(PART 6) COVID-19 EXPOSES THE BRITTLE BACKBONE OF THE NIGERIAN AVIATION INDUSTRY – ROLAND IYAYI
GOVERNMENT INTERVENTION / BAILOUT – STRUCTURE & CONTENT
Moreover, the onset of the COVID-19 pandemic has significantly increased the country’s fiscal deficit. Notably, the 2020 fiscal budget, which already had a huge deficit, assumes a US$57 per barrel, whereas Brent crude, the equivalent of our Bonny Light was selling at US$32.5 per barrel on 11th May 2020.
Additionally, the Naira has already surreptitiously suffered 22% devaluation and the Minister of Finance has also announced over US$4 billion cut in “non-essential” capital spending in this year’s budget. Experts profess that these constraining factors will adversely impact any efforts by the government to intervene directly in any sector, other than as budgeted.
With this background, it is not rocket science to decipher that an intervention in aviation no matter how justifiable would be a hard sell, especially if put forward in monetary terms.
Notwithstanding these constraining factors, an intervention in aviation is long overdue, laudable and importantly so.
But the actual form, structure and content of any such intervention must necessarily address the underlying issues in the industry, to ultimately determine its success or otherwise and the future development of the industry.
Over the years, the several intervention measures taken out in the aviation industry have only always addressed the symptoms of a piece of the problem in the aviation jigsaw, which ultimately is why all these attempts have failed.
The only attempt that has come close to dealing with the industry issues holistically had been the Air Marshall Paul Dike’s PTF.
But unfortunately, as with everything government where personal interests are not taken into cognizance, it was consigned to the heap where any such patriotic reports have always ended up – in the drawer of a “powerful” government official whose interests were not addressed.
In order to adequately structure an intervention package for the aviation sector, it is imperative that a good understanding of the workings of the industry based on international best practices is fundamental, the deficiencies and bottlenecks identified and the inherent systems limitations highlighted.
The first place to start in trying to define and understand the underlying issues with the aviation industry is to take a cursory review of the extant policies in effect vis-à-vis the strategic objective of the sector.
This will immediately reveal a major policy disconnect, which if addressed will set the industry on the right course and it does not involve any financial outlay.
The other main issue that the airlines have continued to shout themselves hoarse about in over a decade is that of the multiplicity of taxes, fees and charges (TFCs) imposed, sometimes arbitrarily by the various service agencies and the regulator.
All these TFCs have put domestic airlines at a competitively disadvantaged position compared to their regional rivals.
The multiplicity of TFC’s has and continues to expose the domestic airlines to undue financial hemorrhaging and double taxation in some instances, not to mention a complete erosion of possible profits.
In a classic example, there is 2% tax imposed by FAAN on all fuel uplifted by domestic airlines, usually deducted at source through the fuel supplier.
This fuel tax regime is only applicable to domestic airlines, as the ICAO provisions prohibit foreign airlines to be exposed to any tax on fuel uplifted in a foreign country.
This development encourages foreign airlines, especially regional competitors to tanker fuel out of Nigeria for relatively cheaper price to the detriment of domestic operators, yet competing in the same market.
It is noteworthy that fuel comprises about 30% – 45% of an airline’s Direct Operating Cost (DOC), which is exposed to further tax computation when the airline files for corporate income tax returns.
Additionally, the NCAA earns its 5% Ticket Sales Charge (TSC) or Charter Sales Charge (CSC) on an airline’s gross earnings. This translates to having the 30% – 45% of the airline’s revenues exposed to three (3) regimes of taxes.
This is definitely inappropriate and most certainly not what was intended ab initio, but has continued to be the case till this day.
Beyond the issue of multiplicity of TFCs, the aviation industry as a whole needs to urgently formulate a holistic policy designed to address the issue of asset optimization in the industry.
For example, just recently at the onset of the COVID-19 pandemic the government announced that seventeen (17) domestic airports were unviable.
Obviously, these infrastructure assets are grossly underutilized and cannot self-sustain, which informed the government’s pronouncement.
Unfortunately, this situation should never have been the case and the solution to the problem lies in the hands of the same government and would not require any financial outlay.
However, it requires a robust understanding of the dynamics of the industry to fully appreciate the interconnectedness and interdependence of the different players and a realization that a problem faced by one impacts all others, one way or the other.
The issue of airport unviability speaks to the problem of air connectivity in Nigeria. ICAO defines air connectivity as an indicator of a network’s concentration and its ability to move passengers from their origin to their destination seamlessly.
To be continued…
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