Nigeria begins process to exit ‘risk status’ for aircraft dry-lease

  •  Local firms lack capacity for airplane insurance-Okonkwo
  • Rising jet fuel, Forex scarcities hamper aviation-United Nigeria Airlines

The Federal Government may have begun the process to remove Nigeria from the ‘country risk’ status that has made aircraft dry lease impossible for airline operators.

As a result, the Minister of Aviation and Aerospace Development, Mr. Festus Keyamo has met with the international lobby group to expunge the country from the black book which locked the country out of the dry lease of aircraft by the operators.

Consequently, the Minister has taken it up with Aircraft Leasing Group (ALG) comprising the two largest aircraft makers, Airbus and Boeing among others.

 In a dry lease, the owner provides the aircraft to the lessee without a crew. Neither party must have an air carrier certificate so long as the aircraft does not carry people or property for compensation or hire.

Dry lease is very cost-effective for airlines as they provide the crew to operate a leased asset but because of the action of some airline operators in the past who clandestinely keep airplanes leased to them without fulfilling the lease deal.

The actions of these operators which gave the country a bad image necessitated aircraft lessors to block Nigeria from dry lease agreements, categorizing the country as high risk of getting their equipment back when needed.

The situation opened the door for a wet lease which costs so much per bloc hour as the airline pays the foreign crew and maintains the aeroplane with the crew reserving the right to ferry the airplane back to its owner in the event of a default.

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The lack of keeping to the aircraft lease agreement prompted Nigeria, through the Nigeria Civil Aviation Authority (NCAA) to be a signatory to the Cape Town Convention.

The primary aim of the Convention and the Protocol is to resolve the problem of obtaining certain and opposable rights to high-value aviation assets, namely airframes, aircraft engines and helicopters which, by their nature, have no fixed location.

This problem arises primarily from the fact that legal systems have different approaches to securities, title retention agreements and lease agreements, which creates uncertainty for lending institutions regarding the efficacy of their rights. This hampers the provision of financing for such aviation assets and increases the borrowing cost.

Some carriers in the past tried to frustrate moves by owners of the aircraft to retrieve their airplanes; a situation that almost damaged the reputation of the sector, which former Director-General of the Nigerian Civil Aviation Authority (NCAA), Dr Harold Demuren, worked hard to rectify through the Cape Town Convention, which Nigeria is a signatory.

Speaking to journalists in Lagos on Monday on the occasion of its third anniversary as an airline, the Chief Operating Officer of United Nigeria Airlines, Mr. Osita Okonkwo said, “Our appeal is that we don’t miss out on opportunities. Nigeria is the largest market in Africa. The potential is there. The market is large”.

“The Minister is on top of it. It would help that Nigeria is removed from country risk on aircraft dry lease. The country risk rating has hampered our operations and we are exposed to wet-lease which is very expensive.”

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The airline chief disclosed that no local insurance companies can insure big aircraft in Nigeria, adding that the inability to insure big aircraft has made it difficult for lessors to operate in the country.

According to him, even if an airline purchases an aircraft, it is an international requirement that it has to be insured, but no insurance company can do that in Nigeria, especially for bigger aircraft.

He said, “The other one on insurance is that there is no capacity internally to do big aircraft insurance in Nigeria. So many lessors are not operating in Nigeria because of insurance. It is killing business because even though you want to do indigenisation, you cannot do that with another person’s assets.”

“Even if you buy an aircraft today, it is a requirement that you have to insure it even if you pay with your money in Boeing, Embraer or whatever. The insurance must cover Boeing even though they have sold it to you, they must be party insured in that transaction. So you can’t escape the international requirements of the business and limiting it locally will not help lessors.”

He lamented the rising cost of jet fuel which is sold for N1300 per litre, and scarcity of Forex, describing the two as ingredients for disaster.

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He stated that it is by miracle that airlines are still surviving; stressing that the lack of inadequate infrastructure had equally impacted their businesses.

Okonkwo explained that the carrier was on the verge of formalizing its interline agreement with some carriers, stressing that at the moment, it had informal arrangements with Dana, Air Peace, NG Eagle and Aero Contractors to airlift their passengers whenever any of the airlines is incapable of doing any of its schedules.

‘Last week, we did close to 300 passengers in a day with the interline arrangement. We are working to develop the alliance.

Airline interline agreement allows passengers to book through itineraries on multiple airlines with less hassle than booking each one separately. Usually, if two airlines have an interline agreement in place, they will handle the check-in and baggage for each other’s passengers.

Two years ago, Air Peace, Azman Air, United Nigeria Airline, Arik Air, Aero Contractors and Max Air announced an alliance called the ‘Spring Alliance’, to mutually support one another’s operations to provide better service to passengers.

The objective of the alliance is to curb flight delays among the six partners, give one another technical support and also ensure that passengers are airlifted by any of the members, no matter, which airline ticket the passengers have.

Wole Shadare