Aircraft Acquisition Gets Boost

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Afreximbank has rolled out an initiative that will assist African airlines acquire new aircraft, in a bid to encourage air connectivity and enhance intra-regional trade. Chinedu Eze writes that this may also boost the fleet of Nigerian airlines

One of the major challenges facing African airlines is the inability of many operators to acquire new aircraft. This is because many airlines in the continent find it difficult to access funding and international financiers give stringent conditions when extending credit facility to African carriers.

For example, despite the fact that Nigeria has become signatory to Cape Town Convention and Protocol that should enhance aircraft acquisition and leasing, Nigerian airlines rarely benefit from the treaty because of trust concerns and the impression that Nigeria is a hostile environment for airline operation.

Now, Afreximbank wants to assist African airlines acquire particular brand of aircraft manufactured in Russia with flexible acquisition terms and the manufacturers intend to establish maintenance facility in Africa along with spares storage so that within hours they could meet the demand of the airlines.

Afreximbank and REC Partnership

Afreximbank is partnering the Russian Export Centre (REC), which is a state owned development institute established to support Russia’s non-commodity exports sector.

According to the Russian Embassy in Nigeria, REC offers a wide range of financial and non-financial support tools to help Russian exporters develop foreign markets and build capacity in global trade.

Last week, Afreximbank and the Russian Export Center embarked on a series roadshow to sensitise airlines in Africa about the new aircraft type, Sukhoi Superjet 100, a short haul, 100-seater aircraft meant suited for intercity flights across African destinations.
The Russians are also offering the highly acclaimed MC-21 airliner and the latest helicopters manufactured with the state-of-the-art technology, which is a significant deviation from the past.

The five-day roadshow, which took place in Nairobi, Kenya, through Kampala, Lagos, Abuja and Bamako, was aimed at offering airlines the chance to acquire the aircraft.

In Lagos, the aircraft was showcased at the private terminal, Quits Aviation at the Murtala Muhammed International Airport (MMIA), Lagos. Many domestic airlines came to inspect the aircraft to assess their capabilities and spoke with the manufacturers and marketers on the terms of acquisition.

Speaking at the roadshow in Lagos, Head, Client Relations, Afreximbank, Mr. Rene Awabeng, said the partnership gives key players in Africa’s aviation industry tremendous opportunities.

Aging Aircraft
He said the average age of aircraft that operate in Africa is 17 years, noting that fleet age of African airlines was the oldest in the world and remarked that the Russian aircraft models are more fuel-efficient aircraft and the newest helicopters, with their expertise and experience in aircraft finance, they can enable the upgrading of Africa’s aviation industry.

“We look forward to conversations with authorities and the aviation industry to discuss how their development plans and identify areas where they require funding and technical assistance,” Awabeng said.

Also speaking at the event, the Managing Director, International Development, Russian Export Center, Anna Belyaeva, said that African governments were generally aware of the need to develop their aviation infrastructure, noting that the centre welcomed the opportunity to discuss how they could help domestic and international airlines meet the challenges and opportunities facing them.
She added: “We have experts from airline manufacturers and trade financiers at the roadshow and will be able to provide specialist advice and guidance on all aspects of aviation.

“REC offers a wide range of support tools for Russian exporters and already has success stories of supporting export of civil aircraft and helicopters. We see a considerable potential for Russian aviation industry products in Africa and are ready together with Russian exporters and Afreximbank on this market.”

Awareness creation
Awabeng in an interview with THISDAY said Afreximbank wanted to create awareness with the road show and noted that the objective of the bank was to support airlines acquire the aircraft in Africa in order to actualise the bank’s mission, which is to stimulate a consistent expansion and diversification of African trade so as to rapidly increase Africa’s share of global trade.

“One of the objectives of the road show is awareness. The African Export Import Bank was set up to be the primary trade finance bank in Africa. As part of our strategic objective, one of which include the promotion of intra-African trade, which means the movement of goods, services, people and solutions across the African continent. It is a primary role for us to support and promote intra-African trade and to facilitate intra African trade; we have to ensure that the continent has the right infrastructure.

“This infrastructure comes in railways, airport facilities, aircraft and roads so that goods and services can move from one end to another. We have entered into a strategic partnership with the Russian Export Centre, which is the export bank of the Russian federation to promote aviation in Africa, so that we can meet one of our strategic goals,” he said.

He said the Russians have invested significant amount in research and development in their aircraft which are very efficient in terms of fuel consumption which are also ecologically very friendly.

