African Export-Import Bank (Afreximbank) has earmarked over $20 billion to be given to airlines from member African countries as syndicated loans to acquire new aircraft.
The offer is aimed at reviving and sustaining airline operation in the continent and only airlines that intend to acquire new aircraft will benefit from the loan.
Senior Manager, Syndications and Specialised Finance, Afreximbank, Samuel Mugoya, who disclosed this at the 25th Air Finance African Conference and Exhibition in Johannesburg, South Africa, said one of the major challenges faced by African airlines is their inability to source long-term loans at single digit interest rates.
THISDAY learnt that some Nigerian airlines that plan to acquire more aircraft and expand their operation have indicated interest in the loan.
Mugoya, who spoke at a panel during the conference said another challenge many African airlines face that over 60 per cent of their expenses are done with hard currency, whereas they generate their revenue in local currency.
He said part of the guarantee for the loan is the aircraft, which is a huge asset adding before the bank offers to give loan to any airline, it must be convinced about its business plan, which must be in tandem with the reality of its operational environment.
He noted that there is a lot of debt financing for African airlines but no equity and faulted the business plan of many of the airlines, saying most of the business plans are not satisfactory.
“A lot of routes are not developed on business principle. A start up airline should begin with domestic operation, then regional operation and the business plan should reflect business reality. You find many airlines in Francophone countries rushing to operate to Paris, while Anglophone countries rush to go to London without checking the business sense in that route,” Mugoya said.
Mugoya also disclosed that Afreximbank is contemplating establishing a leasing company to help smaller airlines, which may not be able to access its loans and also help in the growth of airline industry in the continent.
“We may establish a leasing company so that we could lease aircraft to smaller airlines or we work with lessors or establish a platform to cover the broad spectrum of the continent. We need to provide funding to our member states,” Mugoya added.
In Nigeria, airlines face difficulty obtaining loans from local banks because of high interest rate and short term repayment arrangement. Industry experts said the arrangement was wrong because with very low profit margin, airlines are usually given long term loans at single digit interest rates.
THISDAY gathered that in the last three years, Nigerian airlines have made several requests to the federal government to facilitate a process whereby they could obtain loans from banks through the Bank of Industry at single digit interest rates. The airlines reasoned it would be a significant way government could assist the domestic carriers to grow.