Aviation experts have identified fluctuating value of the naira as one of the factors that discourage international financiers and other credit institutions from funding aircraft acquisition for Nigerian airlines.
They have also identified the failure of Nigerian airlines to allow lessors repossess their aircraft at the breach of leasing contract or purchasing agreement as a second factor.
Also, the inability of airlines to pay for leasing due to scarcity of foreign exchange was identified as the third factor.
This was brought to the fore on Tuesday by Airbus Africa and Middle East Marketing Manager, Prajyoth Krishna Mirajkar during media briefing organized by the renowned aircraft manufacturing company.
He said that in Nigeria lessors find it difficult to repossess their aircraft easily and this has become a disincentive to leasing aircraft to domestic airlines. This is why lessors, international insurers and others involved in aircraft acquisition business describe Nigeria as high risk. High risk means that not many leasing companies will like to do business with airlines in that country.
They refer to this as jurisdiction risk. Also, those that will be willing to lease aircraft to airlines in Nigeria do so at outrageous price and most often may not lease aircraft on long term, which is known as dry lease, where aircraft is leased to the airline and it operates it with its crew and also maintains the equipment. Lessors rather lease aircraft on short term, known as wet lease, where the lessor also provides the crew and maintenance.
High country risk also means that airlines that operate in that country pay high insurance premium that could be 10 times higher than their counterparts in Europe.
Mirajkar said that solution to this situation is for the Nigerian government to come in and save the airlines by directing the Central Bank of Nigeria (CBN) to make forex available to airlines so that they will be able to pay for their leases.
Also, the Nigeria Civil Aviation Authority (NCAA) will give guarantee to lessors that they can easily repossess their aircraft without legal restraint, noting that with the collaboration of government and its agencies, Nigeria would be able to break the negative perception that portray the country as high risk environment for aviation business.
It is Nigerian carriers that bear the brunt of this perception, as they pay outrageous lease fees and high insurance premium, which impede their ability to operate profitably.
Globally 60 per cent of aircraft delivery is through leasing and many airlines acquire aircraft through leasing from the lessors, but Nigerian airlines have limited choices in aircraft acquisition, either the acquire through wet leasing, which is costly or they do outright purchase, which is equally costly because Nigerian airlines access credit facility at high interest rate of about 26 per cent.
The Director General of Nigerian Safety Investigation Bureau (NSIB), Akin Olateru recently disclosed that import/export banks could extend credit facility to 85 per cent of the cost of an aircraft to an airline. However, it would require the airline to give guarantee from a local bank, but Nigerian banks would insist on the deposit of that same sum they want to guarantee and in the same foreign currency in their banks before they could give guarantee for the loan. All these make it very difficult for Nigerian airlines to acquire aircraft.
Confirming Mirajkar’s position on aircraft acquisition in Nigeria, the Chief Operating Officer of Ibom Air, George Uriesi in his presentation at the event narrated the tortuous experience the airline went through in its efforts to acquire aircraft until it started working with Airbus, which is now helping the airline that has already made firm order for 10 Airbus A220 aircraft.
Recalling how difficult it is to pay lease fees on aircraft due to the dwindling value of the naira and the scarcity of foreign exchange, Uriesi recalled how Ibom Air leased Bombardier CRJ 900 aircraft. Although it did not fail to pay the monthly lease fee but the airline began to find it increasingly difficult to source forex to pay the fees. At a time, it became obvious that if the airline did not take a critical decision it might renege in the lease payment. So, it approached the banks to buy the aircraft outrightly.
“After careful assessment, we selected the Next Generation (Nex Gen) Bombardier CRJ 900s which has 76-90 seats. The aircraft has low usage, high reliability and reduced maintenance costs for the first few years. We had long-term operating lease but sourcing the dollar was very difficult. So, we approached the banks to source funds to buy the aeroplanes. That transaction saved Ibom Air in 2020,” Uriesi said.
Speaking on why it decided to acquire A2020, Uriesi explained that it is what most suits its operations and the environment it is operating in because there was high demand of the airline’s excellent service, which further increased in the first half of 2021.
“The burgeoning strength of the brandbased on wide acceptance in themarket, created a serious capacitycrunch in first half of 2021. It became apparent that an increase in capacity to meet demand had become necessary.We approached aircraft manufacturers seeking for larger capacityaircraft, eventually settling on the Airbus A220.
“However, because it would require a long lead time to make ordersand schedule deliveries, with the help of Airbus, we secured two A220-300s on an initial one year ‘wet-lease’ from Egyptair, which we beganto operate on 30 June, 2021 (bringing our fleet to seven aircraft).This gave us the opportunity to ‘test’ the aircraft and we were delighted that the A220 was very well received and achieved great success for us in the Nigerian market,” the Ibom Air COO explained.
He also explained that based on the immense success of the A220 wet lease, in October 2021, the airline signed an order for 10 new A220-300s from Airbus, with deliveries beginning in November 2023.
He said Airbus offered advice on what Ibom Air needed to do to be able to secure the necessary financing, adding that Ibom Air was invited to several aviation financing and economicsconferences and meetings, as Airbus organised formal meetings with most key players and introduced Ibom Air.
“Airbus provided data and statistical/historical information for route and network development and Airbus continuously acted as a valuable ‘sounding board’ for ideas”, adding that the airline had to contend with the ‘negative reputation’ some previousaircraft transactions had earned for Nigerian airlines, which is why Nigeria is designated as high country risk by lessors.