NCAA’s Minimum 6 Aircraft Policy, Huge Challenge to Domestic Airlines

NCAA’s Minimum 6 Aircraft Policy, Huge Challenge to Domestic Airlines

The new Civil Aviation policy stipulates that by January 2025 airlines in Nigeria must have minimum of six aircraft and four must be operational at any time. Chinedu Eze looks at the challenges airlines may face in meeting the new operational conditions.

In July the Nigeria Civil Aviation Authority (NCAA) unveiled its policy on schedule airline operation in Nigeria and stated that from January 2025, the minimum aircraft fleet of any airline providing such service in Nigeria would be six aircraft, as against the minimum of three aircraft, which has been the policy over the years.

The policy also insisted that the maximum aircraft that must be airworthy out of that six aircraft should be four. This means that an airline is expected to ground its operations if it has less than four aircraft that is airworthy. The policy excused the fact that two out of the six aircraft could be on maintenance or just AOG (aircraft on ground), but if the number of aircraft in the airline fleet reduces to three that are airworthy the airline would shut down service.

Also, the policy allowed just one or two wet leased aircraft, which means that if the airline does not acquire the aircraft outrightly, it would have a long-term dry lease, where its crew would have full operation of the equipment.

The Director General of NCAA, Captain Musa Nuhu in a chat with aviation journalists recently explained why the authority took the decision and explained that the objective is to boost airline capacity and reduce the situation where entrepreneurs who wished to go into airline business would not deploy enough funds to acquire good number of aircraft. With two or three aircraft in operation, such airlines easily go under when they face financial challenge because they did not beef up their capital base from the beginning.

Lack of capacity

The Director General, Captain Nuhu had explained that the bane of domestic airline operation is lack of capacity and to overcome this challenge, new airlines must have a minimum of six aircraft before they are allowed to go into operation.

Before the new policy, airlines could start flight service with only two aircraft and the consequence of the policy then was that if one aircraft breaks down, the airline would be left with only one aircraft and according to the regulation, an airline that owns only one aircraft cannot operate schedule service.

Nuhu said that the decision to increase the minimum equipment to six aircraft is to overcome the problem of lack of capacity.

“The problem is that a lot of the airlines don’t even have the capacity to meet current financial obligations. If you have three aircraft for instance and you lose one out of it, it will become a problem to meet up with your operations. Then, you start to have issues of flight delays, cancellations and all that. The number of aircraft you will have will depend on the kind of operations you want to do. You can imagine somebody who comes in with just one or two aircraft and one of the aircraft goes out of business after he has sold tickets to the passengers, think of what will happen. For you to have six aircraft, it shows you have very strong financial backgrounds of running an airline,” Nuhu said.

He further explained that the new policy is not only for new start-ups but also for existing operators, disclosing that the existing operators have been given deadline on when to comply with the policy (January 2025).

“It is not only for new entrants, but the old ones too have a period by which they have to comply. If everybody has one or two aircraft, we will keep having this recurrent problem. We have to avoid that. People will criticize, but every country is different. We have to look at our own peculiar history and try and come with solutions, but regulations are not cast in stones. If the situation changes, the regulation would be reviewed accordingly. Whenever it is necessary, we don’t have to wait for five years before we make amendments, ”he said.

Short lifespan of airlines

Nuhu said Nigeria has many airlines but few of them are operating and the ones that are operating do not have many aircraft, noting that any airline that can afford to acquire six aircraft has the financial muscle and the capacity to operate schedule service and with such capacity it would not go under after few years, while still having its name in the NCAA registry.

“There are more aircraft in Nigeria registry than the entire west African states. The number of airlines, AOC (Air Operator Certificate), airports and co they have are not as much as we have in Nigeria. It is very huge, complex and there are huge demands to cope with in the industry.

“From records, about 12 years ago, we had only 16 AOCs, right now, we have 32, out of which 12 are scheduled operators. We cannot keep operating the way we are operating. Changes have to come in and we have started the process. We are acquiring a regulatory software and in the next one or two weeks, we are going to be ready with the software and training of our staff is going to start on the use of the software. It is a three years programme and at the end of the period, we are going to make sure that 80 to 90 percent of NCAA processes are automated and also third party is going to be automated,” he said.

