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Airlines going under over harsh forex regime

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Delta Airlines

Delta Airlines

The Attahs, a family of six from Akwa-Ibom state, were in Lagos for a wedding ceremony and due to return 3pm Sunday.

Flying into Lagos from Uyo was hitch-free but the return trip was a different story.

After waiting among scores of other passengers at the General Aviation Terminal (GAT) of the Murtala Muhammed Airport (MMA), Lagos, a message reached them that their flight has been cancelled.

There was no aviation fuel to fly them back to Uyo, five hours after they had arrived GAT.

On the international wing of the Murtala Muhammed Airport, where fuel shortage is not much of a problem, especially for foreign carriers, traveling is not without its own difficulties.

A family last week, canceled the summer trip ritual upon receiving the N2.6million bill, an almost 100 per cent increase from the estimate two months ago.

Findings show that the average return ticket on economy class for Lagos-London route has risen to between N553,200 and N600,000 as against the initial N280,000 and N355,000 some weeks ago.

Business class tickets on carriers like British Airways, Lufthansa, Air France-KLM, are in the neighbourhood of N2.5 million compared to about N1.2 million some 12 months back.

A First Class ticket on all airlines cost between N3.2 million to N3.8 million per passenger.

For a return flight from Lagos to Amsterdam and Lagos to Paris, fares go for N400,000 and above on economy class seats, from the initial N260,000, while business class tickets go for N2.1 million.

The air travel sector, which is 100 per cent dependent on foreign exchange has further shrunk in the last couple of weeks with foreign airlines quitting Nigerian route over huge loses.

Their domestic counterparts that should ordinarily filling the gaps are closer to declaring bankruptcy than they were about a year ago.

It was gathered that the foreign airlines have in the last couple of weeks lost no less than N64b repatriating trapped funds in the neighbourhood of $600 to $800 million stuck in the economy in the last one year.

President of the National Association of Nigeria Travel Agencies (NANTA), Bankole Bernard, said no fewer than 14 airlines have withdrawn their services from Nigeria due to low patronage on account of forex hike and economic recession including Iberia, United Airlines and Air Gambia.

Bernard had, at the Aviation Round Table (ART) breakfast meeting held in Lagos recently, said that travel agencies that sold about $1.4 billion worth of air tickets in 2015 were beginning to record losses with the departure of the airlines, adding that there was fear that more airlines might quit flying Nigerian routes.

Apparently frustrated by low patronage, he said some of their members were beginning to consider relocating to Ghana, where “policies are more consistent.”

The loss of N64billion by foreign airlines was on account of repatriating $800 million stuck in the economy in the last one year, but released after the recent devaluation of the naira.

With the devaluation, the accumulated $800million from airlines’ sales of tickets when the exchange rate was still at N197 to $1, was taken out of the country at the new rate of N320-plus to $1. Consequently, a substantial amount was lost in the last couple of weeks.

Confirming the development, the Regional Manager of British Airways, Kola Olayinka, said that for every $1m repatriated since the new policy began, the airlines lose no less than N80million.

Aviation sources estimate that Delta and United Airlines have up to $180 million trapped in the Nigerian economy, while Air France-KLM is estimated to have over $150 million. British Airways , $100 million as at March 2016, while Iberia, which had already withdrawn its services, has $5 million of its funds trapped.

ART President, Gbenga Olowo, who noted that some airlines lost up to 50 per cent of their funds due to the forex policy, however, stressed that the foreign airlines remained a major stakeholder in the aviation industry, since they account for about 90 per cent of the air passenger traffic in the country.

He said even if the foreign airlines continued to leave, it would still not be to the advantage of local carriers like Arik and Med-View, since their fleet capacity is too low to accommodate traffic on international routes.

Besides the small fleet size of the entire domestic airlines , the operators are also faced with challenges tied inextricably to forex hike.

About 20 to 50 per cent of the total operating cost of an airline goes to routine maintenance.

As an industry that is highly regulated, it is the norm to run routine checks (A to D) on both commercial and civil air planes. C-check, one of the major maintenance, is done on airplanes overseas every 18 months at a cost in the neighbourhood of $500,000 to $1 million.

Multiplied by the current exchange rate of N350 to one dollar, it therefore costs N350million to conduct C-check on a plane, if it must fly for another 18 months.

Chief Executive Officer of Aero Contractors, Capt. Fola Akinkuotu, said e noted that at present, Nigerian airlines collectively operate a fleet of about 65 airplanes, adding that with an estimated N310million for C-check, that is about N20.15billion of capital flight every 18 months.

As if that is not disheartening enough, Chairman of the Airline Operators of Nigeria (AON), Capt. Nogie Meggison, said while all airlines are battling with high cost of routine overseas checks and spare parts due to forex hike, the scarcity and hike in aviation fuel price in the last five weeks had further put the domestic airlines in dire straits.

“Till April this year, I bought Jet A1 Fuel for N105 a litre. About a month ago, the price jumped to N145 and today the price has risen above N200 a litre which has greatly increased our operational costs.

“The colossal rise in price has equally increased the operational cost astronomically. In the light of this, our feasibility studies and financial projections are greatly threatened thereby putting the airlines in a dangerous and difficult financial position,” Meggison said.

Executive Secretary of the Major Oil Marketers Association of Nigeria (MOMAN), Obafemi Olawole, told The Guardian that sourcing dollars from the Bureau De Change, otherwise called parallel market at about N400 to a dollar was discouraging .

Olawole said that since it has become impossible to access forex at the interbank market rate, the parallel market rate at about N4oo per dollar would bring in the product at a rate airline operators cannot afford.

He said that the pledge by the Federal Government in the wake of the current scarcity to avail forex at interbank market rate through the International Oil Companies (IOCs) was yet to come true.

“As I’m speaking, we are yet to receive any kind of support from the government. What they are saying now is that the Nigerian National Petroleum Corporation (NNPC) should give us the support.”

The operators noted that while the government continues to support the importation of Premium Motor Spirit (PMS) with exchange rate of N285, aviation fuel marketers should not be forgotten.

Meggison said: “We are looking forward to the Minister of State for Aviation, Hadi Sirika coming up with a palliatives before Nigerian airlines are forced out of business,” he said.

Managing Director of Omni-Blu Aviation Services, Akin Olateru, said it was high time the Federal Government exercised political will to support local airlines to ensure they flourish.

“Government should provide easy access of foreign exchange to our local airlines. They must devise ways to help. We are the only country that still charges Value Added Tax(VAT) on leisure travel, which makes airfares to be expensive.”

He pleaded that government should give the airlines tax holiday, stressing that the $50 international travellers from Nigeria pay that goes to the Federal Airports Authority of Nigeria (FAAN) should be done in Naira at an agreed rate.


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