MD, Aero Contractors, Captain Akin George
Multiple taxes and charges levelled on operators have made the airline business in Nigeria expensive and unprofitable. Chinedu Eze writes
Nigerian airlines have cried themselves hoarse about high cost of operating in Nigeria – the high and multiple taxes and poor and obsolete infrastructure, which impact negatively on their finances and operations.
Some of these charges are paid by passengers through outrageous fares, which have been described by the International Air Transport Association (IATA) as one of the highest in a conflict-free environment in the world. For instance ticket fares, which the world body also described as extremely high, as in many countries of the world a one hour flight is less than $100.00 (N16,000) but in Nigeria it now averages $200.00 (N32,000).
In the same vein, the taxes and charges on the importation of aircraft, aircraft parts are waived in some countries that support their airlines with the right fiscal incentives, knowing the crucial role of air transportation in economic development. However, in Nigeria, while importation of buses and other equipment for mass transport are not taxed, aircraft importation is heavily taxed.
To make matters worse, you do not see the value of these taxes in the provision of facilities and infrastructure at the airports.
For instance, the Federal Airports Authority of Nigeria (FAAN) has over the years failed woefully in providing modern airports with state of the art facilities; the Nigeria Airspace Management Agency (NAMA) recently raised hopes of providing radar and effective communication for aircraft movement in the airspace.
There is no adequate Doppler weather radar and other equipment to accurately and effectively check weather movement, which is very important for safe air operations. The price of aviation fuel is unduly high, not reflecting the price trends in the international market and because fuel accounts for some 30 per cent of the operational cost of airlines, it impacts on the fares these airlines charge.
But what is more disheartening is that government can waive these taxes and some of the charges to encourage the airlines. Yet, over the years it has failed to do this. The conclusion among industry operators is that government is indifferent to air transportation, in spite of its importance to the growth of any nation in the world.
In addition, many industry observers see government as the main cause of the poor performance of the sector and largely blame it for the many air crashes and incidents that have occurred in the country.
From undue interference to lack of effective monitoring of the agencies and not allowing agency heads to sit in their offices to do their jobs, the government through the Ministry of Aviation and the presidency have disrupted the flow of aviation activities and prevented the sector from abiding to the international precepts set out by the International Civil Aviation Organisation (ICAO), the Federal Aviation Administration (FAA) and IATA.
Last week, journalists met with the Managing Director of Aero Contractors, Captain Akin George, who opened up on the many problems plaguing domestic air operations in Nigeria. His observations on the challenges facing the airlines in the country encapsulated the views of operators, who have at one time or the other made similar complaints.
Captain George painted a sordid picture of multiple taxation in aviation and how it affects the industry: “If you buy an aircraft you pay duty on it and the rates are quite high. This is what shuts up the fares. For example, we imported a VIP helicopter earlier this year. The value of that helicopter is $4 million (N640 million) we ended paying N143 million to clear it from Customs Service.
“When it was cleared it attracted stamp duty and we paid a couple of millions of naira. For the inspection, after the assembly, we paid NCAA (the Nigeria Civil Aviation Authority) another N1 million. We have not flown one hour on this helicopter but we have already spent N200 million. Now, you buy a ticket to travel by air, the airline is going to a pay passenger service charge to FAAN, you are going to pay VAT from that ticket and you will be buying fuel,” he disclosed.
For all intents and purpose, the charges are meant to ensure that the airlines do not survive, and over the years, they have indeed lurched precariously on the precipice. The oldest operator in Nigeria, Aero, is 53 years, but its scheduled airline operation is only 12 years old.
George added: “For every one litre that you pump, FAAN gets N2.50 kobo straight off. Then you want to carry excess baggage there is a tax on that also. So from the minute you buy an aircraft and get into the airplane, although you have not taken off, look at the amount of tax you have paid.
“By the time you are set to fly and you notice a bulb in the airplane and you say, this bulb is burnt I have to replace it. The bulb is imported and there is a tax on it again. Before you even as you take off, you are taxed left, right and centre. Of course, there is still the normal tax that you have to pay, which is rightly so because as a citizen you should not run away from the responsibility of paying taxes.
But the fact is that we should limit this idea of double taxation.”
George also observed that by the time a plane takes off, the Nigeria Airspace Management Agency (NAMA) will impose navigational charges. “In most countries you find out that domestic airlines do not pay for navigational charges on domestic routes; it is when you operate international routes that these apply. Within us you may say, okay, we are trying to promote the airlines, this is one of the areas we can say, reduce this because when you see that they have these taxes, you may question what they have put in place as infrastructure.”
The money earned from these charges were never used for infrastructural development or for the provision of navigational aids. One of the reasons why Nigerian pilots are rated the some of the best in the world today is because they operated in the most unfriendly environment.
Although the argument would be dragged on indefinitely, but it has always been difficult for foreign pilots to operate with ease in Nigeria until they have spent a number of years in the country and that, some industry critics say, accounts for why find it is difficult for them to maneuvre in the airspace during emergencies. Fortunately, the challenges of the airspace have been solved by NAMA, which would soon commission its VHF coverage of the airspace.
There are critical things Nigerian airlines need. They need maintenance overhaul and repair (MRO) facility in Nigeria. They need credit lines for long term funding at single digit rates on interest. They also need aviation fuel with fare pricing and a strong, effective regulatory body that will check their excesses.
Need for Drastic Changes
Some of the above are contained in the recommendation given to the Federal Government by the Technical and Administrative Review Panel on Domestic Airlines, which submitted its report last week. The panel, which was led by Group Captain John Obakpolor recommended that there should be drastic reduction of charges and elimination of some of the taxes paid by airlines. It also recommended that there is need to urgently provide an MRO in the country.
It also recommended that the Federal Government should intensify effort to complete the on-going reconstruction and remodelling of terminal buildings and structures, as well as construct new ones across the country to ensure easy passenger facilitation.
In addition, it recommended that the Central Bank of Nigeria (CBN) should empower commercial banks to create a window for long-term low interest funding for direct lending to aviation and that the industry would require at least N500 billion for this purpose.
For easy acquisition of new or modern aircraft an aircraft leasing company with an initial investment of $10 billion (about N1.5 trillion) should be setup by the Federal Government to acquire modern aircraft directly from major manufacturers and lease to qualifying Nigerian air operators at preferential rates. “This will help in the reduction of operating cost and improvement of efficiency and competitiveness,” the panel said.
It also made an observation on the controversial old and new aircraft and said, “While the panel recognizes the concern of the Federal Government on ageing aircraft in Nigeria, greater emphasis should be laid on proper and adequate maintenance of aircraft, rather than age restriction.”
“The Federal Government should review downwards, all taxes and charges relating to airline operation. These includes: import tax/duties on aircraft and spares, stamp duty on aircraft purchase/lease agreement, withholding tax and VAT on aircraft lease. The Federal Government should take appropriate measures to reduce cost of aviation fuel. This should include urgent resuscitation of local refineries.”
It is hoped that this time, government would carry out these recommendations. Painfully, there are other such recommendations lying idly in many government cabinets gathering dust and already abandoned in the oblivion of government bureaucracy.