Rising from an emergency meeting held in Lagos recently, investors in Nigeria’s domestic airline business are in panic mood that the industry is on the brink of collapse following government’s inability to address its key challenges. With just one year left in the four-year tenure of President Muhamadu Buhari’s government, the operators are lamenting that the state of the airline industry has degenerated more than ever before as they accused the Federal Government of failing to address a myriad of unfriendly policies that have tended to cripple the aviation industry.
The meeting had in attendance the promoters, Managing Directors, and the Chairmen/CEOs of local airlines currently doing charter and scheduled operation in the country.
High mortality rate
Chairman of the Airline Operators of Nigeria (AON), Capt. Nogie Meggison, who briefed journalists after the meeting said in the last five decades, over 50 indigenous scheduled commercial airlines have been established and licensed to operate in Nigeria, but at present only seven airlines are flying, namely Arik Air, Azman Air, Medview Airline, Dana Air, Overland, Air Peace and Aero Contractors Airline. Within the same period, Nigerians have seen the birth and death of such airlines like Chanchangi Airline, Okada, ADC, EAS, Air Nigeria, Albarka, Kabo, Slok, Sosoliso, and lately First Nation. Their exit from the Nigerian sky tells a simple story: the mortality rate of airlines in Nigeria is indeed exceedingly high.
“The owners of these defunct airlines have all been successful in other business endeavours, but sadly not in the aviation sector. Could all of them have been responsible for the failure of their airlines?,” Meggison queried. “The answer is NO!,” he said.
Why then do Nigerian airlines go bust
So what exactly is responsible for the collapse of many of Nigeria’s airlines? It is a known fact that between 1999 till date, the three civilian governments of Presidents Olusegun Obasanjo, Godluck Jonathan, and Muhamadu Buhari have held various meetings with investors to resolve some noticeable problems and put back the industry on the path of growth and profitability.
“It is the myriad of unfriendly policies and the very harsh operating environment that have been the bane of sustainable growth of aviation in Nigeria,” said Meggison. They may indeed be a myriad of problems bedeviling the industry, but it appears that four stand out as having the greatest impact on the operations of local industry.
Value Added Tax
Listing some of the key challenges of the industry, Meggison said the Nigerian domestic airline travel is the only mode of transportation that is subjected to the Value Added Tax (VAT) in the country and that VAT takes huge chunk of the earnings made from ticket sales by the airlines.
“This imposition creates a suppression of domestic airline travel demand; therefore resulting in airlines not being able to optimally utilise their aircraft assets and more importantly creating a market distortion,” he said.
“The position of airline operators is that the VAT on airline ticket sales for domestic carriers must be removed completely forthwith as road transportation, rail, marine and international air travel carriers are not subjected to VAT payment in Nigeria. Moreover, a situation whereby some airlines are paying VAT while some other privileged airlines are not paying VAT while the payment is being used to subsidise our competitors against those that are making payment is unfair,” he added.
The airline owners also said that after much plea from investors, the Federal Government had provided for Zero Customs Duty on imported commercial aircraft, spares and engines. The zero duty was President Buhari’s first policy announcement for the aviation industry.
“Unfortunately, in 2018 the industry is yet to fully benefit from this provision and this has resulted in airlines having some of their fleet grounded for days in some cases,” Meggison said on the effect of the non-implementation of the policy.
“This is resulted in cancelled flights which in event results in chaos at our airports to the displeasure of our esteemed customers. This situation is unacceptable and should be reversed forthwith. The Federal Government should immediately institute the necessary mechanisms to ensure that the Customs duty waiver to commercial airline operators as proposed and agreed should be fully effected,” he pleaded.
Multiple entry for international airlines
Local operators are worried the approval by the Ministry of Transportation allowing international carriers to berth at several domestic airports designated for international flights saying the trend decimates the domestic air travel market and depletes the nation’s foreign reserves and jobs which would have been created for nigerians. Multiple designations to foreign airlines have robbed the local airline industry of millions of naira in monthly revenue.
“The Airline Operators of Nigeria’s position is that any foreign carrier should be restricted to only two points of entry in the country and explore interline options with domestic airline operators should it become necessary for expansion in order to protect capital flight and jobs of our ailing Nigerian youths,” Meggison said.
NCAA 5% ticket sales charge
Under the Niegrian civil aviation tax law, every airline is expected to deduct five per cent out of the money paid by a passenger for any particular ticket and return it to the Nigerian Civil Aviation Authority (NCAA).
Nigerian airline owners have been against this taxation meant to sustain the NCAA as a regulatory agency and insulate it from government funding and political interferences. The NCAA is also supposed to share part of this revenue with the Nigerian Meteorological Agency. But local the operators see it as double taxation considering that they are paying landing, and parking charges to the owners of the airports they fly into, as well as navigational charges to the Nigerian Airspace management Agency (NAMA).
“The AON has always contended that the imposition of a percentage tax model creates a distortion in the industry,” said Meggison.
“We have recommended and continue to recommend that the unit tax model preferred and practised by over 90% of countries globally and as recommended by IATA be adopted immediately. It is worthy of note that all the industry agencies including the NCAA Regulator are established as Not-For-Profit organizations, essentially designed for cost recovery.