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Nigeria’s airline industry is riddled with debts. The airlines are perpetually in debt. They owe banks and government several billion of Naira. They are funding slow expansion with short-term loans, putting banks and other firms in precarious situations, writes WOLE SHADARE
It is becoming increasingly clear why virtually all Nigerian carriers are not successful. Seeking answers to this seems to be the easiest thing as many carriers in the country are highly indebted to various aviation agencies, commercial banks, oil marketers, aviation ground handling companies, and other service providers.
It is estimated that it takes two years from start-up to break even in Nigeria and in some parts of the world. If this is so, one can therefore ask what the attraction of many rich men is in setting up carriers in a climate full of uncertainty and unstable government policy amid a hostile environment for businesses. This explains the speed at which many airlines set up in Nigeria have a very short lifespan.
Many promising airlines have gone into extinction as soon as they are set. The lifespan of commercial airlines in Nigeria is ten years at most. Some carriers like Overland Airways and Aero including Arik have defied the ten years’ lifespan.
However, these airlines are a shadow of their former selves and struggling to remain afloat amid myriads of debts they are enmeshed in. Should the banks, aviation agencies like the Federal Airports Authority of Nigeria (FAAN), NCAA, and the Nigerian Airspace Management Agency (NAMA) decide to move to recover what is owed them, many are of the view that there won’t be any airline operating in the country because of the huge debt.
Analysts say the airlines’ debt and funding profiles are symptomatic of a wider problem in the financing of new businesses in sub-Saharan Africa’s biggest economy.
A lot of indigenous businesses — from oil firms to cement, telecoms, and hotels — which are capital intensive and long-term in nature, rely on short-term loans to start off their projects and then struggle to pay interest from the first day.
Many airlines in Nigeria have borrowed money from Nigerian banks at very high rates of interest and for relatively short tenors, compounding other problems they have.
The airlines do not open their books to scrutiny. None of them gives an account of how healthy their operations are for the public to know how stable they are.
Not a few of them are in red financially, a situation that has been giving the aviation regulatory body, the Nigerian Civil Aviation Authority, a sleepless night. Although described as long overdue, NCAA is not comfortable with the tough financial situation of the carriers, which might lead them to cut corners and one that could be an infraction on safety, said last month, that it would subject all the eight scheduled airlines to an economic and financial audit.
Already, the aviation industry regulator had audited Dana Air and development had led to the withdrawal of the operating licence of the carrier by the agency.
A source in NCAA said the Director-General of NCAA, Capt. Musa Nuhu, mandated a team to audit three domestic airlines to ascertain if they can still continue operations. Dana Air is one of them. This development led the agency to stop Dana from operating.
“We don’t know whether the two remaining carriers would fail the audit too,” a top official of the NCAA told our correspondent on condition of anonymity because he was not authorised to speak on the matter. A source from one of the leading banks in the country said the commercial banks are serious with their exposure to all the carriers as debt servicing has become a very big issue in the midst of dwindling revenue.
According to the source, “one particular airline owes a single bank N180 billion. That’s a lot. If it crystallises, it would wipe out the capital of that bank.” Industry sources said the sector owed banks and government agencies — to whom carriers pay taxes, landing, and overnight parking charges — around N400 billion.
NCAA, others bear fangs
Unable to accept what appears to be humongous debts owed the agency, Nuhu held a closed-door meeting with the airlines last week in Abuja. Nigerian airlines’ debts have risen to N19 billion and $.7.8 million. These are debts owed to the NCAA.
Aside from debts owed to NCAA, the carriers are also said to owe the Federal Airports Authority of Nigeria (FAAN) and the Nigerian Airspace Management Agency (NAMA) to the tune of N18 billion and N5 billion, respectively. Nuhu also gave the operators a one-month ultimatum to sign a Memorandum of Understanding (MoU) with NCAA, which would stipulate the repayment plans of their debts to the agency.
Airline operators, under the aegis of Airline Operators of Nigeria (AON), have said that debts owed to various aviation agencies should not be a source of worry, stressing that airline operations, worldwide, are not a cash-and-carry business. The group added that every airline in the world owes debts that are settled as their operations go on, with Nigeria, not an exception.
AON has asked its members with such bad debts to engage the agencies and put forward repayment plans. Many of the airlines listed as owing the various agencies are extinct and one that would prove difficult for debt recovery.
Many aviation agencies are in a serious dilemma over how to recoup the several billion of debts owed by defunct airlines. Many of the nation’s defunct carriers like Chanchangi, Bellview, Sahara Airlines, ADC, Afrijet, Air Mid West, Air Nigeria, Sosoliso, Oriental, First Nation, Albarka, and Associated, among
others, are said to be owing the various agencies including other service providers before they went out of operations. Posers How come Nigerian airlines do not owe agencies of the nations they operate? It is simply a case of robbing the system to remain afloat.
Many Nigerian carriers have been indicted and known to have kept the five percent Ticket Sales Charge (TSC) they have already collected as part of tickets sold. They have diverted these funds running into over N20 billion to other businesses outside aviation and to acquiring properties abroad. Nigerian airline operators need to think outside the box, re-strategise to remain in business.
The era of doing it all alone is gone. Airlines all over the world are consolidating through mergers, and partnerships to cut costs and remain profitable. Of what use is 10 airlines that are very small, weak, and fragmented when these carriers can pool resources together to form a formidable airline group?Google+