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$600m trapped funds threaten economy, aviation industry

By Wole Oyebade
03 July 2022   |   4:30 am
Barring a quick intervention from the Federal Government, air travellers, and the industry could be jolted in the days ahead as the unrepatriated funds for foreign airlines accruing from sales...

Murtala Muhammed International Airport, Lagos. Photo: MEDIABLOGPOST

• Aviation Experts Warn Of Heavy Toll On Travellers • Exorbitant Air Fares Imminent
• NANTA Urges FG To Prioritise Repatriation Of Airlines’ Funds As Going Concern
• Trapped Funds In Nigeria A Quarter Of Funds Stuck Globally – IATA 
• ‘Airlines Recovering From Pandemic, In Dire Need Of Funds To Sustain Operations’

Barring a quick intervention from the Federal Government, air travellers, and the industry could be jolted in the days ahead as the unrepatriated funds for foreign airlines accruing from sales of flight tickets in local currencies hit the $600m mark at the end of June.

   
This worrisome development has already elicited serious concerns from captains of the aviation industry, business analysts, as well as travel agencies, who have called for swift action.
  
Foreign airlines have equally warned of dire consequences should the stuck funds not be freed sooner than later.
The experts urged the Central Bank of Nigeria (CBN) to wake up to its responsibilities and place the foreign airlines on the cash-call priority list, as a critical service provider to the Nigerian economy.

Findings by The Guardian showed that the stuck fund was in excess of $800 million in November 2021. It was brought down to about $283 million as at March this year, further increased to $450 million in May, and according to estimates, has now reached about $600 million as at June ending.

Though not peculiar nor new to Nigeria, the aviation industry was in similar condition in 2016 when foreign airlines were unable to pull out funds from the official window, hence trapped funds rose to $600 million (about N120 billion). That led a couple of foreign airlines to exit the Nigerian route at that trying time.

The International Air Transport Association (IATA), the clearing house for over 280 airlines globally, had also recently raised the alarm over the steady rise in the amount of unrepatriated funds in Nigeria and other countries. 

 
Other countries in Africa that hold on to the huge amounts of airlines’ revenues include Zimbabwe – $100 million; Algeria – $96 million; Eritrea – $79 million and Ethiopia, $75 million. IATA noted, however, that the trapped fund in Nigeria was about 25 per cent of similar funds stuck in other countries as at April. 

About this time in 2016, foreign airlines’ accumulated stuck fund reached a record high of $600 million. At the time, authorities were apt to blame the global slump in the price of crude oil and attendant decline in foreign reserve. More so, it was at the time a fairly new administration was still trying to find its feet in the economic puddle.
 
Fast-forward to 2022, the rack-up is back to the 2016 threshold. And quite different this time, is the boom in the oil market with the price of crude oil now over $110/barrel, though weaker value of Naira to the Dollar, and a reason for both airlines and travel agencies to be worried over the backlog.
  
Last November, foreign airlines operating in and out of Nigeria had taken protests to the CBN over difficulties in repatriating accumulated funds and soon got reprieve. Now, they are back on the curve.

The Guardian learnt that the foreign airlines are most worried because they are just recovering from the pandemic, racking up debts and cash crunch, and in dire need of all the funds they can rake in to sustain operations.

Experts noted that the consequences of the challenge would be felt, in the immediate, as a heavy toll on air travellers. Besides the foreign airlines withdrawing services in extreme cases, the immediate effects will be on airfares, and the travel agencies are already feeling the pinch.
 
In the November episode, foreign airlines had adjusted the Rate of Exchange (RoE) from N411 to N450, raising airfares some notches to mitigate losses of having funds tied down in the economy. The add-on cost to be passed to air travellers this time around, is yet undecided.
 


President of the National Association of Nigerian Travel Agencies (NANTA), Susan Akporiaye, was however certain that the development is a bad omen for the industry and its operators.
 
Though the problem is not new, Akporiaye noted that NANTA had consistently appealed to the government to prioritise repatriation of airlines’ funds as a going concern. She added that the current situation presents a real threat to the industry and the continuity of their businesses as travel professionals.
 
