Nigerian Airlines’ Poor Performance Linked to Aircraft Underutilisation

Chinedu Eze

Nigerian Airlines may be losing over N8 billion revenue annually, due to the inability of operators to maximise the utilisation of aircraft in their fleet, THISDAY investigation has revealed.

Medium size aircraft like Boeing B737, Embraer E195-E2, Airbus A220 and Bombardier CRJ 900 and 1000 are expected to operate about 14 to 16 hours a day for them to be well utilised and for the airlines to generate enough revenue that will justify their investment in the equipment.

But due to operational constraints, including infrastructural limitations, security threats and other factors, most airlines only operate for seven to eight hours a day in Nigeria, making them to potentially lose the money they would have earned if they have the right logistics to operate at longer hours.

It was learnt that each aircraft is supposed to be operated for certain hours for it to remain airworthy and that the longer it is operated, the better it is for the machine.

With the new airfares which reflect the current inflationary rate and exchange rate, the potential losses are estimated to be up to N8 billion per annum, an increase from N4.3 billion estimated three years ago.

One of the limiting factors includes daylight airports. Most Nigerian airports are designated to be operated only in daytime due to the absence of night landing facilities. Other factors include cost of operating the airports in the night, like cost of fuelling the generator to supply electricity for the airport to remain functional in the night; technical personnel from the Federal Airports Authority of Nigeria (FAAN) and the Nigeria Airspace Management Agency (NAMA) demanding over time allowances and then the disinclination of some Nigerians to travel at night due to fear of insecurity.

Out of over 30 functional airports in Nigeria, only five operate night landing facilities and these include Lagos, Abuja, Kano, Port Harcourt and Enugu airports. Others that have the facility only operate in the night by special arrangements; so, generally, Nigerian airlines operate largely during the day.

 The Chief Executive Officer of Omni-Blu Aviation Limited, Akin Olateru, told THISDAY in exclusive interview that due to aforementioned factors, airlines do not adequately utilize their equipment and this affects their revenue.

Olateru observed that when an airline spends huge resources to acquire a brand-new aircraft, it may not be able to recover the money used in acquiring it to repay the bank that extended credit facility for the acquisition of the equipment.

“Aircraft utilisation is another key factor. Aircraft are designed to fly, not to be parked. Now, when you pack aircraft due to lack of spare parts, due to night closure at the airports, you can’t fly to these airports because they are for daylight only operation.  Utilization becomes an issue. And that is why you don’t really need a brand-new aircraft to operate a scheduled operation in Nigeria because brand new aircraft is not cheap. Can you be successful flying a brand-new aircraft for scheduled operation in Nigeria? I would like to see the economics because utilisation is a major factor. 

“People that make money with brand new airplane, fly about 12, 13, 14 hours a day. How many do we get from our aircraft per day? Maybe seven hours. Maybe nine hours if you are lucky. Some airlines that are doing very well may fly for nine hours. But internationally, people take advantage of time zones. You take off in New York, you land in LA, it’s still daytime.  So, that is how they’ve been able to have a much, much higher utilisation. But in this part of the world, we don’t have that. What else can we do with this airplane? When you talk of utilisation, it is a factor of your earnings. And your earnings are linked to your repayment. And that can become an issue. If you buy a brand-new aircraft and can only fly six, seven hours a day, it is a problem,” he said.

To tackle this and other problems in the industry, Olateru said there was need to sit and deliberate on how to move the industry forward and critical to such discussion will be how to extend operating hours of aircraft in an airline with schedule operation.

According to him, aircraft acquisition is critical in the success of any airline business; so how to acquire aircraft and also adequately utilise it to make the desired profit in the business is very important.

“Of course, aircraft acquisition is one of the factors that determine the success of an airline. Acquiring the aircraft is one thing, sustaining your repayment is the major thing. It is just like a marriage, getting married is easy; sustaining that marriage is the harder part. I think we need to focus about 80% of our energy to how can this be a sustainable venture, right?” he said.

The pioneer Director General of the Nigeria Safety Investigation Bureau (NSIB) observed that there are many ways government could support airlines to acquire aircraft, noting that many airlines in the world are backed by their countries’ government or they join the stock exchange where they can easily raise funds to acquire aircraft. But this is not possible in Nigeria because these options are not available. Government is not supporting in terms of offering opportunities for airlines to acquire credit facility for long term, single digit interest rate arrangement and the operators are also not in the stock exchange where they can easily source for funds; except one Nigerian carrier, Caverton.

“Now, if it is about aircraft acquisition, there is so many ways the government can help. For instance, when you look at the whole world today, take most successful airlines anywhere in the world, it is either backed by government, in Nigeria, the federal government or they are listed in the stock exchange. Because that is the way you can have access to a much more secured guarantee and access to cheap funds. 

“In Nigeria, look at all our airlines, maybe Caverton Offshore Support Group that is about it, that is listed on the Stock Exchange. I don’t think there is any other airline that is listed on the Stock Exchange as of today, so we are minus in that area. Number two is that there any airline in Nigeria that is state-backed (by the federal government)? There is no airline in Nigeria today that is state-backed, so we are at a disadvantage.  

“Again, in the US, when you sell tickets, you earn dollars. When you pay your bills, you pay in dollars, so you are not exposed at all to any currency exchange fluctuation. That is another major thing.  Same in Europe where payment is made in euro, but in Nigeria, naira versus dollar, you are exposed. Yes, this present government has tried to stabilise the difference in exchange rates, so investors can make financial predictions,” he said.