Chinelo Obogo [email protected]
Year 2020 has no doubt been the worst year for the aviation industry in many decades. In Nigeria, an already financially challenged industry has to contend with the impact of the COVID19 pandemic and an economic recession which experts say is the worst since 1983.
Already, many domestic operators have had to cut cost by sacking staff, slashing salaries and reducing flight frequencies just to avoid collapse.
The International Air Transport Association (IATA) revised outlook for airline industry performance in 2020 and 2021 shows that deep industry losses will continue into 2021, even though performance is expected to improve over the period of the forecast.
A net loss of $118.5 billion is expected for 2020 (deeper than the $84.3 billion forecast in June), while a net loss of $38.7 billion is expected in 2021 (deeper than the $15.8 billion forecast in June).
Performance factors in 2021 will show improvements on 2020; and the second half of 2021 is expected to see improvements after a difficult 2021 first half. Aggressive cost-cutting is expected to combine with increased demand during 2021 (due to the re-opening of borders with testing and/or the widespread availability of a vaccine) to see the industry turn cash-positive in the fourth quarter of 2021 which is earlier than previously forecast.
All major operational parameters in the passenger business were negative: Passenger numbers are expected to plummet to 1.8 billion (60.5 per cent down on the 4.5 billion passengers in 2019). This is roughly the same number that the industry carried in 2003.
Passenger revenues are expected to fall to $191 billion, less than a third of the $612 billion earned in 2019. This was largely driven by a 66 per cent fall in passenger demand , measured in Revenue Passenger Kilometers (RPK). International markets were hit disproportionately hard with a 75 per cent fall in demand. Domestic markets, largely propelled by a recovery in China and Russia, are expected to perform better and end 2020 by 49 per cent below 2019 levels.
Further weakness is demonstrated by passenger yields which are expected to be down by 8 per cent compared to 2019 and a weak passenger load factor which is expected to be 65.5 per cent, down from the 82.5 per cent recorded in 2019, a level last seen in 1993.
IATA’s Director General and CEO, Alexandre de Juniac, said: “This crisis is devastating and unrelenting. Airlines have cut costs by 45.8 per cent, but revenues are down by 60.9 per cent. The result is that airlines will lose $66 for every passenger carried this year for a total net loss of $118.5 billion. This loss will be reduced sharply by $80 billion in 2021. But the prospect of losing $38.7 billion next year is nothing to celebrate. We need to get borders safely re-opened without quarantine so that people will fly again. And with airlines expected to bleed cash at least until the fourth quarter of 2021 there is no time to lose.
“The COVID-19 crisis challenged the industry for its very survival in 2020. In the face of a half trillion-dollar revenue drop, from $838 billion in 2019 to $328 billion. Airlines cut costs by $365 billion , from $795 billion in 2019 to $430 billion in 2020. The history books will record 2020 as the industry’s worst financial year. Airlines cut expenses by an average of a billion dollars a day over 2020 and will still rack up unprecedented losses. Were it not for the $173 billion in financial support by governments, we would have seen bankruptcies on a massive scale.”
National Assembly wades in
The Minister of Aviation, Captain Hadi Sirika, had earlier informed the Senate Committee on Aviation of the Federal Government’s plans to provide N5 billion bailout funds, with N4 billion going to the domestic airlines. This proposed intervention was criticised by the Senate Committee chairman on Aviation, Smart Adeyemi, who told the minister during a three-day public hearing on the six executive aviation bills, that the amount was grossly insufficient.
Shortly afterwards, the House of Representatives Committee on Aviation proposed a bailout of N50 billion for airlines to save them from collapse and also condemned the collection of import duties on imported commercial aircraft and spare parts despite the President’s executive order exempting them.
The House Committee chairman on aviation, Nnolim Nnaji during a recent press conference said that the just concluded public hearing on civil aviation amendment bills brought exposed the many challenges facing the domestic airlines which he says require urgent attention to save the industry from total collapse.