“The foreign airlines may resort to taking out lower inventory in the system and resulting in high cost of tickets from the Nigerian market. For instance, a six-hour trip to London may attract a fare rate of about $2000 or more and also encourage tickets sold outside the country to flood Nigeria, thus affecting the survival of Nigerian travel agents and consequent loss of taxes and levies from such transactions,” Akporiaye said.
 
The NANTA president noted that her thousands of members remain patriotic and have represented the country well in the global travel industry and rightly felt disturbed that Nigeria is on the brink of a wrong narrative at the just-concluded IATA Annual General Meeting in Doha, Qatar.

Chief Executive Officer of Finchglow Holdings, Bankole Bernard, reckoned that the concerns raised by the foreign airlines were genuine and deserving of urgent attention.

 
Bernard recalled that the 2016 case didn’t end favourably for airlines. “At the end of the day, we did devaluation of the naira, which favoured the country but the airline lost money, as much as 50 per cent of it. That is why they are shouting now, because they did not want a repeat of the 2016 event.”
 
Bernard advised that it was high time the foreign exchange management had returned to the path of transparency and equity. “Let’s run our forex business the way it is done everywhere in the world. Let the CBN disclose the current state of the foreign exchange and those collecting it. The right business people are not getting priority and that is the problem.
 
“For aviation, we must have a clearing house in-country whereby the settlements (taxes, charges and so on) can be done locally and whatever is left of the airlines’ money, CBN will handle that. Why should 45 per cent taxes and charges on ticket fares be paid in dollars? Are the taxes being spent in dollars? If you address that, then about half of the problem has been solved. Aviation is very critical to economies but some of our people are yet to see it as such from the way they are handling its affairs. And it is most unfortunate,” Bernard said.
 
Indeed, aviation in 2019 supported nearly 40 million jobs worldwide and underpinned $3.5 trillion of global Gross Domestic Product (GDP). Public understanding of the economic importance of air connectivity is high—92 per cent of travellers agree that air connectivity is “critical” for the economy.
  
IATA’s Regional Vice-President, Africa, and the Middle East, Kamil Al-Awadhi, said airfares charged by international carriers are three times higher than what is obtained in other countries that do not retain airlines’ revenues and expressed fear that the fares might continue to rise until Nigerians would not be able to afford international travel and that would eventually weaken the nation’s economy.
 
Al-Awadhi explained that airlines were charging higher fares to Nigeria so that they could make a profit from one leg of the trip, as most trips are charged on return tickets.
 
He said it had been hectic negotiating with Nigeria. “Nigeria needs to start reducing the backlog. The Central Bank of Nigeria was not forthcoming on the blocked funds. It is sad that Nigeria owes the bulk of the entire blocked funds. This is very unacceptable.
 
“We heard that there is a shortage of dollars. It has been a hectic ride. We met with the Vice-President. We will keep checking. This is going to damage the image of the country. We are hoping that it will go down well. The figure is huge”.
 
He lamented that the situation is seriously affecting operations of the airlines as the carriers have dipped into their reserves to continue to finance many of the flights they operate to Nigeria and some other African countries that have kept airlines’ funds.
 
He noted that this is coming at a time the carriers are coming out of the devastating COVID-19 pandemic that took the worst hit ever on the global aviation industry, stressing that many carriers were yet to fully recover from it.

Minister of Aviation, Hadi Sirika, has, however, raised hopes of an urgent resolution, saying that the government was as concerned as the airlines, on getting the stuck funds repatriated.
 
Sirika earlier urged the Federal Government to grant the aviation industry a special foreign exchange window to defray stuck funds and also ease the Jet A1 scarcity rocking the sector.
 
He said: “It is pertinent to mention that we stand to gain significant benefits in restoring and maintaining connectivity within, to and fro the country. Analysis from IATA shows that the aviation sector contributes N341 billion to GDP, 160,000 local jobs and N535 billion revenue from visitors.
 
“However, the aviation business suffers from the issue of access to foreign exchange by local and foreign airlines and the ability to repatriate blocked funds. I would like to humbly request the support of the Central Bank, through the directive of Mr. President, to prioritise access to forex for all carriers both local and foreign, and to work out a mechanism to clear the existing backlog urgently and prevent subsequent build up,” Sirika said.