Home » Africa: Absence of aviation leasing company in Nigeria results in about $2 billion loss annually

Africa: Absence of aviation leasing company in Nigeria results in about $2 billion loss annually

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West African nation, Ni­geria loses at least $2 billion (about N960 billion) annually to the absence of Aviation Leasing Company (ALC) for airlines in the country, investigation revealed according to a report on independent.ng.

This is as the Federal Govern­ment has failed to establish a leasing company for the country’s aviation industry as promised six years ago.

Stakeholders in the sector said the absence of a leasing company was negatively affecting the fortunes of indigenous airlines as they lease aircraft at exorbitant ex­change rates.

READ: Africa: Nigerian airlines seek Central Bank intervention in aviation industry; blame dollar scarcity, COVID-19 for rising airfares

Investigation by Daily Inde­pendent revealed that no few­er than four of the country’s airlines have either leased or acquired aircraft from abroad in the last year, all running into billions of dollars.

For instance, Air Peace in 2021 had taken delivery of two Embraer 195-E2, out of the 30 it ordered for, while Ibom Air in 2021 received an additional CRJ900 aircraft with another two brand new Airbus A220 aircraft on the way.

Also, United Airlines, which commenced operations about three months ago, deployed a fleet of four Embraer ERJ145 aircraft for operations, while another start-up airline, Green Africa Airways, said it would commence operations with two ATR 72-600 aircraft in June.

Sen. Hadi Sirika, Minister of Aviation, had said that the ALC would provide leasing opportunities for Nigerian and African airlines, boost free size, alleviate the problem of aircraft leasing and high insurance premium charges.

Also, Sirika in a document recently released said that the ALC has been structured as a joint venture between the government and private sec­tor, and its business objectives would be to initially lease air­craft from international lessors and subsequently sub-lease to African airlines, and in the fu­ture acquire, own and lease its own aircraft.

He said the government was considering providing finan­cial guarantees and ensuring fiscal incentives to facilitate the success of the ALC.

He added that the ministry had reached an advanced stage in the procurement phase, not­ing that a preferred partner had been selected, while negoti­ations would commence soon.

Engr. Femi Adeniji, Chief Executive Officer (CEO), TAL Helicopters, confirmed that Nigeria was losing about $2 billion to the absence of the facility in the country.

He explained that with ALC in Nigeria, other African coun­tries would lease airplanes from the country, boost the naira and reduce pressure on foreign exchange.

Adeniji, however, observed that the high interest rate may make the business unsuitable in Nigeria, stressing that in the United States’ interest rate for aircraft leasing was only 2 percent.

READ: Africa: Worsening state of insecurity on Nigerian roads causes twenty-five investors to prospect aviation industry

“Aviation leasing company will help Nigeria if the interest rate is not as high as banks’. Banks’ rates are in double dig­its. In the U.S., if your interest rate is up to 6 percent, it is a waste. Right now, the interest rate in the U.S. for leasing com­panies is just 2 percent. You can see the difference.

“If we have a leasing com­pany in Nigeria that is ready to help the airlines, it would relieve a lot of the operators, but the caveat is they have to pay back because if you don’t pay back, how do I lease to somebody else? Then, how do they intend to get back their aircraft in the first place because Africa, par­ticularly Nigeria, doesn’t have a good reputation outside when it comes to aircraft leasing?”

Adeniji maintained that the government could invest in the business, but should not inter­fere in the running of such a venture, stressing that the Assets Management Corporation of Ni­geria (AMCON) was set up for that purpose, but regretted that its purpose had been defeated.

Mr. Abiola Lawal, CEO, Quorom Aviation and Logis­tics Limited, said that global airlines lease aircraft and oth­er big ticket items to optimise their balance sheets and man­age cash flows.

He said access to an efficient leasing environment was im­portant for the development of a robust aviation sector, stress­ing that for Nigeria to set up a leasing company, it needed to partner with private investors.

“There are technical, legal and financial expertise that must be native to a successful leasing company, therefore I will advise the government to seek the global partnership that will make it successful. The size of the balance sheet and financial capacity is a big part of access to best deals giv­en to leasing companies by the Original Equipment Manufac­turers (OEMs).”

Lawal regretted that Nige­ria was losing huge amount of money to the absence of the equipment in the country, noting that establishment of a local aircraft leasing company in Nigeria would lead to domes­tication of the lease payments in naira.

“As airline operators, we suf­fer and struggle to try to access forex for aircraft parts, main­tenance, leasing and others. Don’t forget that the majority of operators in Nigeria gener­ate cash in naira,” he added.

Dr. Alex Nwuba, an aviation analyst, said that a government leasing company would be able to utilise its sovereign guaran­tee to acquire aircraft at lower rates and lease to the domestic airline industry.

He added that this would also provide for naira denom­inated transactions, which would lessen the burden and risk for the industry and sup­port expansion of the sector.

Rather than continuously talk about establishing a leas­ing company for the industry, Nwuba advised the govern­ment to put its words to action by creating one. He said that the absence of the facility in the country had quadrupled the interest rates paid by the country’s airlines.

“Let’s look at it this way, private sector banks charge between 8 and 12 percent per annum whereas internation­al banks charge from 1 to 3 percent. So, local airlines are paying four times the cost of financing aircraft.

“Furthermore, they are ex­posed to the foreign exchange risks with the naira on a steady decline. If we take the average cost of a Boeing B737 at $85 million and a portfolio of 20 aircraft, then we are talking about the difference of $51 million annually versus $170 million annually,” he said.

Mr. Olumide Ohunayo, the Director, Research, Zenith Travels, insisted that the coun­try could establish a leasing company, but posited that it required a huge cash to be set, which he doubted Nigeria could afford at the moment.

Ohunayo stated that rather for the government to invest in such a venture, it should create an enabling environment for in­vestors to invest in for the bene­fits of the players in the sector. Like others, he maintained that Nigeria was losing much money due to its absence, add­ing that the operators were spending much money, yet getting lease at a very high rate.

Grp. John Ojikutu, aviation analyst, said leasing companies like financial institutions were necessary for financial support and the desire of many busi­nesses that needed capitals for their development in develop­ing and developed economies.

He doubted if the nation’s airlines would fulfill their fi­nancial obligations to such companies when it comes on stream, stressing that some of the airlines are indebted to insurance companies, foreign technical maintenance compa­nies, banks and others.

“Leasing company may be part of the government’s road­map, but not a business for the government and not now that the government is divesting its hold on commercial public agencies like the Federal Air­ports Authority of Nigeria (FAAN).

“It will be another financial drainpipe for private operators and for the yet to be established national airline that I foresee as a government airline, not a na­tional carrier,” he said.

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