After losing its ranking as the largest African economy to South Africa, it appears that Nigeria is also on the brink of losing its leadership position, as the eagle-king of sub-Saharan Africa skies to next door neighbour, Ghana. Most analysts are quick to point out that the ongoing economic recession in the country has not in any way helped Nigeria’s quest to maintain its stronghold as the big boy of the sub-region.
In Nigeria, the airlines are grossly over burdened by taxes and charges from government agencies, rising overheads, epileptic and excessively priced aviation fuel of between N200 to N270 per litre, and scarcity of required for routine oversea’s repairs and maintenance costs. It is also needed for purchase of spare parts as they contend with excessive bank loan interest of 26 per cent, as well as training of pilots and other technical personnel abroad on regular basis.
Analysts, however, insist that Nigeria needs a vibrant aviation industry to drive its transport and logistics business if its dreams to diversify the economy and come out of recession are to be achieved.
But the myriad of challenges earlier listed, coupled with the economic downturn, have forced some of the country’s existing airlines to fold up, while some foreign carriers have similarly parked out of the country. Every recent attempts to attract new investors into the industry have yielded no positive fruits given the weighty challenges facing the sector.
The good old days
About two years ago, Nigeria had served as the aviation hub for the West African sub-region. The aviation sector reform programme launched by President Goodluck Jonathan led to significant improvement in the state of infrastructure in 22 of the nation’s airports and created a new wave of enthusiasm among Nigerians and airline passengers. The country’s domestic airlines like Arik Air, Aero Contractors, Medview and Dana Air who felt the domestic market had become too small for them to launch operation into the sub-regional market. In the good old days, these Nigerian carriers were enjoying an obvious monopoly of routes within the sub-region operating daily scheduled and chartered flights to countries like Ghana, Togo, The Gambia, Benin Republic, Liberia, Sierra Leone, Cameroon and even as far as Sao Tome and Principe. Arik as a Nigerian carrier was also acting as a quasi-national carrier for Benin Republic. The presence of Nigerian banks, insurance, telecommunications, entertainment and film, manufacturing, Nigerian students, and even oil and gas operators in the sub-region had led to a surge in traffic thus propelling Nigerian airlines operations into these routes.
Several years ago, Abuja and Lagos, two of Nigeria’s major cities also played host to a lot of trade, diplomatic, health and academic conferences which also attracted passengers into the country from the sub-region. The local carriers also benefitted from uninterrupted supply of aviation fuel.
Internationally, the Bilateral Air Service Agreement (BASA) signed by the Nigerian government with 88 countries had similarly led to an influx of international airlines flying into the Lagos, Enugu, Abuja, Kano and Port Harcourt airports. The disposable incomes of Nigerians were also sufficient to allow them travel all over the world for vacations and other businesses. Data released by the Nigerian Civil Aviation Authority (NCAA) in 2014, showed revenues generated by foreign airlines from ticket sales to be in excess of N231 billion, while local airlines made about N73 billion. The fortunes recorded by these airlines also meant more revenues in taxes and royalties to the Federal Government’s coffers. It also meant a big source of funding to such regulators and service providers like the NCAA, Nigerian Airspace Management Agency (NAMA), the Nigerian College of Aviation Technology (NCAT), Nigerian Meteorological Agency (NIMET) and the Accident and Investigation Bureau (AIB); these agencies take five per cent out of each ticket sold by any airline in Nigeria to run their operations.
With the Nigerian economy sliding into recession, the fortunes of the local airline industry also fell along with it. Two of the carriers (Aero Contractors and Dana Air) were forced to withdraw their operations in the West African market, leaving Arik and Medview, which apparently are struggling to cope with pressure created by the scarcity of foreign exchange as well as aviation fuel.
The local airline industry is also said to be hugely indebted to local banks and service providers in the industry like Federal Airports Authority of Nigeria (FAAN), NAMA, Nigerian Civil Aviation Authority (NCAA) and NIMET. The debts are estimated to be in the region of N50 billion, an ugly trend that led to the Asset Management Company of Nigeria (AMCON) buying over some of such debts in most of the existing airlines to allow them to stay in operation. And these challenges explain why some of these airlines opted to exit the West African routes.
On the international front, Iberia and United Airlines withdrew their operations from Nigeria earlier in the year citing the inability to repatriate earnings made in Nigeria to their headquarters overseas as a result of a new Central Bank of Nigeria (CBN) policy on forex withdrawals. With the exchange rate of the naira now going for above N412 to $1, existing foreign airlines have also increased the cost of air tickets by about 80 per cent to reflect rising cost of doing business in Nigeria.
