By Chinelo Obogo [email protected]
As Nigeria celebrates its 62nd independence, its aviation industry has turned out to be a sore point of discourse at any forum a debate on modern aviation practices springs up among experts.
As a sector already hobbled by financial challenges, it has always struggled to do a number of things, including the provision of basic infrastructures to cope with ncreasing operational demands, especially during emergencies like the COVID-19 pandemic that hit the world in 2020 or the economic recession considered the worst since 1983.
At 62, Nigeria’s airports are rated among the worst in the world, with no evidence of viable aerotropolis or fullfledged aviation market anywhere round the country.
Until recently, the country had recorded consistent incidence of air accidents that turned air travel to a nightmare for the upper middle and the business elite.
Today, however, with the Federal Government approving of the total radar coverage of Nigeria, (TRACON), the frequency of air accidents have drastically reduced although experts believe more needs to be done.
For domestic airline operators surviving under a pandemic required a number of far reaching cost cutting strategies including staff retrenchment, slashing salaries and reducing flight frequencies to avoid collapse amid the Federal Government’s lean N5 billion bailout.
But just as the industry was still recovering, another crisis triggered by scarcity of forex, devaluation of the naira and high cost of aviation fuel took another toll in its operation.
Director General of the Nigerian Civil Aviation Authority (NCAA), Capt. Musa Nuhu admitted that the situation of the industry remained very critical.
On how the industry has fared especially the current administration opinions are mixed
Proposed MRO, aircraft leasing company in limbo
On his assumption of office as aviation minister, Mr Hadi Sirika, had laid an aviation roadmap that included the establishment of a Maintenance Repair and Overhaul (MRO) Centre; Aviation Leasing Company (ALC); Agro-Allied Cargo Terminals; Aerotropolis or Airport City; National Carrier; Africa Aerospace and Aviation University (AAAU); second Runway of the Nnamdi Azikiwe International Airport, Abuja, among others.
To appreciate the importance of an MRO, the Managing Director of the Federal Airport Authority (FAAN) Capt. Rabiu Yadudu, said Nigeria lost at least $2.5 billion (about N1.25 trillion) in the maintenance of its aircraft to foreign MRO facilities in 2021. He said that such capital flight would have been saved if the country had viable MRO facilities that could adequately cater for all types of aircraft.
To carry out C-checks on Boeing 737 aircraft or its category which is done every 18 months, airlines spend at least $1.8 million. It should however be noted that airlines like Aero Contractors and 7Star own MROs.
Consequently, the Federal Government went into a Public Private Partnership (PPP) deal that was meant to see the establishment of an aviation leasing company and an MRO facility. The Consortium of A J Walters Leasing Limited and Glovesly Pro-Project Limited were announced last year as the preferred bidder to establish the leasing company, while the Consortium of A J Walters Aviation Limited, EgyptAir Maintenance & Engineering (EGME) and Glovesly Pro-Project Limited as the preferred bidder to establish the MRO.
But a very reliable source within the Ministry of Aviation told Daily Sun that the agreement between the Federal Government and AJW is yet to be finalised over the inability of both parties to reach a consensus on the percentage of annual turnover as royalty. The source said the government proposed seven percent, while the company insisted on two percent and that at the moment, no agreement has been reached. However, the company agreed on the issue of ‘local content’, which means that most of the MRO’s workforce would be Nigerians, except where there is no capacity.
“At the moment, nothing has been signed because the government said they should give us seven percent of the annual turnover as royalty but AJW refused and insisted on giving only two percent. The only area that AJW accepted is in local content where they aren’t expected to employ foreigners except where Nigeria does not have the capacity. Till date, they have not shifted from that two percent. At a time, the Federal Government proposed five percent, but AJW stuck to two percent,” the source said.
For the aircraft leasing company, Daily Sun’s source said there is no indication that it would take off anytime soon.
National carrier gets investors
A fortnight ago, the government announced Ethiopian Airlines Consortium as preferred bidder for Nigeria Air Limited with a combined score (Technical and Financial Bid) of 86.7 per cent.
The Minister of Aviation, Hadi Sirika, said that all preparations for the establishment of the national carrier have been concluded and the airline will kick off in six to eight weeks having commenced staff recruitment and with some of the aircraft coming into the country in a week’s time.
ET will own 49 percent of the airline, while a consortium of Nigerian investors will own 46 with the Federal Government owning 5 per cent equity. With respect to funds so far spent the minister said “the launch of Nigeria Air, gulped about N400 million to meet requirements for establishing an Air Operator Certificate (AOC) and being admitted to start an airline operation, which is well within the five per cent capital investment of the Federal Government of Nigeria, that will be needed to establish the national carrier initially for the AOC approval and everything else required by stringent national aviation regulations, as prescribed in the FEC approved Outline Business Case (OBC).
No further Federal Government funding will be provided above the 5 per cent share capital of the next national carrier of Nigeria, which was provided to launch Nigeria Air.”
The airline will launch with a shuttle service between Abuja and Lagos with three new Boeing 737-800 and other domestic destinations will follow thereafter. The Request for Proposal (RFP) under the PPP Act, governed by ICRC, is completed.
Aviation fuel, forex scarcity worsen economic crisis
The current JetA1 and forex scarcity appear to have worsened an already bad economic situation for the industry. The crisis which began in late February and deteriorated further through the months of March, saw the price of JetA1 rise from N200 in December 2021 to over N400 per litre in February and over N800 per litre, has caused an almost 300 percent increase of air fare from N25,000 to N70,000 for economy tickets.
The spokesperson of the Airline Operators of Nigeria (AON), Obiora Okonkwo, told the media that the continuous rise in the price of aviation fuel and supply is epileptic and unpredictable at several airports across the country, thereby causing flight delays and cancellations.