The committee expressed its displeasure at the fact that airlines are still paying Value Added Tax (VAT) on importation of aircraft and spares to the Federal Inland Revenue (FIRS). The major challenges airlines face are; the inability to access foreign exchange at the official rate, high cost of fund, lack of single digit lending interest rate, multiple taxations, fees and charges, multiple entry points and frequencies granted foreign airlines, the externalisation of insurance placement for domestic airlines and delays they suffer for weeks in clearing aircraft on ground (AOG) spare parts.
Other challenges are the rising cost of aviation fuel (JET-A1), over regulation of domestic airlines and inadequate night landing facilities in most of the airports which reduces the airlines’ operating flight hours among others were also part of the concerns raised before the committee by the airline operators.
Nnaji promised that the House will address the demands and find out why the Nigeria Customs Service would not respect the president’s Executive Order on duty exemption meant to lighten the burden of the airlines.
“If developed countries could give bailouts in billions of dollars to their airlines to cushion the impact of coronavirus, with all the incentives at their disposal, you can understand what our airline operators are going through without help. America, Canada, Brazil, Rwanda, Senegal, India, China, Korea, United Kingdom and several European countries injected funds into the aviation sector because they understand the importance of the sector in their economies,” he said.
Nnaji said that in the wake of the COVID19 pandemic, the International Civil Aviation Organization, (ICAO) canvassed for continued financial and regulatory support, particularly financial relief that does not increase industry debt levels through direct cash injection, credit or loans and discounts on user charges to support airlines over the restart and recovery period. He said, regrettably, only Rwanda, Senegal, Cote d’ Ivorie, Burkina Faso and Cape Verde responded while Nigeria’s meager N4billion promise is yet to be released to the airlines.
The committee therefore proposed a bailout of N50 billion to be released to the airlines to save them from total collapse and to also avert their threat of shutting down operations which would have severe consequences on the overall economy.
Stakeholders proffer solutions
Aviation expert, Amos Akpan, told Daily Sun that the major way which the Federal Government can prevent a total collapse of the sector is by making funds immediately available so that people can work and earn expendable income.
“Has the Federal Government issued a statement that Nigeria has entered worst recession since 1983?
It is when you accept your ailment that you describe the effects on your body to expert. The expert will analyse and diagnose with his skills and tools. Assuming the government admits the entry of the country into worst recession since 1983, the first step is to make money available to institutions so people can work with them and earn expendable income. When people earn income, they buy food, pay for drugs, pay house rents, pay transport, pay school fees, buy petrol, pay taxes. The economist calls it refloating the economy.
“For the aviation industry, the government agencies that provide services to earn income should stop payment of a percentage of their income into the Federal Government’s purse. They should be allowed to use the funds to provide services to keep their infrastructures functional and to pay salaries.
“Stop multiple taxes on airlines operations; reschedule the outstanding loans and debts of airlines operators so that they can have allowance to pay for current operating costs.
Discontinue granting multiple entry points to foreign airlines so that domestic airlines can have more traffic.
“Encourage a service level agreement between service providers so that every organisation in the industry will be clear on what is expected from her. Let the COVID-19 bailouts granted be given to the designated companies and agencies. Name them and the amount received. The agencies, the unions, the operators must meet once every month to smoothen issues of disagreements and resolve to sheath swords until after the recession so the industry can survive. Any dead company means jobs loss, decay of machines, nil income for all.
“Without government bailout, the industry won’t survive the recession. What the government should do immediately is to set parameters and modules for application of bailouts to agencies and operators in the aviation industry. The service level agreement is a covenant binding the service provider and the service recipient. It spells obligations of both parties. It states the minimum expectation from each party,” he said.
Captain John Ojikutu, however, opposed the proposal of giving palliatives to domestic airlines after they had been bailed out several times in the past by the Federal Government.
“The Nigerian airlines problems is not about COVID-19; their problems predated the pandemic and we shouldn’t compare ours with the airlines of other countries; those are national or flag carriers and ours are not, they are private. We once gave about five of our airlines N200billion at six per cent from the Central Bank of Nigeria (CBN) before COVID19 and we got nothing out of it, while we gave N19.5billion from private banks at 24 per cent to six government aviation agencies. The National Assembly has the records of these from two public hearings. Why are we doing these heartless of thinking on the people of this country? NASS should stop the preaching of palliatives for the airlines.”