In order to meet the expected surge in air passengers’ demand, Nigerian airlines are beginning to acquire more aircraft through leasing, which is a global successful venture for airlines, even though such venture could be costly in Nigeria, writes Chinedu Eze
About five months ago, aviation industry insiders were wondering how the airlines would cope with high passenger demand during the Christmas season. Airfares were very high; a knee-jack reaction to the high cost of aviation fuel, known as Jet A1.
Travellers paid as much as N180, 000 for return ticket. Nigerian airlines have low capacity, and some that have aircraft in maintenance facilities cannot bring them back due to scarcity of forex. They could not take the ones due for C-check overseas due to the same reason in addition to the fact that they would have to wait for slot window.
Increase in Aircraft, Frequencies
As the yuletide approaches, airlines are beginning to announce the delivery of more aircraft and the increase in frequencies to destinations. On Wednesday, Nigeria’s biggest operator, Air Peace announced the introduction to new flights on its Enugu and Owerri routes. The airline stated that it has introduced Owerri-Lagos 09:10, Lagos-Owerri 15:30, Enugu-Lagos 07:20 and Lagos-Enugu 17:00 flights to provide more connectivity options for the flying public, especially regular passengers on both routes.
“Passengers can now connect Lagos from Enugu at 07:20 in the morning via Air Peace and return with our 17:00 flight in the evening. This is also applicable to the Owerri route. Passengers can join our Owerri-Lagos 09:10 flight in the morning and return with our 15:30 Lagos-Owerri flight,” the release stated.
Arik Air announced the re-introduction of the Port Harcourt Garden City Express, which serves customers from Lagos directly to the Nigerian Air Force (NAF) Base in the heart of Port Harcourt, Rivers State capital, which the airline said would commence on December 5, 2022, and operate daily from the Murtala Muhammed Airport, Ikeja Terminal Two, MMA2.
“This service will be an addition to the airline’s daily flights from Lagos to Port Harcourt International Airport, Omagwa. Passengers usually spend extra hours to connect Port Harcourt City from the International Airport, Omagwa, which makes the Garden City Express service less stressful in terms of luggage and cost of land transportation,” the statement said.
Last week Air Peace had announced resumption of flight operations to Uyo with N50, 000 re-launch fare from December 1, 2022. Dana Air also announced the resumption of its Abuja to Owerri, Enugu service from December 9, 2022. According to the spokesman of the airline, Kingsley Ezenwa, Dana Air is gradually opening its prime routes to offer superior options to its customers in terms of fares, service and comfort ability.
“We are delighted to re-introduce these flights based on popular demand for our service to these destinations and the schedule has been suitably fixed to meet the expectations of our eastern brothers and sisters,” Ezenwa said.
So as airlines lease more aircraft they introduced new routes, increased frequencies in the existing ones and there are indications that these would continue until the second week in December. It also indicated increase in capacity, as Aero Contractors, Nigeria’s oldest carrier, joins the market with about five aircraft.
Cost of Aircraft Leasing in Nigeria
Leasing aircraft is a profitable venture for airlines globally but in Nigeria, there are snags. Firstly, Nigeria is described as high country risk, so cost of insurance and other services are up. Secondly, Nigeria is also described as harsh environment to do business. This has to do with policies, attitude of government, airport infrastructure and others and finally, Nigerian airlines in the past repudiated the Cape Town Convention and had failed on lease agreements, which damaged the image of the country and made lessors unwilling to lease aircraft to some airlines.
The Nigerian Civil Aviation Authority (NCAA) has been striving to rebuild Nigeria’s image and that may explain why it is easier for Nigerian carriers to lease aircraft now, but relatively at very high cost.
THISDAY spoke to aviation development analyst and former General Manager, Business Development, Federal Airports Authority of Nigeria (FAAN), Nuhu Adam, who disclosed that aircraft leasing is very costly in Nigeria and there are other challenges, which are peculiarly Nigerian problem. One of such problems is getting 5-Star hotels for the crew and not having standard Maintenance, Repair and Overhaul (MRO) facility, that is approved by the European Aviation Safety Agency (EASA) (where most of the leased aircraft come from).
Adam is of the view that Nigerian airlines pay a lot for leasing and its associated services because they pay in dollars with forex fluctuation; it is difficult to make projections on the expenses. He also observed that the cost of leasing is counted in hours, it is difficult for Nigerian airlines to meet and exceed these hours due to operating limitations; many airports don’t receive flights after 6:00 pm. These are known as daylight airports.
Preferred Leasing Type
THISDAY learnt that the type of leasing popular among Nigerian airlines is Aircraft, Crew, Maintenance and Insurance (ACMI) Damp Lease (a mixture with local crew). This type of leasing provides the lessee (airline) with additional or replacement capacity, even at short notice.