Pitfalls of new policy

But in exclusive interview with a member of Airline Operators of Nigeria (AON) and President, Topbrass Aviation Limited, Roland Iyayi, he told THISDAY that if airline operator is struggling with only two aircraft, is it six aircraft that will make him viable?

“The policy does not make sense. My conclusion is that the policy was enacted by those who do not have business and investment experience, especially aviation business experience,” he said.

Iyayi said that if proper investigation is conducted it would be realized that the major reason why airlines do not do well in Nigeria is because of government policies, which are inimical to profitability of airlines in Nigeria; so, it is the duty of government to review these inimical policies to make airline operation viable instead of constructing the operators with more stringent policies.

“If NCAA insists that all airlines must have minimum of six aircraft, I can assure you that in the next 12 months two or three airlines in Nigeria will go under. As a small carrier with two aircraft, an airline can focus on its capacity. It may decide that it will be operators only to Lagos and Enugu. If you have six aircraft it means you will spend more money on the equipment because six aircraft have fixed costs.

“Everyone knows that the cause of flight delay and cancellation is due to poor infrastructure. Are the airlines responsible for bird strike, which incident can condemn aircraft engine and ground it until it is repaired? So, the root causes of airline failure are principally poor infrastructure and government policies,” Iyayi said.

The Topbrass boss said there is need for government to address the real issues instead of introducing hostile policies to further exacerbate the already hostile operational environment.

“Another problem we have is that we assume too much in this industry. A lot of people who make these policies have technical know-how but are not business savvy. I think they did not think through this new policy, which is not in tandem with reality and that is why we in the AON are fighting it,” he said.

Cash crunch and Forex Challenge

Although existing domestic airlines have about 16 months to meet the requirement of the new policy, but the airlines are facing difficulty in sourcing forex to acquire aircraft and carry out major maintenance of their existing airplanes overseas.

The Spokesman of AON and Chairman of United Nigeria Airlines, Professor Obiora Okonkwo called for special forex window for airlines and stressed the need for domestic carriers to access foreign exchange through a designated window facilitated by the Central Bank of Nigeria (CBN).

He also urged the newly appointed Aviation Minister, Festus Keyamo, to collaborate with other governmental bodies to identify and rectify obstructive elements within the system, especially currency speculators who artificially jerk up the exchange rate.

“You have naira and you can’t convert it to the dollar. So, the solution to this is for our Minister to understand that we need a special window with the CBN to access foreign exchange.”

Profitability of airlines

The Director General of the Nigerian Safety Investigation Bureau (NSIB) Akin Olateru in a recent interview said that for airlines to be profitable, their access to funding is very important and canvassed that airlines should be given access to easy credit facility without outrageous interest.

“This is one of the only countries in the world where access to funding is extremely difficult. We need to do something about that because you cannot talk about growth without affordable fund. If you wish to buy an aircraft, brand new aircraft, which could cost about $100 million. You have the manufacturers, the EXIM banks of those countries that will be willing to fund up to 85%. There you pay 15% and they fund the rest. But the question is, they will ask you, give us a local bank guarantee of $85 million. You approach our banks in Nigeria for guarantee of $85 million, they ask you to put in $85 million cash in your account; then they give you guarantee. I mean it is crazy for the kind of things they ask for. It is just a guarantee. Yes, I understand it can crystallize but you still have the aircraft asset.  So, they don’t discount that.

“It is an asset that this person is buying and this asset is worth something. So I think the Ministry of Aviation needs to probably call a stakeholders meeting on funding. Invite all the financial institutions in Nigeria because we need to rejig this funding issue. It is critical to the growth of the industry, Olateru said.

He also remarked that to meet NCAA’s new policy on the number of aircraft, airlines ought to have funds.

“Meeting this new requirement will cost money. We need to invest in managerial training. We need to train more people that understand air transport business. Yes, we have done well in terms of technical training. We have trained pilots, engineers, air traffic controllers. We need to deliberately invest more in aviation training in terms of managerial position, that is very important,” he said.

Whether NCAA will bow to pressure and tinker with its new policy remains to be known, but for now, airlines must be strategizing to meet the new rule of having minimum of six aircraft in their fleet.

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