‘Debts, high costs threaten Nigeria’s aviation business’

Operators ask govt to review sector policy 

HUGE operational costs, emasculating charges imposed by different agencies and the resultant heavy debt burden are sounding the death knell for most domestic airlines in Nigeria, an investigation by The Guardian has revealed.

Some airlines are said to owe their workers in all categories, arrears of monthly salaries and allowances, a situation so fraught with danger that the Nigerian Civil Aviation Authority (NCAA), the regulator, may intervene to forestall the negative impact it could have on flight operations.

The first time NCAA conducted this exercise based on complaints early in the year, according to the authority’s General Manager, Public Affairs, Fan Ndubuoke, Discovery Airlines was grounded and its operating licence (AOC) seized.

“NCAA has since restored the airline’s AOC after it complied with the regulatory requirements and paid up what it owed its workers.” When contacted, a source from the airline told The Guardian that the management has since then maintained regular payment of salaries and other allowances to its workers in order to avoid being grounded.

But feelers from the industry suggest that some airlines are still not meeting their obligations to their workers due to the financial crisis bedeviling the sector. Following this development, NCAA says it has commenced a financial audit of all domestic airlines, adding that “when completed a report will be submitted to the management for appropriate action.”

On the airlines’ indebtedness to the NCAA, Ndubuoke said: “We have introduced a new policy of ‘no pay no service’ to operators. By this, an operator is required to obtain a clearance from Director of Finance and Accounts indicating that such an operator has settled all claims due to the authority before services are rendered. So far, so good.”

In a similar vein, the Federal Airports Authority of Nigeria (FAAN), managers of the nation’s airports, has constituted a special task force on revenue enhancement.

The move is to improve the revenue base of airports for greater productivity and to meet up with revenue targets based on the authority’s 2015 approved budget.

According to the directive by the Managing Director of FAAN, Saleh Dunoma, airport managers are mandated to step up efforts in recovering debts and initiating non-aeronautical revenue streams ‘at the point of collection and as at when due, applying sanctions where necessary.’

The immediate past Minister of Aviation, Osita Chidoka, before leaving office, had ordered the agencies to reconcile the said debts with the airlines.

The Managing Director/Chief Executive Officer of Nigerian Airspace Management Agency (NAMA), Ibrahim Abdulsalam said negotiations on how to reconcile the payments by the parties have commenced as directed by the past minister.

He continued: “Government has been trying to use a proactive way to resolve the matter. One of the things that was done by the former minister, Chidoka, was to bring a third party to work out the modality for the payment in order to reach an amicable reconciliation.

This is the reason I have not released the list of debtor airlines as requested. I believe that we must see the reconciliation to its logical conclusion before we can consider the next option.

I also believe that problems are not solved by confrontation.” Recently, an aircraft, which was loading to Lagos from Nnamdi Azikiwe Airport, Abuja, was grounded by FAAN over allegations of debt.

That single action forced all the passengers on board to disembark, causing them pain and anguish. From a letter dated April 23, 2015 and directed through airline’s regional manager, Abuja, the airline was reminded of its debt to the agency, to the tune of N1, 228,173,232.15. As with operator, so it is with other domestic airlines which are heavily indebted to the agencies.

But the airlines, according to industry watchers, are ‘bleeding profusely’ over the high costs of operation. To them, they are constrained by circumstances beyond their control, due to increasingly high operational costs of running the airline business in Nigeria caused by the scarcity and high cost of aviation fuel (Jet-A1), and indeed, the multiple charges, levies and taxes imposed on them by the agencies.

The Guardian gathered that the said debts to the agencies are running into billions and may not be settled in the nearest future, going by the present harsh economic realities the airlines are operating in.

An aviation expert, Abayomi Ogundele, told The Guardian that payment of the debts for now ‘‘may be mission impossible because some of the airlines are going bankrupt due to high operational cost.’’

Some of the airlines have suspended some routes either because they are no longer viable or because the cost of operating them is no longer tolerable. The Chairman/CEO of Air Peace, Allen Onyema, a lawyer, described the Nigerian aviation sector as ‘dead on arrival’ as he lamented the difficulties airline operators are going through in doing business in the country.

His words: “The airlines in Nigeria are dead on arrival because of the harsh conditions under which they operate. Government policies are chief among the reasons for the under development of the industry.

Multiple taxation by government agencies, high cost of aviation fuel compared to elsewhere, high cost of overhead, prohibitive interest rates from banks, lack of easy access to foreign exchange, lack of night flying infrastructure in over 97% of the airports in Nigeria, the people’s low purchasing power and the one directional passenger movement in Nigeria, clog the wheel of development of the industry in Nigeria.”

According to Onyema, airlines are bogged down by the myriad of problems hence their inability to break even, let alone of making profit, ‘thereby creating the ugly situation of non-payment of salaries’.

On whether the problems he enumerated are adversely affecting his airline from meeting its obligations to its workers, the CEO said prompt payment of staff salaries is a principle that his company developed right from inception.

His words: “It is a well known fact within the industry that Air Peace is the only airline that does not owe workers’ salaries and also pays them on the 25th of every month.”

On why this is a policy in his company, he said: “The brand new aircraft in your fleet does not in itself translate to safety, unless it is manned by well motivated staff. Besides the pilot, an angry and hungry baggage handler who has not received his salaries for three months could take unaccompanied luggage for a fee from someone and load it on your aircraft without really cross checking if it is a safe or dangerous.

“This does not translate to having so much money, but a business principle I have adopted over the years in all my companies. I like sharing and I hate owing workers their dues while I enjoy with my family. Salaries and staff motivation are key to the issues of safety in aviation.

It is unsafe to owe pilots and other operations’ staff and pretend you are running a safe airline.” Also bemoaning the situation, the Managing Director and Chief Executive Officer of Medview Airlines, Alhaji Muneer Bankole canvassed that charges by agencies like FAAN, NAMA and others be consolidated to one fold and reduced to the barest minimum, so as to encourage domestic operators. He also said some of the charges are not justifiable at all.

Also reacting, the Accountable Manager of Dana Air, Obi Mbanuzuo, said the Nigerian aviation sector can grow and contribute meaningfully to the country’s gross domestic product (GDP), if the government would formulate friendly policies for indigenous aviation.    According to him, domestic airlines are struggling with huge and increasing operating costs.

He lamented the absence of business friendly policies, which he noted was preventing domestic carriers from breaking even.   Some of the challenges of local airlines, according to Mbanuzuo, include: Hostile business environment, high cost of aviation fuel, increasing exchange rate, high cost of aircraft lease, high insurance costs and imposition of Value Added Tax (VAT) on air transport.

He added that with domestic airlines paying between 30 and 35 per cent as operating charges, survival is increasingly becoming difficult. “If the right policies are put in place, the operating environment would make air transport business attractive,” he said.