He said that added to the already difficult situation, is the high cost and scarcity of foreign exchange as airlines carry out most of their activities in US dollars which today sells for about N750 to $1; and is also in short supply. He said airlines are in a ‘life and death’ struggle to secure the foreign exchange that they urgently need to acquire spare parts to ensure the regular routine and scheduled maintenance of aircraft.
Two airlines shut others battle for survival
After over 61 years of flight operations, Aero Contractors, Nigeria’s oldest indigenous operator ‘temporarily’ shut down its operations. A press statement sent to aviation reporters on July 18 by the management of the airline indicating its decision to shut down did not come as a surprise. The airline said it shut down its operations due to the impact of the challenging operating environment on its daily operations.
Daily Sun had reported that the airline has for some time now had cash flow problems was exacerbated by the COVID-19 pandemic and the low passenger traffic which started from January and continued to the second quarter of the year. At the time Daily Sun did the report, the airline had only two worn aircraft, a Bombardier Dash 8-300 and a Boeing 737-500.
For decades, Aero Contractors, provided shuttle services for the oil and gas industry and scheduled flight operations for the general public. But since the year 2000, the airline had become burdened with over N40 billion debt accumulated overtime.
The most vexatious issue which made Aero Contractors’ situation more precarious was the skyrocketing cost of aviation fuel and its attendant scarcity. As cost of fuel kept increasing, the management found it increasingly difficult to keep the aircraft in the air.
Issues already highlighted by the AON like maintenance cost, foreign exchange, aviation fuel and low traffic are some of what an insider told Daily Sun was responsible for the near bankruptcy of the airline and that unless new aircraft are either bought or leased, the airline is not likely to survive.
In 2016, when AMCON took over the receivership of Aero Contractors, Capt. Ado Sanusi was appointed the Managing Director in February 2017, but the airline was at the brink of bankruptcy at the time. The airline has scheduled operations wing, rotary wing, MRO and training school but its financial situation was so dire that AMCON which at the time had invested some money (though insiders say the amount invested was insufficient) into the airline had no appetite to invest more. Sanusi had to come up with a solution to conduct C-check conducted in-house on the Boeing 737 classic which received Aircraft Maintenance Organisation (AMO) certification from the Nigerian Civil Aviation Authority (NCAA).
From then, Sanusi’s administration sold assets that were not needed and was able to bring back one of the three aircraft that was abroad making it three. The passenger traffic increased to over 70 percent from 40 percent and customer confidence in the airline was restored and revenue tripled. Like many airlines, Aero suffered much loss during the pandemic and was only able to sustain itself with its the Maintenance, Overhaul and Repair (MRO) facility as it began maintenance of other airlines’ aircraft. However, the challenge that the airline had was what it was not able to renew its fleet as the airline’s survival depends on it.
The temporary closure of another domestic airline came in quick succession after Aero stopped its operations. On July 20, NCAA said it has suspended Dana Airlines’ Air Transport Licence (ATL) and Air Operator Certificate (AOC) indefinitely, with effect from midnight of Wednesday, 20th July, 2022.
The suspension was made pursuant to Section 35(2), 3(b) and (4) of the Civil Aviation Act, 2006 and Part 1.3.3.3(a)(1) of the Nigeria Civil Aviation Regulations (Nig.CARs), 2015. The decision, the Authority said, is the outcome of a financial and economic health audit carried out on the airline by the Authority, and the findings of an investigation conducted on the airline’s flight operations recently, which revealed that Dana Airlines is no longer in a position to meet its financial obligations and to conduct safe flight operations.
Responding to the suspension, the communications manager of Dana Air, Kingsley Ezenwa, said the recent skyrocketing cost of Jet A1 at 830/liter, unavailability of forex, inflation are contributory factors to the issue. It admitted that operational audits are regulatory and airlines are obligated to suspend their operations when the NCAA calls for it and it understand the impact the suspension will have on its partners, staff, passengers and the general public but that they are very confident that they would come out stronger as they have done in the past.
Arik Air struggles to remain afloat
For Arik Air, one of the major decisions it took which caused its finances to nosedive was the purchase of two A340-500 which became commercially unviable by the time the airline took delivery of the planes. At that time, the value of the naira had crashed and the airline was unable to repay the lease as the aircraft could not generate enough revenue to offset its operational cost. The airline kept struggling and its finances was in the red.
On February 9, 2017, AMCON took over and Mr. Kamilu Omokhide was appointed as its Receiver Manager with the responsibility to turn its fortunes around. At its peak, the airline had over 30 serviceable aircraft in its fleet with about 3,000 workforce but by December 2017 when AMCON took over, it was already down.
At the time AMCON took over, it said Arik didn’t have operational funds, its insurance premium had expired and it was neck deep in foreign and local debt with a backlog of unpaid salaries and charges. The receiver manager said in an interview earlier in the year that in order to recover the debts from Arik Air, it injected billions into it and established another carrier, NG Eagle, which it hoped would run along with Arik Air. The agency planned that after recovery of its debts, it might sell NG Eagle to private investors or through the stock exchange. However, the vice chairman of the former management, Senator Anietie Okon, said before the asset company took over, they were operating 69 scheduled flights, had 3,200 members of staff in its employ, 15 serviceable aircraft and four on maintenance.
Five years after, the establishment of NG Eagle seem not to be feasible after the Association of Nigerian Aviation Professionals, (ANAP) and the Nigerian union of pensioners, (NUP) wrote a petition to the House of Representatives Committee on Aviation to prevail on the Nigeria Civil Aviation Authority, (NCAA) not to issue air operator’s certificate, (AOC) to NG Eagle due to the debts owed the aviation agencies.