It is even rumoured in the industry that other international airlines could pull out in the months ahead if the operating environment remains hostile to their operations. What most local operators have, however, refused to openly acknowledge is the large scale fraud going on in the airline industry. At present for instance, most airlines are operated as a one man business and that leaves a lot of room for all sorts of graft. “It is corruption that killed Aero,” one airline official told Daily Sun recently. “Even when AMCON bought over its debts and took over its operation, it could not deal with the mismanagement and misapplication and even outright stealing of funds in Aero,” the official alleged. Although corruption has had a dire consequence on the Nigerian airline industry, it appears that in the last three months, it is the high cost as well as the scarcity of foreign exchange (forex) and aviation fuel (Jet A1) that wreaked the most havoc on the airline industry.
Nigeria’s loss is perhaps Ghana’s gain as the foreign exchange crisis has pushed some of the foreign airlines to relocate their ticketing and sales offices from Nigeria to Ghana. Leading the pack of airlines that had to move their ticketing base out of Nigeria are Delta Airlines, British Airways and Virgin Atlantic.
Intending travellers to the United States of America (USA) and the United Kingdom (UK) sometimes have to get their tickets through sales outlets in Ghana where some airlines now consider some what a safe haven for their businesses. Today, there are stories of some Nigerians who now prefer to fly into Ghana and from there fly out to Europe and America. It is a lot cheaper that way as the airfares are lower than getting them in Nigeria. And relocating foreign airlines’ ticketing offices to Ghana had led to severe losses in revenue to Nigerian travel and tour industry. It, nonetheless, translated into massive gains in revenue for Ghanaian travel agents and banks.
The Ghanaian government sensing the crisis in the Nigerian aviation industry, especially with the forex and fuel supply crisis, swung into action with new policies that ensured they took better opportunity of the Nigerian situation. For instance, the Ghanaian government saw the Nigerian crisis as an avenue to make Accra the hub of the sub-region and quickly announced a cut in the pump price of aviation fuel by 20 per cent, which meant aviation fuel was sold for about N110 per litre in Ghana as against the N230-N270 in Nigeria.
Even both countries are importing aviation fuel, why is Ghana selling at N110 per litre as against N200 and above in Nigeria? The simple answer is the desire to attract more airline businesses away from Nigeria to Ghana. And that it has successfully done. A lot of foreign airlines flying into the West African sub-region now refuel in Ghana and no longer in Nigeria in order to beat the expensive fuel prices in Nigeria. Who gains? It is the oil marketers in Ghana as well as the banks in that country that are the greatest beneficiaries of the crisis in the Nigerian aviation sector. Ghana, it must be stated, also rakes in some incomes from the charges paid by the airlines any time they land or park in the country’s airport. Although there has been no data to state the actual loss in revenue and jobs to Nigeria in recent months, it would not be out of place to say the figure could run into several millions of dollars.
In a release by the Chairman of the Airline Operators of Nigeria (AON), Captain Nogie Meggison, the operators had lamented that the industry had sunk into its worst state of financial woes and that only a direct Federal Government financial bailout could salvage the industry from imminent collapse.
“We call on the Federal Government to, as a matter of urgency, come up with a strategy to seek, for the first time, direct intervention funding to airlines to save the aviation sector from total collapse considering that without the airlines, there is no aviation,” lamented Meggison.
Most aviation stakeholders in Nigeria would readily agree that what airline operators need as bailout in the ‘immediate term’ is not really the injection of fresh funds into their business or even the acquisition of new aircraft on low interest rates for them by the government. Rather, taking away some of the arbitrary taxation by regulatory agencies as well as the provision of requisite infrastructure and the steady supply of fuel would suffice by assisting them in the short term to stabilise, even faster than getting direct government funds.
“What most operators would appreciate in the form of a bailout would be for the Federal Government to order an immediate stop on the payment of Value Added Tax (VAT) on air transportation because air transport is the only transport service being made to pay VAT in Nigeria,” an airline official told Daily Sun.
“That would ease their burden a lot. Road, rail and waterway transportation services are VAT exempted. The airlines also need uninterrupted fuel supply; that would be a great bailout if the government can work with marketers to achieve that as fuel accounts for more than 40 per cent of cost of operation for the airlines,” he added.
For Nigerian pilots, the best form of bailout for the domestic airline industry is for the government to legislate the mergers of the airlines. “The Federal Ministry of Aviation should foster an arrangement through incentives that will bring about mergers of airlines, culminating in the emergence of one or two mega-carriers, which can become global players,” said Balami Isaac David, President, National Association of Aircraft Pilots and Engineers (NAAPE).
“The government could, through Bank of Industry (BoI), adopt a carrot and rod method. The carrot could be offering soft loans to merger carriers that achieve a certain level of capitalisation while the rod would withdraw or suspend the Air Operator Certificate (AOC) of airlines that fail to meet prescribed capitalisation after a given time or restrict them to particular hubs only,” David added.
Nigerian carriers have the capacity to dominate the West African airspace, create thousands of jobs for citizens and contribute more to the GDP of the country but that would only be achieved if the right environment is created for them to thrive.