Aviation: Merge or Die experts tell Nigeria Carriers

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The aviation industry in Nigeria has never grown. Every time, it is behaving like a toddler, writes WOLE SHADARE
Events in the last week show that Nigeria’s aviation industry is really going through turbulent times. Nigeria is no doubt, in recession and since aviation is part of the country’s economy that used to contribute less than one per cent to the Gross Domestic Product (GDP), it cannot be isolated.
Given the status quo, nobody is sure what the aviation industry contributes now to the country’s GDP.

Airlines, like any business, are susceptible to market fluctuations and economic difficulties. The economic structure of the airline industry may contribute to airline bankruptcies as well.

One major element in almost every airline bankruptcy is the rejection by the debtor of its current collective bargaining agreements with employees. High fuel cost; absence of a functional maintenance hangar; exorbitant insurance premium, a by-product of rising tales of air crashes and near-crashes; high interest rates by creditor banks;
and the recent multiple designation of routes to foreign airlines under the existing BASA agreements between Nigeria and 88 foreign countries have all combined to render most domestic carriers unprofitable. Mandatory fleet maintenance and statutorily payment of staff remuneration have been greatly hampered.

But in the last three months, the high cost and scarcity of aviation fuel (Jet A1) has wrecked the most havoc on the airline industry leading to several flight delays and even outright cancellations. Given the weight of the existing challenges, industry analysts foresee a situation where most of the domestic airlines would not be able to declare any meaningful profit for investors at the end of this year.

Call for rescue
In the past, various palliative programmes designed to alleviate the plight of airlines had failed to yield any tangible dividend. Under former President Goodluck Jonathan’s administration, attempts to buy and supply the airlines with new aircraft had failed to scale through.

In the same way, about N200 billion was set aside as aviation sector intervention fund, but sadly, domestic airlines have openly refuted claims they benefited from the fund just as the National Assembly has demanded a probe into how the monies were spent. Rather, what happened was that the funds released went to the banks in an effort to keep them afloat for bad debts owed them by airlines during the period of economic recession of 2011.
Sector goes burst?

The aviation industry has gone burst. It was just a matter of time for all these to become public knowledge. What has happened was predicted. Over a dozen carriers – including recent casualties such as Aero, Air Nigeria, Chanchangi and IRS, among others, have become victims of soaring oil prices, credit squeeze and foreign exchange in the last one year. And there could be more – experts have stated that the industry may experience ‘spectacular casualties’ during the coming year.

Some analysts lamented that the Nigerian civil aviation industry and, in particular, the domestic airlines, is gradually collapsing like a pack of cards if the sustained media reports about its comatose state have not been controverted by both the operators in the public and private sectors and even the regulator of the industry.
It is better to voluntarily collapse them into manageable numbers for effective and efficient operations than to allow them go into extinction, particularly the domestic airlines.

Aviation security expert, Group Capt. John Ojikutu (rtd) ,said the problem of the airline industry is not necessarily the lack of funds or scarcity of forex as the operators are now telling them daily. He noted that generally, the problems are poor management structures and financial mismanagement of revenue earnings both in local and foreign currencies.
“There the problems of inadequate skilled manpower; inefficient supervision from line officers or assigned managers; ineffective or lack of professionally inclined inspectors to enforce regulations, and above all, interference from politically exposed officers within and outside the government MDAs.”

He noted that the combination and persistent of the inadequacies of skilled manpower, poor financial management and ineffective oversight from the responsible authorities have brought the industry to its knees.

Ojikutu noted: Despite of the hews and cries by the operators about scarcity of forex, my knowledge of the industry, having served on various ministerial and presidential committees, tells me that there are sufficient forex earnings in the IGRs of the public and private operators in the sector to sustain their operations annually without any recourse for forex concessions from government.

“This was the reason why l once called for the auditing of the financial earnings of all the operators following the revelations of recurring debts of domestic airlines to the ground and air safety services providers.”

He said that the call became necessary when some airlines were reported to be having controversial hangover of several billions of naira debts and the regulatory authority, that is mandated by law, specifically, NCARs (Part 12) to carry out oversight on economic stability of all operator to determine their suitability for continuous operations, became helpless for whatever reason.

All these problems have resulted in a limping sector neckdeep in debt to aviation agencies and fuel marketers. They complained that they might be unable to pay, as many of them now record losses due to low passenger movement since last year. The low passenger situation is attributed to the global economic meltdown.

The huge debts are responsible for the high operating cost of airlines, making it one of the highest in the world. It is very doubtful how the carriers could defray the debts.
The way things are going, airlines would need to think of their survival first before they can think of paying the debts put at $1.2 billion. In the past, operators enjoyed duty waiver on aircraft parts importation, but it had been scrapped in the last two years, hence the reintroduction of fees.

Furthermore, they complain about double taxation on aircraft parts (Customs Duties and Value Added Tax), which they said had a huge toll on airlines’ finances. Experts, however, said for the carriers to remain profitable, the Federal Government needs to make available capital including low cost loans, access to vibrant capital markets so that the carriers can buy more reliable aircraft and train pilots.

A former Assistant Secretary General of Airline Operators of Nigeria (AON), Mohammed Tukur, said that profit margin on airline operation was about two per cent.

He stated that government could help by way of the tax holiday for five years, including exemption from custom duties on spare parts. Tukur stressed the need for government to give the airlines protection like it is done in the United States.

Virtually all the operators are in dire financial dire straits because of the harsh environment in which they operate. Speaking in the same vein, former Chairman, Aviation Roundtable, Capt Dele Ore, has said that Nigerian airlines can only survive if they agree to merge.

Having analysed the problems of the airlines, the question is, how can these airlines be strengthened to offer safe and profitable services? The margin of profit for operators is about two per cent, which is very insufficient to sustain a capital-intensive venture like airline.

Source: newtelegraphonline.com

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