Why the Aviation Industry is Stunted

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Aviation is not contributing significantly to the nation’s GDP. Chinedu Eze writes that the government should step in urgently to salvage the industry

Industry analysts estimate that the Nigerian aviation industry has lost up to 30 percent of passenger traffic since 2015 owing to the economic recession. The expectation was that airlines would slash airfares to attract more passengers to travel but instead, airlines have increased fares by over 35 percent on the busy domestic routes, thus shrinking the market further.

Industry analysts opined that the airlines do not have a choice because they are cash-strapped and need more money to maintain their aircraft, purchase fuel, pay charges and other operational costs. Conversely the foreign airlines, which were also hit by Nigeria’s economic recession, have started picking up as passenger traffic has increased. They have in fact adjusted their fares to ensure that nothing was lost to the nation’s currency that have lost value.

Insufficient Capacity

Last week, three major incidents happened that painted gloomy picture about the aviation industry. Aero Flight NG316 recorded smoke incident in its cabin during its flight from Port Harcourt to Lagos, Dana Air flight with registration number 5N-SRI operating 11a.m flight from Lagos to Port Harcourt, on April 21, 2017 had an air return due to bird strike during take-off from Lagos. This resulted in grounding of the aircraft. Also, three Air Peace aircraft were involved in incidents. Two clipped wings why manoevering to park and board passengers at the ramp of the General Aviation Terminal of the Murtala Muhammed International Airport (MMIA), Lagos and the third aircraft owned by Air Peace was damaged by Skyway Aviation Handling Company Limited (SAHCOL) in Benin while the aircraft was being prepared for a flight to Abuja. All the aircraft involved in these incidents were grounded for inspection and certification of airworthiness by the Nigerian Civil Aviation Authority (NCAA).

These four incidents reduced the number of operating aircraft in the domestic service by five. It led to cancellation of flights and delays. Air Peace cancelled its Abuja-Benin flight, which should have been operated by the damaged aircraft. Its flights to other destinations were delayed as the airline grappled with the challenge of adjusting its schedule. The passengers suffered air rage and beat up the airline’s staff in Abuja to vent their frustration. Dana Air, which was to operate to Lagos- Kaduna flight on Monday, suspended that service because the aircraft is now on AOG (aircraft on ground).

Industry insiders posit that if the absence of five aircraft could paralyse the domestic operations of a country of over 180 million people, then there is a problem with the sector.

 

Losses incurred

Airlines involved in these incidents lost so much money because of the flights cancellations and the grounding of their fleet. Dana Air would pay hugely to buy another engine to replace the one damaged by bird strike. Although the regulation may not be clear in this, but THISDAY learnt from a source in the Federal Airports Authority of Nigeria (FAAN) that the agency has robust insurance cover for such incidents like bird strike and ideally the agency has to pay for the damaged aircraft in this circumstance but over the years FAAN has not taken the responsibility to pay airlines when their aircraft are damaged either at the airports or by bird strike. It is the responsibility of FAAN to keep the birds away and the agency is equipped to do that.

Also the damage of two Air Peace aircraft at the GAT ramp happened because of the small size of the space, which its remote parking place is clustered with many aircraft on AOG. So it is the responsibility of FAAN to ensure that enough space is created for operating aircraft.

 

Government

Industry sources told THISDAY on Monday that the aviation industry has failed to grow because the federal government does not have good policies for the aviation industry, which is aimed at promoting the growth of local airlines and manpower development in the sector.

“What this means is that government cannot leave the aviation industry to private entrepreneurs alone. Government has to intervene. We have insufficient number of aircraft operating in Nigeria and the airlines are facing huge financial problems. Government has to intervene; otherwise the existing ones will also die. In South Africa, government recognises that airlines are a catalyst to the growth of every economy so they ensure that South Africa Airways (SAA) continues to operate even when it is making losses.

“In 2016 South African government bailed SAA with R30 billion. They know that the airline is contributing to the growth of their economy, the success of their tourism industry and technical and manpower development of air transport in that country. The Nigerian government is not doing any of these. The government of Ethiopia Airlines gives it financial support, creates favourable operational environment for the airline and ensures that it does not encounter hindrances. But why do we have obsolete airports with no airfield lighting in Nigeria?” the industry insider queried.

 

Intervention

Many industry observers are of the view that for the Nigerian airlines to overcome the financial crunch it was exposed to in the last two years due to the country’s poor economy, government must provide an incentive of long term loans with single digit interest repayment, monitor the expenditure of the funds and ensure that the loans are repaired in the long run.

