Lease: Convention violation puts Nigeria’s aviation on edge

Several reasons have been adduced for the inability of the country’s carriers to lease aircraft like their counterparts in other climes, writes, WOLE SHADARE 

The struggle

The Minister of Aviation and Aerospace  Development, Mr. Festus Keyamo is struggling to win back the trust of aircraft lessors. Many of them are wary and very circumspect about leasing aircraft to Nigerian airline operators. It is not that they do not lease aeroplanes to them, it comes at a very high cost and conditions that are more than anywhere else in the world.

Many of them see Nigeria as a very high-risk country both for lease rentals and difficulty in asset repossession any time there is a default.

CapeTown Convention, high-risk label

Not a few believe that when lessors want to repossess their aircraft there is no need to go to court, the regulator and the judiciary should allow them to take their equipment, abiding by the rules of the International Treaty of Aircraft Leasing, which is the Cape Town Convention.

Nigeria is one of the signatories to the Cape Town Treaty of 2001; the Convention on International Interests in Mobile Equipment and the Protocol on Matters Specific to Aircraft Equipment. 

The Convention and Protocol have five basic goals; to facilitate aircraft financing transactions by creating a mechanism for ensuring that international interests in aircraft will be recognised across all Contracting States; to provide greater confidence to the creditor by providing basic default remedies as well as efficient interim relief mechanisms. 

Besides, the convention and protocol are intended to reduce risks for creditors, and consequently, the borrowing costs to debtors, through the resulting improved legal certainty. 

With Nigeria as a signatory to the treaty, which was ratified in 2006, its airline operators should have easier access to aircraft leasing, especially from leasing companies, but the reverse has always been the case with the country, rather, opportunities for the nation’s airlines are shrinking. 

Past record

Truth must be told, there have not been cases of default with aircraft repossession in recent times with any of the country’s airlines that are operating now, but the sins of the past have caught with the country with a ‘black list label that sees the country as unreliable and the fact that they had to resort to legal fireworks to repossess their aircraft after a default or expiration of the contract to have a rethink when doing business with Nigerian carriers.

Aircraft leasing is a practice in the aviation industry where airlines or other organisations lease aircraft from leasing companies rather than purchasing them outright. This arrangement offers several advantages, such as flexibility, reduced upfront costs, and access to a diverse fleet.

Leasing allows airlines to optimize their fleet size, respond to market demands quickly, and avoid the risks of aircraft ownership. It also provides leasing companies with a steady revenue stream and the ability to manage their asset portfolio effectively. Overall, aircraft leasing plays a crucial role in the aviation industry by enabling airlines to operate efficiently and meet the demands of a dynamic market.

Experts have put some of the blame on the depletion of aircraft in the fleet of airlines to the inability of many of them to get airplanes on dry lease but at a very costly wet-lease arrangement which in most cases is not profitable to the carriers.

The country’s aviation industry is going through a difficult phase. Cumulatively, all the airlines about 11 of them on scheduled operations have less than 50 aircraft in their fleet which has led to higher fares, unreliable schedules and above all poor services as demand has outstripped supply and further pushed many to take the road transportation alternative.

Nigerian carriers bleed

Virtually all the airlines are bleeding. They are said to be struggling with no clear-cut direction of how to mitigate the downturn.

The high cost of wet-lease for the operators is a sign that things may have fallen apart and by extension the domestic airline industry in Nigeria.

It is in full realisation of this situation that has since prompted the Minister to embark on an aggressive international campaign to empower our local operators to access the dry-lease market around the world which culminated in the visit to Airbus in France earlier this year and the MOU signed with Boeing in Seattle, Washington just last week.

The Minister had also done a lot of work to make Nigeria comply fully with the Cape Town Convention which will bring back the confidence of international lessors in the Nigerian aviation market.  Not a few are confident that with these steps of  Keyamo, it is only a matter of time that Nigeria, not only regains but can sustain the trust of aircraft lessors.

Minister highlights Cape Town Obligation

The Minister said he was committed to accelerating the deregistration process in Nigeria for defaulted leased aircraft under the Cape Town Convention, reducing the timeframe from five days to just four.

He spoke to Boeing executives in the United States where he is participating in a week-long series of discussions with the aircraft manufacturer to improve Nigeria’s civil aviation sector.

Keyamo assured that aircraft entering Nigeria would be protected and if necessary, repossessed swiftly through judicial processes or the Nigeria Civil Aviation Authority (NCAA).

He said, “I want you to see me here as the Minister, and I am giving a personal guarantee that beyond legal compliance, I will not tolerate any frustration of agreements with any lessor operating within Nigeria or involving aircraft entering Nigeria.”

“I guarantee the safety of these aircraft and their repossession whether through the judicial process of the NCAA, which I oversee. I understand that the Cape Town Convention allows for deregistration within five days, but I will ensure that we can achieve it within four days,’ Keyamo said.

The Minister also assured Boeing executives that Nigeria was actively addressing the insurance challenges connected with dry lease agreements in the aviation sector.

He noted that international lessors prefer the risk to be covered by the international market due to concerns about the reliability of local insurers, which has posed a significant hurdle.

He, however, emphasized that the government was committed to resolving this issue to enhance the industry and strengthen ties with international lessors.

Experts’ views

The chairman of an 8-Man Ministerial Task Force Committee On Illegal Private Chartered Operations And Related Matters, Capt Ado Sanusi recently told A that Lessors charge Nigeria higher because many of the leased aircraft come through a third party who collects commission, thus making the cost higher, adding that the facilitator or middle man is a person the lessor can trust and would be willing to lease aircraft to him.

 “But this differs in Europe or the US where leasing rates are lower. But lessors have had their fingers bitten in Nigeria by past airlines that use the courts to stop lessors from repossessing their aircraft when there is a breach in the airline and the lessor agreement,” he said.

A former Assistant secretary-general of Airline Operators of Nigeria (AON), Muhammed Tukur said of paramount importance to the lessor are conventions that grant security on the operation of the aircraft as well as repossession of the aircraft if there is a default or termination of lease. Such conventions include the Chicago Convention of 1944 on International Civil Aviation, the 1948 Geneva Convention on the International Recognition of Rights in Aircraft, the 1933 Convention for the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft and more particularly, the 2001 Cape Town Convention on the International Interest in Mobile Equipment and the associated protocols on matters specific to aircraft equipment,” he explained.

Last line

Not only would the lessor be interested in the ratification of these conventions and the associated protocols but the extent to which they have been enforced or made applicable in the jurisdiction, for example, the extent to which Nigeria has derogated from the Cape Town Convention and the associated Protocol

Wole Shadare