FOREIGN AIRLINES AND TRAPPED FUNDS
The CBN should negotiate a graduated payment plan with the airlines
The continued inability of foreign airlines to repatriate their revenue is a disincentive to investors who may want to bring in their funds to invest in Nigeria. Not being able to pay these foreign airlines their money unofficially designates Nigeria as a country of high risk for investment. While efforts are being made, the $61 million recently paid to the airlines by the federal government is inadequate considering that they are owed about $800 million.
This has already affected the country in many ways, especially in the aviation industry. Nigerian airlines find it difficult to either lease or purchase aircraft directly from manufacturers or their agents because the country is deemed unable to keep agreements. They must therefore secure guarantee from local banks, which insist on the deposit of equivalent sum of the aircraft cost before such guarantee could be given.
In the Bilateral Air Service Agreement (BASA) signed between Nigeria and other nations that their airlines operate to the country, there is a clause that foreign airlines are free to repatriate their earnings in foreign currency through the Central Bank of Nigeria (CBN) and this agreement has been negated. Even though the federal government has been paying to reduce the amount of the revenue trapped in Nigeria, the payments have been negligible.
By July 2022, the total foreign airlines revenue trapped in Nigeria was about $464 million but by January 2024, it hovers around $800 million. Two months later, one of the world’s mega carriers, Emirates, suspended its operation to Nigeria because it could not repatriate $85 million revenue trapped in Nigeria. Its sister airline, Etihad, also suspended flight service to Nigeria. The implication is that if these funds are not repatriated, other airlines could suspend their flight operations to Nigeria, which will constrict the economy and paralyse international travel since foreign airlines airlift 90 per cent of Nigerians who travel overseas.
As the fastest way of moving persons and goods, air transportation is a catalyst to economic development for any nation. It is also the preferred means of transport for people both in the private and public sectors. So, every country is negatively affected when scheduled flight operations are impaired. Meanwhile, failure to encourage domestic airlines to grow into strong operators has willy-nilly made foreign airlines operating into our country very imperative. These foreign carriers have also over the years maintained high load factor due to high patronage.
The International Air Transport Association (IATA) recognises that the withholding of airlines’ funds by Nigeria and other countries was not on purpose. But IATA has also observed that Nigeria might not be giving aviation the priority it deserves. Nigeria has the highest number of airlines’ trapped funds in the world. Already the inability of the airlines to repatriate their revenue has led to a hike in the cost of ticket to international destinations by over 80 per cent, exacerbated by the devaluation of the naira. For instance, a $500 ticket in the past, which was sold for about N250,000 is now sold for over N600,000. In the past also, a $1000 ticket used to cost between N500,000 and N600,000 but it now costs way above one million Naira.
Overall, the consequences of reduced air connectivity include the erosion of our national competitiveness, diminished investor confidence and the reputational harm that could come with a perception that Nigeria is a high-risk place to do business. While the CBN may therefore be battling with scarcity of forex, the solution is not to sit on the legitimate earnings of foreign airlines. The bank can negotiate a graduated payment plan with each airline to release the trapped funds in tranches over a number of months. That way, their services are not interrupted.
