As High Charges Threaten Airlines’ Operation

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The recent suspension of schedule flight operations by Aero and First Nation Airways has made many air travellers to express the fears that domestic air travel may be encumbered.

THISDAY investigations revealed that many Nigerians are apprehensive about the future of local travel by air in Nigeria and they feel that more airlines may go under.

On Tuesday, Arik Air suspended flights for 16 hours because of issues relating to the insurance of its aircraft and this sent another bad signal to travellers; although the airline resumed flights in the evening of that day.

For travellers, the fear is palpable as airlines complain of the hostile environment and the high charges by government agencies.

Nigerian airlines are also faced with high insurance premium because insurance companies designate Nigeria as high-risk country and this ups the premium.

The Managing Director of Arik Air Chris Ndulue told THISDAY in a recent interview the factors responsible for high insurance premium for aircraft in Nigeria.
He said that Nigeria is wrongly perceived as high- risk country because of activities of insurgents who operate at only one section of the country, adding that this might have influenced the high aircraft insurance cost in the country.

“The premium on aircraft insurance paid by airlines is something that is decided on case by case basis and it reflects the insurance company’s assessment of the risk. So if they think your risk is high, your premium is bound to be high and if they think my risk is lower, my premium will be lower.

“The only thing that will make a difference between insurance premium in Nigeria and in South Africa is country risk. Nigeria’s may be high because it will reflect the insurer’s perception of the country risk. If Nigeria’s insurance premium is higher than that of South Africa then insurance companies have assumed that Nigeria’s country risk is higher than that of South Africa.

“International perception of Nigeria is unfavourable but Nigeria is not as bad as it is perceived to be. If you don’t check that very well you pay a country risk that is far higher than what you should pay, especially with the issues of Boko Haram,” Ndulue said.

In addition to the high insurance premium airlines pay for the aircraft, government agencies charge them highly for the services rendered to them.
Airlines pay five percent charge to the Nigerian Civil Aviation Authority (NCAA) on every ticket sold by the airlines; they pay for on-duty cards, which could range from N5, 000 to N15, 000 for every airline staff that accesses the restricted areas of the airport.

The airline passengers pay N1000 to the Federal Airports Authority of Nigeria (FAAN) and N2, 000 to Bi-Courtney Aviation Services Limited as passenger service charge; airlines also pay FAAN N2.50 Kobo for every litre of aviation fuel sold in addition to landing and parking. In addition to these charges, the federal government still levy the airlines Value Added Tax (VAT).

Also the Nigeria Airspace Management Agency (NAMA) levy airlines navigational and terminal charges, which is the payment of services rendered by the agency, which installs and maintains Instrument Landing System, Total Radar Coverage of Nigeria (TRACON ) and other services.

Airlines until recently, pay about 20 percent of the cost of spares they import to Nigeria Customs Service. The federal government had granted waiver to the airlines for the importation of aircraft and spares, but the waiver is always resisted by Customs and sometimes they say the period of time given for the waiver had expired.

THISDAY learnt that recently an airline imported aircraft engine and when it arrived, Customs insisted that tariff must be paid on the equipment, but the airline resisted, insisting that the federal government gave waiver to airlines to import spares and aircraft. The engine was not released to the airline for over two weeks, until Customs acknowledged the waiver and allowed the airline to take the engine.

Because of the pivotal role airlines play in the economic development of any nation, many countries enhance credit facility to their airlines or eliminate some charges and also provide them other incentives, but according to airline operators, the Nigerian government does not provide any incentive to airlines.

Informed source told THISDAY that it is true that most of these charges are passed to the passengers but the airlines know that there is a limit they can raise the cost of ticket because of the lean disposable income of many Nigerians; so these charges indirectly rob them of their potential profits.

A FAAN source told THISDAY that the N2.50 fuel surcharge is supposed to be paid by the oil marketers but the payment is passed to the airlines and that airlines do not pay for landing and parking at the airports they consider their base but pay the charges when they fly to other airports and stay up to three hours.

It is these charges and poor airport facilities that made some airline operators to dub Nigeria a hostile environment to do airline business.

To assist the airlines to operate profitably a senior official of one of the agencies said government could help the airlines to survive by making aviation fuel available through local refining of the product and at relatively low cost. The source also suggested that the Central Bank of Nigeria (CBN) could help the airlines by facilitating their access to dollar at lower rate. Also CBN should enforce a policy whereby banks lend money to airlines at a single digit interest rate but instead of giving the airlines the money, the bank would pay it to lessors, aircraft manufacturing company where the airline wish to acquire aircraft from.

Industry experts say government must have to take strong steps to help Nigerian airlines; else many of them would go under.