“Government ought to realise that the fall of the naira and the change in its financial policy adversely affected many companies in the country, including airlines. Most of what is happening to the airlines stem from the failure of government to do the right things. If things continue as they are, I fear that air cash will happen because most of the airlines don’t have money to maintain their aircraft. Government must have to realise this,” the source said.

 

43 Charges

THISDAY has learn that the total charges and taxes leveled on Nigerian airlines is 43 and this include the five percent Value Added Tax (VAT) paid to the Federal Inland Revenue Service (FIRS), which the air transport sector alone pay out of other modes of transport like road, waterways and rail.

 A  document recently presented as a new order to the operating airlines in the country disclosed the charges and levies collected by agencies like the Federal Airports Authority of Nigeria (FAAN), Nigerian Civil Aviation Agency (NCAA), Nigerian Airspace Management Agency (NAMA) and the operator of the Murtala Muhammed Airport Two (MMA2), Lagos, Bi-Courtney Aviation Services Limited (BASL).

The levies according to the document are divided into aeronautic and non-aeronautic revenues and are added to charges collected from passengers as air tickets.

21 of the charges are paid into the coffers of FAAN, six are paid into NCAA, NAMA collects three while Bi-Courtney collects four of the charges from the airlines that operate at its terminal.

The breakdown of aeronautic charges included aircraft inspection, which is tickets and Duty Tour Allowance (DTA) paid to the coffers of NCAA. The DTA depends on the country the aircraft is being inspected, but a source said airlines pay at least $10, 000 to the agency for each inspection of its aircraft.

Also, landing charges are divided into two; day and night. During the day, airlines pay N25 per kilogrammme of the aircraft weight while they are charged N37.5 per kilogramme of the aircraft at night. FAAN collects the charge from airlines.

Also, FAAN collects N315 per weight of aircraft after 30 hours from airlines as parking charge while the agency also collects between $40 and $50 from airlines for using the Avio Bridge.

 For en-route charge, FAAN charges $70 from airlines on international routes while it collects N2,000 for carriers on domestic route.

 Similarly, domestic airlines are compelled to pay to NAMA $75 as a charge for over-flight while it equally collects $195 from airlines that operate international or regional flights outside the country while N6,000 is remitted into by indigenous airline operators for the same terminal charge. The aeronautic agency also collect clearance fee for indigenous airlines.

Besides, N2, 500 per passenger is remitted to the purse of BASL as Passenger Service Charge (PSC) for any air traveller airlifted by airlines at the terminal. The terminal operator also collects $50 from airlines for using its avio bridge while it collects another $50 as extended avio bridge usage.

In addition to above charges, FAAN charges N2.50 kobo on every litre of aviation fuel sold to any airline, whether indigenous or international carrier. This accumulates to huge revenue to the agency because the total litres of fuel consumed daily by all the airlines are over one million litres.

Penchant for Foreign Airlines

Travel expert, Ikechi Uko accused government of seeming to favour foreign airlines at the expense of indigenous airlines. He noted that domestic airlines ought to be protected by government and should be made to benefit from its policies, but presently such policies are inimical to the growth of Nigerian airlines.

He said that first Nigeria ought to build capacity and a way to do this is for government to help the airlines by wiping away the debts they owe aviation agencies so that they could use the money they should have paid to the agencies to acquire aircraft, maintain their fleet and fund their operations.

“The problem Nigeria has is short term thinking. What we should do to assist our airlines is what government is doing to favour airlines from other countries. Nigerian airlines should benefit from our market. You can give the indigenous carriers subsidy for three years to build the strongest airlines in Africa; then adopt hub strategy to grow the airlines by timing and determining their local destinations,” Uko said.

Uko noted that while Nigerian constitutes the bulk of passengers that are moved from West Africa everyday by international carriers, none of the country’s airports can operate as a hub, as Ghana has already positioned Accra as the operating hub in the sub-region.

“This is what Ghana is trying to do. They don’t have the capacity to compete, so Ghana government gives foreign airlines rights to operate into Accra. It has given Emirates, South Africa Airways, Air Rwanda, Air Maroc, Egypt Air and others the right to operate from any destination to Accra. This is because they are interested in the service. You pay for the service they provide, which generates revenue, creates jobs and promotes the country. They are building a new airport in Accra at the cost of $250 million and they have removed VAT to allow more players into the country. This is happening at a time our government is encouraging foreign airlines at the expense of indigenous carriers,” Uko added.

The economic potential Nigeria has in the aviation sector may never be realised with the present policies that are a disincentive to the growth of successful indigenous carriers.