Airlines On The Brink, As Aviation Sector Crisis Worsens

Minister of State for Aviation, Hadi Sirika

*Industry losing ₦500m per day – Operator

Airline operators in the country are facing tough times as combined effects of the ongoing recession, poor funding, indebtedness, fuel scarcity, low passenger rates and unfavourable government policies threatens to force many of them out of business.

Daily Trust report continues:

The airlines have lost billions of naira owing to flight cancellations and high operations cost.

Three major airlines suspended operations within three weeks, citing operational difficulties. Arik Air, First Nation and Aero have all been forced to make the difficult decisions of shutting down. While Arik resumed after 24 hours, First Nation and Aero remain grounded. Cancellation of Arik flights from Abuja-Lagos cost the airline about ₦45 million in revenue. First Nation and Aero have been out of operations since September 1 and both have cancelled dozens of flights.

Arik Air operates about 120 flights per day across its destinations with about 8,400 passengers with an average passenger rate of 70 passengers per flight. At an average of ₦30,000 per seat, the airline have lost about ₦252 million on Tuesday, when it grounded its operations because of insurance-related issues. According to Captain Ado Sanusi, the Senior Vice President (Operations) and Deputy Managing Director of Arik Air, “We have fly to 31 routes. Thirteen are international and eighteen are local, while we have twenty six planes.”

Aero Contractors operated about 34 flights per day before it was grounded on September 1, 2016. Industry observers say with its large aircraft, it could be flying an average of 80 passengers per flight and that is some 2,700 passengers per day. At an average of ₦25,000 per seat, the airline would have been making some ₦680 million per day. In 16 days, the airline may have lost about N1.088 billion in 16 days that it has remained grounded.

First Nation didn’t have much of a busy schedule. It operated some eight flights per day and carried about 640 passengers daily. Thus in 14 days, the airline may have lost some ₦224 million.

Retired Group Captain John Ojikutu, a member of the Aviation Roundtable said the entire industry is losing huge monies from the current low capacity in Nigeria’s aviation industry. He puts the loss at an average ₦500 million daily across the industry value chain.
Speaking to Daily Trust in Lagos, Chairman Airline Operators of Nigeria (AON), Capt Noggie Meggison said poor funding is one of the greatest impediments confronting operators in the aviation sector. He said whereas some stakeholders have been asking Federal Government to let the sector run itself, its refusal has also affected the fortune of the sector. “Why won’t airline operators suspend operations? We’ve been shouting in the past one year, that the situation in the aviation sector is becoming precarious and if care is not taken, there may not be any active domestic airline again by this time of next year. Government has not been funding the sector and there is no way you can run a business with an empty stomach.”

“In a situation whereby airline operators, who have been self-funding, spend over 40 percent of their operational cost on getting aviation fuel, what do you expect?  And this is compounded with the economic situation of the country today, which has now made it difficult for many Nigerians,” Meggison said.

The AON Chairman also expressed regret about the inability of many airlines to operate for long hours because of poor weather. “In other climes you run the airline 24/7 but here in Nigeria, everybody folds operation by 6pm because of poor weather. By this time next year, there may not be any airline operator in the country,” Meggison said.
General Secretary of National Union of Air Transport Employees (NUATE), Olayinka Abioye, on the other hand, identified high indebtedness, forex crisis, and the depreciation of the naira as some of the challenges the aviation sector is confronting.

Abioye noted that while many of the airlines are indebted to banks, the Federal Government has also been indebted to operators especially the foreign airline operators.
“As we speak, many of the airline operators owe banks. And because of their inability to pay their debts, many banks are reluctant to give further loans and we can’t really blame the bank because we all know what the situation of the economy is today. And while the operators are still battling to pay the banks, the Federal Government has also not paid debts it owes many of the foreign airlines through the Central Bank of Nigeria (CBN).”

“After the government realized that the issue has become worrisome, they now agreed to offset their debt which is totalling US$575 million, which means billions of naira. The government is now using International Air Transport Association (IATA) to negotiate while insisting that it cannot pay the debt using the ₦197-per-dollar exchange rate being quoted by the foreign airline operators,” Abioye said.

The NUATE General Secretary said suspension of flights led to loss of jobs in the sector. “Staff of airline operators in Nigeria today are losing their jobs in droves. Those who have not suspended their flights are not paying regularly. You can quote me anywhere that Arik airline, which is the largest in the country, owes about 90 percent of its staff up to three months pay.”

On the way out, Meggison said it is important for government to inject funds that will allow operators function effectively, while also allowing professionals to run the sector. “Airline business is not a charity. There is nowhere in the world where the sector is being run as it is in Nigeria,” he said.

However, Abioye said aviation workers are opposed to any form of reform of the sector that will involve concessionaire arrangement of the four key airports that generate funds for the country as being proposed by the Minister of State for Aviation, Hadi Sirika.
Retired Group Captain John Ojikutu said: “How much is the aviation sector contributing to the economy? We really need to audit the airlines because it appears the airlines are diverting their earnings to other businesses the owners have. If that is not the case, how come the airlines are hugely indebted?”

According to him, the NCAA is also failing in its responsibility by not auditing the financial position of the airlines. “The NCAA should audit the airlines every month. When last did the NCAA audit the airlines? If the NCAA was doing their job, the airlines won’t be owing,” he said, adding that when Arik Air’s insurance expired the NCAA wasn’t aware because it doesn’t audit the airline.