Thursday, 1st June 2023

Imperative of right stimulus for airlines’ recovery, survival

By Wole Oyebade
04 December 2020   |   4:19 am
Bickering over the right amount of bailout to inject into aviation and revival of local airlines has taken more time than necessary. But as financial liquidity is critical, so too is the imperative of enabling...

Bickering over the right amount of bailout to inject into aviation and revival of local airlines has taken more time than necessary. But as financial liquidity is critical, so too is the imperative of enabling environment, regulatory support and fiscal discipline to long-term growth. WOLE OYEBADE writes

It began as a, promise-and-fail scenario. The Federal Government had during the lockdown in May hinted of a plan to bail out airlines prior to restart. Flight operations resumed and weeks rolled into months, yet nothing came in the form of bailout. The delay fueled official denials that the bailout might be a ruse after all.

Defending the Ministry of Aviation’s 2021 budget at the Senate’s panel last month, the minister, Hadi Sirika, disclosed that a bailout of N5 billion was in the offing for aviation. Operating airlines would get N4 billion, while aviation service providers would be entitled to N1 billion. It was a far-cry in the estimate of both the operators and the host lawmakers. The Senate concluded that airlines should get as much as N50 billion for economic and safety reasons.

Indeed, in-between the back and forth, financial and operational challenges of airlines have worsened. As an industry that depends 100 per cent on foreign exchange, yet earns revenue in weak Naira (N500 to $1), keeping a respectable fleet of healthy planes is the major headache of operators.

Besides, the COVID-19 pandemic has sent travel business reeling. Low patronage and limited capacity forced several routes to remain closed despite airports opening up. Keeping the regular workforce vis-à-vis low income became another challenge. The alternative would be job losses, which would further hurt families in a time of economic recession. No government will encourage that, hence, the global agitation for governments to spend big and offer regulatory support to airlines.

Stakeholders are of the view that Nigeria should not be an exception to the emergency rescue packages. They urged regulators and policymakers to be clear-headed in approach, prioritise a more friendly environment, and supportive regulatory system.

A burden too heavy to shoulder
There is really no consensus on the losses incurred by local airlines. But a huge fraction of about N360 billion estimated were on account of aircraft maintenance and overhead during the lockdown. In three months of lockdown, no fewer than 120 airplanes were parked, not yielding revenue, yet incurring maintenance cost.

The chief operating officer of one of the operating airlines told The Guardian that without the heavy cost of maintenance, the airlines could have ignored the Federal Government’s bailout plan.

“The pandemic lockdown was an unusual development that modern aviation did not foresee. That the whole world would be on a lockdown for months was unthinkable. Yet, it came. Air planes that were programmed to be in the air 20 out of 24 hours a-day started sitting on the apron. That was devastating and huge losses, to say the least. Someone has to bear the brunt, which no operator can afford. That is the rationale behind global requests for governments’ support so that aviation will not die.

“In our own case, C-check maintenance costs as much as $2 million per airplane because we have to fly them overseas. Most of the planes grounded during the lockdown are already due for C-checks. Think about it, the so-called N4 billion bailout can only repair four air planes at the cost $2 million each. Isn’t that a drop in the ocean? We now see airlines closing routes all over the place, while some carriers have not even comeback since local flight services resumed. Is that normal? I think the government needs to get serious with the plan to save the sector from imminent collapse. We are not asking for free money but a good loan deal that will support airlines through a mandatory maintenance schedule, restart and recovery process,” he said.

Chairman of Air Peace airline, Allen Onyema, added that the N180 billion industry losses earlier estimated was an understatement.

“We must be talking about N500 billion in revenue lost to date. Airplanes that could not be maintained during lockdown will cost us more to do now. For instance, there is one of our B777s in Jordan.

“When you’ve parked an aircraft for a while, you have to move it every seven days to, at least, enable tyres to change positions. It should not stay in one position for long. Now, there was a lockdown in Jordan with no one going to work. Nobody moved our plane for one month. This is a 777 where one engine costs about $10.2 million! Just because there were no people to work at the MRO, we are now going to change the entire 12 wheels. That is over $500,000.

“Upon that, the MRO is charging us $100,000 per month for parking. So, in the last seven months, that is $700,000 alone for parking. So, when people say N180 billion, it is a lie. We are losing over N500 billion,” Onyema said.