“We have partnered with Russian Export Centre, to provide solutions so that African entrepreneurs either private sectors, national airlines, private sectors, operators of airlines can acquire these aircraft through asset structures to meet our objective of moving people from one part of the country to another. We want to enhance moving Nigerians from Port Harcourt to Kano, from Kano to Abuja, from Benin to Lagos.

Acquisition and Certification

The tough reality in acquiring aircraft in Nigeria is that the average Nigerian carrier pays whole cost of the aircraft once, but in other countries, the payment could be spaced and the insurance could cost less. Many Nigerian operators yearn for what is obtained overseas, where they could space the payment of the aircraft. Also, while leasing aircraft, domestic carriers also pay more. This, as earlier stated, is attributed to poor goodwill and the failure of government to stand by its airlines and protect their interests.

However, Awabeng said that there are various ways for acquisition of the Russian aircraft.
“If you are an operator, the aircraft needs to be certified in your country. So part of this partnership is to work with Nigerian authorities to certify the Russian aircraft to be able to operate in Nigeria. We will enter commercial negotiations with operators of other aircraft or helicopters to see how they can acquire and see how we as solution providers can finance the acquisitions of these aircraft.

“The aircraft is a blend of Italian, French and Russian technology; it is very spacious. They are for regional routes. They can take up to 100 passengers in different configurations of business class and economy. The aircraft are quick in take-off and landing, which means they can service short distances. These are brand new aircraft,” he said.

Partnership with Government

Awabeng said the bank hopes to partner with government to facilitate the acquisition of the aircraft for the airlines. THISDAY gathered that government could guarantee the acquisition for the airlines in order to pioneer the operation of the aircraft type. Although in some African countries, Russian aircraft has remained the equipment of choice but in Nigeria, no airline has operated the aircraft type in recent time.

“As a financial institution, Afreximbank has advisory team that has got long term experience in advising national governments in structuring or helping them to build feasibility and business plans for their national airlines. The bank can advise the federal government of Nigeria on the aircraft types, routes and put together a feasibility plan and business plan for the national airline company. We can also support the national airline or private investors in the acquisition. We have done so previously in this country in supporting private sector companies in acquiring aircraft,” he said.

After inspecting the aircraft and having a conversation with REC, the Executive Chairman of Airline Operators of Nigeria (AON), Captain Nogie Meggison spoke with THISDAY and said Nigerian airlines have been yearning for flexible aircraft acquisition modalities that could enhance the modernisation of their fleet.

“In aviation, there is opportunity for growth. We are not in our optimal position. It is a welcoming idea in the sense that we have always asked that we have access to brand new aircraft. With Afreximbank coming into the picture to guarantee and finance it, it opens a window, a new door and a new chapter for us into acquisition of brand new aircraft.

“Our problem in Nigeria as carriers is our financial structure and access to markets. You cannot finance an aircraft like this using 26 percent interest rate from the Nigerian banks. It is a dead-on -arrival business, but with Afreximbank coming in now, instead of taking a $7 million or $5 million to go and buy a Boeing B737-400 aircraft. To lease this aircraft like what the American Airlines, the British Airways, the Singapore and Emirates do, they are going to ask you for a 10 to 15 per cent deposit of the actual value of the aircraft,” Meggison noted.

He further explained, “For example, if this aircraft is about $25 million, 10 per cent of that is $250,000, even if you are asked to pay 15 per cent; that is better compared to $7 million you are going to put down. So you can see your cash flow immediately gets better and you have disposable income to take the shock. So you can afford to pay a six months lease or put a deposit of 10 per cent and still have cash in your pocket. So instead of you buying 10-15 year-old aircraft, you only need 10 per cent of that money to acquire a new aircraft. So the money for two aircraft now can almost give you 10 compared to buying 10 in cash. Now it changes the whole aviation business in Nigeria”.

The AON boss said provision of spares and aircraft maintenance is the key to acquiring the aircraft, suggesting that maintenance facility and spares stores should be established first before the aircraft should be acquired by the airlines after firm commitment.
“Training is the key in this and transfer of skills is also important. This enables to create jobs and become competitive. Do you want to take 26 per cent interest rate from Nigerian banks and go to America to acquire aircraft or you take a two per cent interest rate and get the same equipment as long as the aircraft are EASA (European Aviation Safety Agency) and US FAA (Federal Aviation Administration) approved?” Meggison asked.