequate. For safe navigation. When I became MD of NAMA, I had to engage IATA in Geneva, and then we went through this programme to ensure that we could put the necessary infrastructure in place. At that time, NAMA was just buying one VOR in Enugu. The money that was set out for that VOR, I said to the government, look, we can use this money as seed capital to make sure we get enough VOR DMEs and ILS DMEs in our major airports all over the country. We went to Germany, but they never agreed, saying we had to pay for it upfront because that’s what they have been doing, putting money up front to buy. In America, the FAA equips an airport. They asked OEMs to bid; the OEMs would bid, finance it, and then the FAA would pay over time. The FAA never gives 100 per cent of the money up front. So I gave that model to the late Minister of Aviation, Professor Babalola Borisade, and he said, ” Okay, let’s try, and we tried, and we got Germany to agree to provide NAMA with 10 ILS DMEs; four of those 10 ILS DMEs will be at CAT111 Lagos, Abuja, Port Harcourt and Kano. He offered to put $600,000 into the coffers of that arrangement, and the German government decided to fund that particular project 85%.

We had another 10 VOR DMEs, which he said we’ll be using for both en route and terminal navigation. We were going to have four of them at the international airport. They won’t be at the end of the runway; they’ll be in the middle of the airport. So you can use them both for en-route and terminal. I was the one who introduced the terminal navigation charge because at that time, AON had gone to court to challenge overflight charges. The matter was still in court, so we could not be in contempt of court. We introduced the Terminal Navigation Charge, which covered the cost of using navigation facilities to land at every airport. So, the overflight charge between airports was not applicable because the court case was ongoing. But what happened later can be imagined, as you know.

Could that have boosted NAMA’s revenue if successive administrations or managements of NAMA had then allowed it to continue?

The infrastructure we could have had would have increased NAMA’s earnings inflows. For instance, if you have all these things on the ground, international airlines would overfly your airspace. But because you don’t have them, they bypass your airspace.

While airlines considers 5% TSC and little money to sustain itself and the aviation industry paid for by passengers, airlines are seeing it as additional tax burden, how do you reconcile these views?

But right now, you’re making life so difficult for everyone because you’re focused on generating revenue. Just this year, a bill was passed to introduce VAT on ticket sales. We went to the then Minister of Finance and said Look, if you do this, you will kill the local industry. He said No, you have all these million passengers. This is how much money we can make. We told him if you have all that money coming in, that’s fine, but I can guarantee you something: the moment you increase a ticket price by one dollar, you will suppress demand. The issue now is by how much this market will be suppressed if we go ahead and introduce VAT. When we had this meeting with Oyedele, he said, “Look, why don’t you give us a business case?” We did a business case indicating that, as a matter of fact, unknown to everybody, the industry has recorded a 10 per cent year-on-year decrease in passenger numbers since 2021, while we were still shouting that there were 11 million passengers. The other argument is that the passengers are the ones paying. Who provides the capacity for the passengers to travel? Is it the government? The capacity is provided by private entrepreneurs, so it is a cost to them. So if you suppress demand, who ends up losing? Is it the government? If the airline starts failing simply because of some policy you have introduced that doesn’t make any sense, what’s the benefit to the country? What we are saying is that the government can look at the benefits and multiplier effects that aviation would have if it is indeed well funded and if those structures are in place, because what they don’t understand is that when you have adequate infrastructure within your system, your traffic flow would increase. When your traffic flow increases with aeroplanes and passengers (international and domestic), you will earn more money.

What was the response of the Minister?

He said he doesn’t have the power to rewrite the law. He promised to facilitate a meeting between the Airline Operators of Nigeria and the FIRS. We had a meeting with Mr Zach Ayodeji, presented the case, and he agreed to suspend the enforcement of that law. But it wasn’t going to end there. For AON, we are now moving forward with the National Assembly to ensure the VAT law can be amended for airlines.

How are the airlines coping with all these challenges, such as VAT, fuel cost and spare parts to sustain their operations?

If fuel is 40 per cent, and in Nigeria after the shock, it went from 0 per cent to 270 per cent, whereas in other parts of the world it was 80 per cent. That is three times what fuel costs everywhere else, but not in Nigeria. So we are talking about a situation where instead of 40 per cent, airlines are now exposed to about 120 per cent. That means those airlines are flying because their aeroplanes are still airworthy. By the time they need to make a major check and check their account, the money won’t be there to cover it. What happens? That aeroplane is parked. The airline’s fleet is depleted. In other climes, governments introduced packages to manage the shock for airlines. We are not subsidised. There are packages introduced. What we are saying here is that, for this period that the world is going through, remove all these charges and let the airlines find some respite. Some historical debts that we keep hearing about airlines owe N50 billion to the NCAA. If you look at the NCAA’s books, you find that most of the airlines they cite are no longer flying. So we said write off the historical debts for the moribund airlines. They now went to the press and said the government would give all the airlines 30% off their debt. They decided now because they are looking for money, they used it as bait to get the domestic airlines to say We will give you 30% off whatever you owe now. Look, an airline is an ongoing concern.

How much exactly are the airlines owing the agencies?

You and I are talking now. What I owe the NCAA now can change in the next hour because I am going to have another flight. So where do you draw the line for the 30%? A lot of these things are a sham, but we just make it seem like we know what the hell we are doing. We are clueless at this point. So a lot of things are just for the optics. People say things to make sure they know what they are talking about. This is what it should be. We should not be comparing Nigeria to developed markets; Nigeria is an underdeveloped market. The context is different. For me, until we understand the dynamics and everything else, we must understand the history. When was the TSC introduced? Why was it introduced? It was introduced over four decades ago. The man who introduced it, Dr Harold Demuren, was a director of FCAA at the time, and he will tell you why. There’s a tax on fuel by FAAN, there’s a tax on fuel by the government, and then 5% again on top of that same fuel, and that is the highest component of the airline operations. The solution, first, is that if you want to sustain or retain that structure, what you need to do really is remove every element that has to do with the ad valorem structure. I will advocate renaming the purse the Aviation Development Fund.

What is the practicality of your proposed Aviation Development Fund?

Aviation Development Fund to be outside government revenue accounts, such that the monies accruable there are tied to an infrastructure development programme. So that over the next maybe 10 years, the industry will continue to receive adequate infrastructure for its growth, so the government doesn’t have to worry about providing budgetary allocations. That way, whether the government does or doesn’t, as long as airlines are flying, there will be an infrastructure fund. That is what I suggest we should be looking at, so that you remove the industry from direct government funding. And then our airports are now seen as airports. Beyond what everyone is canvassing, I think the entire structure should be looked at differently. Money accrued for the TSC or the Aviation Development Fund will be removed from the government’s reach. So that the industry’s structure can be programmed for growth over the next decade. Once you initiate that programme, everything you need for your industry can be developed immediately. The government will not have to seek funding. It also removes the corruption in the system. Because ICAO or IATA will only award contracts to OEMs, there won’t be any intermediary. If you can do that sustainably over a decade, the industry will be different. How much is the budget for the whole Ministry of Aviation this year? How much is the budget for FAAN? How much of FAAN money goes back into the airport?

Wole Shadare