The heavy losses are not peculiar to Nigeria. The International Air Transport Association (IATA) disclosed that the air travel industry was in dire straits, requiring an equivalence of $13 billion monthly or $300,000 per minute of 2020. And by 2021, the slow recovery in air travel will see the industry continuing to burn through cash at an average rate of $5 to $6 billion per month in 2021. It is all about spending big.

Save aviation jobs
Air transport is a major engine of the global economy. In normal times some 88 million jobs and $3.5 trillion in GDP is supported by aviation. More than half of this employment and economic value is at risk from the collapse in global air travel demand. The sector supports as much 124,000 direct jobs in Nigeria, with much more indirectly connected.

IATA’s Senior Vice President for Member External Relations, Sebastian Mikosz, said governments must realise that there are major consequences for peoples’ lives and livelihoods.

“At least 46 million jobs supported by air transport are in peril. And the strength of the economic recovery from COVID-19 will be severely compromised without the support of a functioning air transport network.”

IATA’s Director General and Chief Executive Officer (CEO), Alexandre de Juniac, submitted that COVID-19 had devastated the balance sheets of member airlines and “we need continuing government support to enable the aviation industry to restart and rebuild connectivity.”

Records showed that governments have already provided $173 billion to airlines, but many programmes are running out as the COVID-19 crisis continues far longer than was anticipated.

“The $173 billion in financial support has saved countless jobs and averted mass bankruptcies. This was an investment in recovery—not just for airlines but for the economy as a whole. Every aviation job supports 29 others. A full global recovery from this crisis will be significantly compromised without the economic catalyst of aviation,” de Juniac said.

President of the Aviation Safety Round Table Initiative (ASRTI), a think-tank group of the local industry, Dr. Gbenga Olowo, said the direct and indirect contributions of the industry to the economy was too huge to be abandoned to its COVID-19 fate.

Olowo said thousands of aviation-related jobs already lost were enough incentive for any government to rally behind the industry early enough.

“Reasonable countries intervened in their aviation industries in the second or third month. This is the ninth month and Nigeria is just responding. I think the government should just leave us to die, and then we will know that Nigeria has no aviation industry. N4 billion palliative for the aviation industry is very insensitive. I condemn it totally,” Olowo said.

He observed that the airline industry is not made up of airplanes alone; there are allied services, people that produce onboard service, sales and marketing are all part of the aviation industry.

“There are also handling companies. So, how do you want to share N4 billion among them? If you put that money into the well of Arik debt alone, it will swallow it. It is better the government does not intervene and tell us they cannot help us because they have to pay Senators and House of Representatives members. For us, aviation as a means of travel is the fastest and safest, and we will make sure we do the right thing in the industry. Safety is our foremost concern and government interference will not disturb us,” Olowo said.

Regulatory support, concessions
Besides liquidity injection, stakeholders also urged operators to plan carefully with regulators on how to safely ramp-up operations in the eventual recovery. Reactivating thousands of grounded aircraft, managing the qualifications and readiness of millions of licensed personnel and dealing with a major drain of experienced workers will be key to a safe re-start.

Airline operator, Capt. Nogie Meggison, noted that the toxic operating environment and continuation of the regime of multiple charges would hurt operators and travellers more at this lean time.

“The airlines remain the only operators still paying Value Added Tax (VAT) on commercial air transportation, which is not obtainable anywhere in the world. We have said this countless times that the VAT is adversely affecting the sector by subtly reducing the number of those who can afford air travel due to high fares, and in view of the impact that this pandemic will have on the economy, the VAT will continue to be an increased burden on Nigerian travellers.”

Aviation expert, Chris Aligbe, advocated for intervention funds directly from the Central Bank of Nigeria (CBN) to the airlines and the industry at large.

“The support should not be through the banks to prevent holding airlines to ransom. The CBN should look at grants of about two to three per cent interest rate over a 10 years period. This is because the airlines will not get back to the pre-COVID-19 era until another 18 or 24 months,” Aligbe said.

Clearly, the COVID-19 pandemic is on a long haul and it would take a while for airline businesses to snap back. But stakeholders have to be on the same page on modalities of survival, with the Federal Government making good its bailout pledge.