Why Nigeria’s wet lease pact remains unprofitable-Sanusi
..Lists reasons airlines struggle
The Managing Director of Aero Contractors, Capt Ado Sanusi has given the reason why wet leased aircraft are only profitable for a very short period.
In a media briefing in Lagos, the airline chief explained that the profitability of a wet lease is only determined by the stability of the local currency which is the Naira in Nigeria.
He however stated that the closing of different tiers of exchange rates by the current administration has helped a lot to make sure that airlines do not enjoy a different rate than others.
The policy according to Sanusi ensures that everybody goes to one source, to source for the U.S. dollars; a situation he reiterated has eliminated preferential treatment
According to him, “Wet leases are usually profitable for a short time. But you have to understand that you are selling your tickets in Naira and you are paying per hour in dollars.”
“So if the dollar is fairly stable and you have made your projection, then it might be profitable. But if the dollar decides to start going on a roller coaster ride, then the price of your ticket will go on a roller coaster too because you must pay the company.”
Describing what the Minister of Aviation and Aerospace Development, Mr. Festus Keyamo has done with the Cape Town Convention Practice Direction as commendable, he noted that it was just a part of the ingredients that are needed for efficiency and growth.
“Why do I say that? We have the Cape Town Convention so that means that airlines can borrow money and buy airplanes. Or airlines can borrow money and lease aeroplanes. Or airlines can borrow money and finance aircraft leasing. But there is a key factor to it and that is the interest rate. The cost of funding in this country is very important.”
He lamented that all the gains of CTC are at risk of being wiped out because of the high interest rate on loans at 33 per cent which he said is stifling growth in aviation.
“I cannot see an airline going to borrow money at 33 to 35 per cent interest rate and then make a profit. It must be addressed. I am not an economist, but I don’t think in this economy you can increase the interest rate to chase inflation. Rather, it will be killing businesses.”
“There is no airline that can go and borrow money to finance an aircraft at a 35 per cent interest rate. And the dollar is at $1 to N1,721.50. And then expect to make a profit.”
He agreed that the three aircraft in the fleet of Aero may not be adequate, but disclosed that the reliability of those three aircraft is important by judiciously using them to service their routes and to make sure that they are reliable.
“Of course, there is power in numbers. Of course, if we have ten aircraft, we will be a stronger airline. But this is what we have and we have made a profit with what we have. So that means this company has its value.”
The airline’s Maintenance Overhaul Repair (MRO) which is adjudged one of the best in West Africa according to Sanusi is complementing the airline, stressing that the airline also is complementing the MRO.
The MRO which he described as the bedrock for any airline is very important to have by every serious-minded airline.
The cost of running an airline in this country he further stated is high, calling on the government to address multiple taxations.
“It should be addressed. I think we should make a deliberate effort to see that airlines survive. We should understand why, what is the reason that the airlines are struggling. And the reason the airlines are struggling is very simple, multiple taxation. The airlines are trying to support or to pay for the services the parastatals are giving.”
“I’ve always said it; I don’t think the airlines can fund the parastatals. It is not possible. There must be another source of funding for the parastatals. Because the airlines are struggling and the parastatals are struggling too to provide the services. Again with the 50 per cent outsource deduction in the aviation industry, I think it is affecting us most.”
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