Nigerian airlines in dire straits

Appraisal

The past one week has been hellish for Nigerian carriers as experts at different fora took a holistic appraisal of the country’s airlines and came out with a verdict that they are indeed sick with no solution in sight.

Some of the airlines are deliberately set up to die as many of the promoters had a mind-set of not setting their carriers to outlast them but for ulterior motives.

Excitement

Indigenous airlines experience short life span because owners or operators of such airlines do not understand the nitty gritty of the business, the peculiarity of the Nigerian business environment, lack fiscal or financial discipline and often built on wrong models.

Airline business is not for immediate profit, but it is a cash cow. An aviation expert stated that most owners and investors go into the business with the mind to recoup investments within a short-period of time.

Unlike the international airlines that are prompt with their services and have huge financial wherewithal, most indigenous airlines are burdened with cost of aviation fuel, maintenance of aircraft, taxes, charges and salaries.

Poor airport facilities also contribute to the inefficiencies in the sector. While domestic airlines are on the increase, the facilities are not expanded, hence the congestion of the domestic terminals of the Lagos airport, Murtala Muhammed Airport Domestic Terminal 1 (GAT) and Terminal 2 (MMA2).

There are others, whose plans are for the long haul but the harsh operating environment coupled with slack in regulatory oversight has put the airlines where they are presently.

Still in incubator

It is very curious that Nigerian airlines and aviation still remain in infancy despite over 91 years in operation. It is also curious that over 150 airlines have said goodbye to the sector in the last 25 years.

At that time, CBN came up with recapitalisation of N25 billion for banks that were willing to be in business.

At that time, N25 billion was considered too much to come by by the bankers, but today, many of the banks are so big, competing with the best in Africa and beyond.

Stemming the tide

For the NCAA, 2005 was a very sad period for the country. It was a period Bellview and Sosoliso accidents happened in quick succession, killing over 200 people in a space of two months.

Government at that time appointed a no nonsense Director-General of NCAA, Dr. Harold Demuren, who helped to sanitise a system considered very rotten as at then.

Demuren embarked on massive safety regulation, which helped to neutralise the rot.

Demuren had since left the saddles at NCAA and helped to achieve a lot for the sector, but not a few believe that regulation should also be extended to the financials of the airlines with a view to ascertaining]ng their health.

Financial audit as solution

The audit, they say, was necessary with a view to knowing the financial strength of the carriers and to quickly raise the red flag to their operations wherever they were found wanting.

The first airline recapitalisation was done in 2007.The estimated capitalisation was made up of the cost of leasing aircraft and other assets such as offices, spare parts, technical staff, among others, which translate into N500 million.

Operators wishing to operate within Africa were told they must have at least four new generation aircraft made up of the cost of leasing aircraft and other assets translating into a total of minimum capitalisation of N1 billion.

For operators going for intercontinental operations, a minimum of two B767-300 aircraft or its equivalent with the cost of leasing aircraft and other assets which translate into N2 billion was given.

Airlines state challenges

The Airline Operators of Nigeria, (AON) attributed the poor performance of domestic airlines to multiple taxes by various agencies in the aviation sector.

AON Chairman, Nogie Meggisson, while reacting to the takeover, lamented that the system had failed to recognise the pivotal role airlines could play in bringing the nation’s economy out of challenging times.

He said the system was continuously manipulating, feasting on and pushing the financial envelope of airlines by inflicting multiple taxes and levies to the extent that airlines are now groaning under the pressure and some are going bankrupt.

“AON has been screaming and complaining about the same issue over the years that have culminated in sending over 27 airlines under in the past 25 years.

“A case in point is the recent takeover of Arik Air and Aero Contractors by AMCON in the face of huge financial burdens that have shown themselves as fallout of the multiple and sometimes unfair charges and taxes airlines are forced to grapple with on a daily basis.

“This is without recourse to the fact that aside from all the multiple charges, levies and fees, airlines still have to pay mandatory statutory corporate taxes to relevant agencies,” he said.

According to the airline operator, airlines meet so many costly foreign exchange components on daily basis that account for 70 to 80 per cent of their direct operational cost. These include jet fuel, spare parts, insurance and simulator training.

Last line

Aviation is prone to the most minute situation in the economy, ranging from weather, politics to reckless holidays. Notwithstanding the self-destruct of these carriers, government needs to come to their aid as they are of systemic importance to the Nigerian economy.