Aircraft Operators: 47 Nigerian Airlines Have Closed Shop in 30  Years

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Banks’  exposure to airlines non-performing loans put at N246.9bn

By Damilola Oyedele in Abuja  and  Chinedu Eze in Lagos

Diverse challenges mitigating against the smooth and profitable operations of airline business in Nigeria, have led to the closure of 47 airlines in the last 30 years.

Some of the challenges include multiple taxation, policy deviation and policy contradiction by the executive arm of government, and high cost of renting ground space at airports.

The Secretary General of Aircraft Operators Association of Nigeria, Captain Mohammed Joji, outlined these challenges when he made a submission to the House of Representatives Committee on Aviation yesterday. 

The Hon. Nkeiruka Onyejeocha-led committee is currently holding a public hearing on the need to save the aviation industry from imminent collapse. The hearing which commenced on Tuesday continues until Friday.

Joji noted that the challenges identified in a 2006 Presidential Task Force Report on the industry exist till date and continue to hinder the growth of the aviation sector.

He lamented that the Nigeria Airspace Management Agency (NAMA) continues to charge dollars from domestic airline operators, despite the policy of the Central Bank of Nigeria against such practice.

Joji also lamented that the country continues to charge Value Added Tax for purchase of aircrafts, a practice which has been stopped in all parts of the world as transportation is a basic service which drives the economy.

Presenting the 2006 report to the committee, Joji listed the recommendations; government accepted the recommendation to grant zero tariff and VAT on the aircraft, aircraft spare parts and ground equipment, he said. 

“Government also approved the removal of the five percent VAT on the ticket sales and cargo charges,” Joji added. 

The Task Force recommendation can be collaborated by the VAT Decree N0.102 of 1993, Joji told the committee.

“The approval of multiple destinations to foreign airlines has denied local operators earnings and this has to be stopped…NCAA; policy of levying operators flying on schedule flight out of Nigeria is a punitive measure devoid of any economic sense to the airline….FAAN charges the most expensive land rate in the world at N60,000/sqm, which is more expensive than choice lands in Victoria Island, Lagos and Asokoro in Abuja,” he noted.

Speaking earlier, Onyejeocha called for suggestions on short term measures that can ensure ailing airlines are not allowed to crash.

She added that clear cut policies need to be fashioned out to assist the airlines with access to foreign exchanges due to the fact that almost all transactions in the industry are carried out in dollars.

The Managing Director of Medview Airline, Mr. Olanrewaju Lukman, expressed support for the proposal to concession the four major airports; Lagos, Abuja, Port Harcourt and Kano, if the process would be transparent.

Meanwhile, the Central Bank of Nigeria (CBN) has confirmed that the intervention fund given to Nigerian airlines in 2010 was actually meant to cushion the debts owed the banks by the domestic carriers.

The federal government gave N300 billion to the power and airlines, which was meant to help the airlines acquire new aircraft and fund their operation.

 But the Assistant Director at the Infrastructure and Finance office of CBN, Elder Boma Benebo explained to the House Committee on Aviation during the on-going public hearing on how to resuscitate the airline industry that banks’ exposure to domestic airlines was about N246.9 billion.

Benebo said CBN became concerned in 2010 when it realised how much the airlines owed the banks and substantial amount of the loans, about 14 per cent was non-performance loans (NPLs) on the banks’ balance sheets.

He said at that time the financial system was at risk and “we looked at hoe to strategy the system and also help the aviation sector and we decided to restructure the loans on short term and long term basis.”

Benebo said the airlines borrowed the huge money on double digit, short-term interest rate that was as high as 23 percent so they could not pay the interest.

“So the intervention fund was used to restructure the loans, so the money was given to the airlines to offset their debts in the banks and the interest rate was reduced from 23 per cent to seven per cent and from short period of time to 10-15 years. We asked the banks to refinance the loans and also give working capital to the airlines,” he said.

 According to him, the airline industry was in financial straights so CBN collaborated with the then Ministry of Aviation and after studying the situation brought in a consultant, the Africa Finance Corporation (AFC) to help revamp the airlines.

“We looked at the airline industry and saw that it was in financial straights. It had negative equity and they were losing revenues and we also found that poor infrastructure was also part of their problems, so in 2010 we made recommendations. We noted that the operating cost of these airlines in Nigeria is too high; there was high parking fees and aviation fuel was costly and instead of sourcing revenues from non-aeronautical sources all the charges were heaped on the airlines,” Benebo said.

The Chairman of the House Committee on Aviation, Hon. Nkiruka Onyejeocha said that the objective of the public hearing was to find practical solutions to solve the problems of the aviation industry and to stop Nigerian airlines from going under and then to stop foreign airlines from leaving the country.

Many presenters identified major problems plaguing the airlines to include high cost of foreign exchange, inadequate supply and high cost of aviation, exorbitant charges and poor infrastructure.