Adam who spoke to THISDAY, said: “Our operating environment has limitation. We don’t operate for long hours because many of the airports are on daylight service. This is a very big limitation because the aircraft is highly likely not going to be put in full utility. The cost of wet leasing is too much due to the fact that there is absence of supporting services. We don’t have 5-star hotels in Lagos, which is the hub of most of the airlines and we don’t even have them elsewhere. Sometimes I wish that FAAN could build hospitality facilities at the airports, especially in Lagos and Abuja. That’s where this aerotropolis comes in.
“Airlines spend so much money on accommodation and crew and this is paid in dollars. The fluctuation of the exchange rate will eat into your profit. There should be more hotels at the airports,” he said.
Adam decried the fact that Nigeria does not have well rated MRO facility and expressed hope that when the MRO being built by the Akwa Ibom state government is completed it would have certifications from renowned international agencies like EASA. He recalled how maintenance on a leased aircraft that could take about two weeks lasted about 59 days during the COVID-19 lockdown period, “just because we didn’t have EASA certified maintenance facility within West African region.”
He emphasized that absence of the facility is a big drain on Nigerian airlines and said that it is akin to Nigerian airlines fetching water with basket, instead of bucket because whatever gains they make are taken away by maintenance costs.
Aircraft Leasing
THISDAY gathered that Nigerian airlines have their own aircraft but many of them are in repair facilities overseas. They cannot raise the forex needed to pay for them to be returned home after maintenance. Some are yet to secure slots for maintenance and those on AOG (aircraft on ground) cannot be taken out because there is no forex. So Adam is of the view that the federal government should have emphasised more on providing world class MRO facility in Nigeria instead of prioritizing national carrier.
On why leasing is not so profitable to Nigerian carriers, he said: “Without maintenance facility in Nigeria it will be difficult to support your leased aircraft in terms of maintenance and leasing does not add value to Nigeria because almost everything is taken out. Maybe you pay for hotels, which is good for us. We usually have mixed cabin crew, which is also good for us, but you do your monthly basic lease payment in dollars. Airlines pay more for the aircraft because they are foreign registered and I can tell you that accommodation cost for crew of one leased aircraft in one month is about $18, 000. There is also regulatory induced cost because the aircraft has to be inspected, but sometimes it takes time, due to, maybe, inadequate personnel at NCAA. Ideally, once a leased aircraft comes, it should start operating immediately because its service is counted in hours. Leasing is expensive venture in our environment.”
Boosting Capacity
The Managing Director, Flight and Logistics Solutions Limited, Amos Akpan, told THISDAY that Nigerian airlines are taking wet lease to boost their capacity in anticipation of the high yield Christmas season and explained why domestic air travel is recording increased demand.
“This is in anticipation of the increase of passenger turn out in December. Festive season, elections campaign season and unsafe interstate roads are the deducible reasons for expected higher passengers’ turnout,” he said.
He also explained that the economy of wet lease is dependent on the strategy of each airline and also threw more light on why Nigerian carriers seem to lease more Airbus.
“The economy of wet lease depends on the strategy of each airline. For instance, the Airbus gives flexibility to carry more on the mix of passengers, excess baggage, and cargo. This is a key attraction to air travellers on the West African routes which consists mostly traders and economy class travelers. The Airbus will augment for combi aircraft, which is most suitable for trader flights.
“Also, it is important Nigerian airlines go on fleet expansion to cover domestic routes and position to participate in the Single African Air Transport Market (SAATM). Capacity is relevant to compete in the domestic, regional, and continent’s market,” he said.
Akpan also explained that the decision of an airline to decide whether to engage in dry lease or wet lease (which comes with crew and maintenance) is according to the strategy and projections of the airline. He also noted that despite the seeming preference of Airbus by Nigerian airlines as leased aircraft, it has its own challenges in the Nigerian environment.
“Whether wet lease is more economical than dry lease at this point is determined by prevailing indices. What is in your business portfolio? Maintenance for Airbus 320 series is not a strong point for Nigeria now in terms of manpower and infrastructure. This makes wet lease convenient for now. It might be easier to include maintenance and insurance in the payment of monthly lease rentals instead of separately shopping for non-available forex to buy spare parts, recruit foreign engineers and pay insurance. Wet lease is not a plus to our industry in the medium and long term because it doesn’t enhance creation of jobs for our technical crew (pilots, technicians and engineers). But it bridges the gap for operators and gives them opportunities to rejig their strategies,” he explained.
Akpan remarked that for now wet leasing seem to be the favourite for Nigerian carriers because of some factors relating to aircraft insurance and forex.
“For the insurance, the airlines are currently paying the bulk of the premium in foreign currencies because Nigerian insurance only reinsure with foreign insurance companies. Generally, wet lease is strategically a stop gap for most operators. It requires very minimum input in crew and maintenance; just line maintenance, and supervision for compliance with approved operation specifications. As a marketing strategy, it’s a proactive move for the coming high season, and for regional flights as it assures capacity,” he said.
Nigerian airlines are in critical need of MRO facility; the airports need modern infrastructure and hospitality facilities. These will help them pay less for leasing and associated services. For now, as the airlines generate revenues in naira, they are gulped by leasing costs paid in dollars.
