Experts: Why Nigerian Banks Cannot Fund Aviation Sector

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Chinedu Eze

Aviation experts have said that one of the factors that stifle the growth of the aviation industry in Nigeria is the failure of the banking sector to extend special lending facilities to the aviation sector.

The experts noted that investment in air transport comes with little returns on investment but need huge capital outlay. They explained that therefore to fund such business, banks must adopt a long term, single digit interest loans that would support the industry.

The industry stakeholders, who met recently in Lagos, noted that lack of such long term funds with low interest rates is impeding the growth of the industry, especially the airline sub-sector.

Former Director General of the Nigerian Civil Aviation Authority (NCAA) and the founder of Evergreen Apple Hangar, Lagos, Dr. Harold Demuren, said that the present interest regime of banks make it difficult for Nigerian airlines to borrow money and this has affected the acquisition and leasing of commercial aircraft in Nigeria.

“The present interest rate regime in Nigeria is not good for aviation. Take the 20 something per cent interest, you can’t do any business with that. So we need to do something about that. And it is very interesting for me when I learnt about zero interest on money (Sukuk), that’s a good one. I think the other people should copy it, we don’t need to quarrel, and we should also do our own, form another bank that would be zero interest, at least single digit interest. Then when you do that the big banks will lower their interest rate and that is good for Nigeria and SME companies can progress. I think that is what we should do,” Demuren said.

Demuren added that because there is poor corporate governance it is difficult for banks to support the airlines with huge funds, noting that there is poor legal system and lack of integrity in the management of some of the airlines.
A corporate banker from First Bank of Nigeria Limited, Saro Abdulrasheed said banks are reluctant to extend huge credit exposure to the aviation industry because they are yet to understand the sector very well.
He noted that the banks are yet to know how the industry works and until the banks personnel are trained to understand the aviation sector, banks may not be able to fund huge investments in the sector.

He said that many banks are yet to know how the industry operates, especially the value of the equipment (the aircraft) and that explained why the past funding of aircraft for airlines were not particularly successful, which led to liquidation and the interference of Asset Management Corporation of Nigeria (AMCON), which today has absorbed the liabilities of these airlines.

Abdulrasheed also remarked that banks may not be able to provide the credit support for airlines to acquire new aircraft because of the huge finance involved and noted that the banks would rather lose money by using it to train its staff to understand the sector than precarious exposure of their funds to the capital intensive aircraft acquisition.

The experts also spoke about the challenges airlines face, which made them to lose huge revenues, noting that airlines may fail to repay loans or become bankrupt due to other factors such as poor and inadequate infrastructure, which curtail their operations and made them to lose money.

Former Managing Director of Virgin Nigeria Airways and the CEO of Ropeways Transport Limited, Captain Dapo Olumide, said that due to lack of Category 3 Instrument Landing System (ILS) at major airports, airlines losing huge amount of revenues from November every year when the Harmattan sets in and disrupts flights at different airports in the country.

Such losses, he said, could hamper the airlines from servicing their loans and injure their reputation, which could forestall their ability to secure credit facility for their operations.