by Louis Ibah
Stakeholders in Nigeria’s aviation sector are calling for a speedy commencement of strict financial regulations of local airline industry to save it from imminent collapse.
The stakeholders who gathered at a breakfast meeting organised by the Aviation Round Table (ART) in Lagos over the weekend, decried the undue interferences in the management of the Nigerian Civil Aviation Authority (NCAA) by the Federal Government and are demanding for more autonomy to enable the regulatory agency discharge its duties without bias.
It would be the first time that key stakeholders like airline owners, past and current Director Generals from the NCAA, the Federal Airports Authority of Nigeria (FAAN), Accident and Investigation Bureau (AIB), aviation analysts and experts would gather in Nigeria to discuss the poor financial regulation of local airlines.
The meeting according to the ART President, Mr. Gabriel Olowo had become inevitable given the recent data by the NCAA that only six per cent (Nine out of the 150) registered domestic airlines that existed at the beginning of 2001 are still in business till date.
“We are worried that the Nigerian airline industry is failing and this is the same thing with the Nigerian airports which are not functioning optimally,” said Gabriel Olowo, President of the Aviation Round Table. “Like the airlines, the airports are also financial failures. We have to do something, to act fast to save the industry and the jobs of Nigerians,” he added.
Guest speaker at the event and former Managing Director of the Federal Airports Authority of Nigeria (FAAN), Mr. Richard Aisuebeogun, who blamed the NCAA for the poor health of local airlines, said the regulatory agency had “paid too much emphasis on safety, aerodrome and airworthiness regulation than on financial regulations of airlines.”
“The Nigerian domestic aviation industry is tethering on the brink today – probably facing its own Great Depression and the NCAA is to blame,” Aisuebeogun.
“It will require a ‘new deal’ to save the local airlines from collapse and spur it on to new growth,” he added.
The new deal
According to the Nigerian Civil Aviation Act 2006, “All Nigerian licensed airlines shall submit to the NCAA on a monthly basis, all financial data and records on their operations in the form and manner as may be prescribed by the NCAA”.
The Act also stated that “The NCAA shall evaluate the financial returns and make available a copy of the report of the financial health assessment to the Management of the airline which may make a representation to the Authority.”
Aisuebeogun in his presentation said the Nigerian Civil Aviation Act had made enough provisions for the financial regulation of the airlines by the NCAA, but that the regulatory body had failed to enforce those provisions.
He cited the recent collapse of Aero Contractors and Arik Air and their takeover by the Asset Management Corporation of Nigeria (AMCON) as cases that prove that poor financial management rather than adherence to safety processes was at root of the demise of most local airlines.
“AMCON’s acquisition of both Aero and Arik is as a result of the failings of these airlines to meet obligations to their providers of finance – which in this case are the banks,” said Aisuebeogun.
“But we have to note how the banking regulators like the CBN and AMCON, unlike the NCAA, are always quick to step in and intervene just to ensure that the financial institutions that grant these credits to the airlines don’t collapse,” he added.
Aisuebeogun said the new deal that stakeholders in the industry must agree to working towards the enforcement s of financial regulations laws by the NCAA without any interfaces from the airlines or the government.
He however said the extent of compliance of Nigerian airlines to economic regulation in terms of regularity and timeliness of reporting is a crucial element in assessing continued survivability of an airline.
According to him, past findings, reveal serious inconsistencies in the timeliness of financial reporting by local airlines. He said many airlines in the past demonstrated a complete non-adherence to NCAA Economic Regulation and that only few financial audits had been filled since the inception of the Nigerian industry.
Aisuebeogun said findings reveal that only a few airlines comply with the Economic Regulation requirement to retire the Financial Health Return (FHR) Forms and those that comply are not consistent in terms of regularity and timeliness,
Way forward
“It is worrisome that the recurring failures of airlines in terms of poor service quality, bankruptcy, exits and airline losses’ such as in Nigeria has been attributed to poor financial condition, reckless financial mismanagement and huge indebtedness that are yet to be empirical substantiated,” Aisuebeogun said.
He said the NCAA needs to do the following to stem the continuous collapse of local airlines: Ascertain the financial position of Nigerian airlines and their abilities to sustain future operations; determine the extent of the effectiveness of economic regulations in the airline industry; determine the extent of airline compliance and inclusiveness in financial auditing; fill the gap in terms of the adequacy of the existing economic regulation framework by recommending an appropriate model based on best international best practices; and above all empowering NCAA to enforce its economic regulations mechanism irrespective of third party agreements of airlines and other service providers.
He also suggested that government subventions in the form of bail-out funds should be objective and closely monitored by both the lender and industry regulator (NCAA) in order to ensure that they are effectively and proficiently utilized by the beneficiary airlines.
“Domestic airlines should also consider the options of merger and acquisition which will enable them to spread risks; sustain their operations; provide better access to the international capital market and provide employment opportunities for the industry,” he added.