By Chinelo Obogo
On June 15, the Airline Operators of Nigeria (AON) raised the alarm that due to forex scarcity and cost of aviation fuel which sells for up to N800 in some airports, that at least three domestic airlines may shut down in the coming months.
This warning was given at the maiden edition of the Federal Airports Authority of Nigeria (FAAN) National Aviation Conference (FNAC) with the theme: ‘Advancing the Frontiers of Possibilities for Safe, Secure and Profitable Air Transport’, in Abuja by the Vice Chairman of AON, Mr. Allen Onyema. He warned that if the present challenge of aviation fuel was not nipped in the bud, more airlines may shut down operations in the coming months.
The AON Vice Chairman who refused to name the airlines said that the aviation fuel challenge is not limited to Nigeria alone, but emphasised that here it is made worse by the slump of tyhe naira against major currencies, especially the dollar. In order to address the challenge, AON said the Federal Government approved 10,000 metric tonnes of aviation fuel to the airlines, but said the carriers were yet to access it. Onyema explained that the airlines hoped to start lifting the 10,000 metric tonnes of aviation fuel soon.
Airlines demand 25 to 40 percent surcharge
On July 18, the AON, wrote to the Nigerian Civil Aviation Authority (NCAA), seeking approval to introduce fuel surcharge of between 25 per cent and 40 per cent. At the moment, the minimum cost of flight tickets for economy seats is N50, 000 and an increase in fuel surcharge to between 25 and 40 percent will cause an increase in fare to a minimum of N65, 000 for economy seats. The association also called for the removal of 5 percent fuel surcharge by the NCAA and review the decision that airlines should obtain approval for an initial three months before implementation of a fuel surcharge.
In a letter to the director general, NCAA, Captain Musa Nuhu, dated July 18, 2022 and signed by its President, Abdumunaf Sarina, the association said the proposal to introduce fuel surcharge is to cushion the effect of the situation. The association is also asking that taxes should be based on the fare due to airlines adding that fuel surcharge should be exempted from Ticket Sales Charge (TSC).
Onyema’s warning during the FAAN conference in June that three airlines may shut down confirmed Saturday Sun’s report in April, about how airlines like Aero Contractors and Arik, especially the former, were struggling to stay afloat. We reported that Aero was having cash flow problems and may shut down if the situation does not improve.
Among other factors, the situation was exacerbated after the airline received two Airbus A320 aircraft on lease last year to help expand its capacity. However, reliable sources told Saturday Sun that the financier who facilitated the lease withdrew it and leased it to Arik following Aero’s inability to continue payment on schedule. The source within the airline said that one of the reasons why Aero was unable to continue paying for the aircraft is due to the slump in passenger traffic and the high cost of aviation fuel which had increased its operation costs.
Aero Contractors goes bankrupt
After over 61 years of flight operations, Aero Contractors, which is 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 was shutting down its operations due to the impact of the challenging operating environment on its daily operations.
The airline said it would temporarily suspend its scheduled passenger services operations with effect from Wednesday, July 20, 2022 but that the development would not affect the maintenance activities of the Approved Maintenance Organisation (AMO) otherwise known as AeroMRO, the Approved Training Organisation (ATO) also known as Aero Training School, the Helicopter and Charter Services operations.
At the time Saturday Sun did the report in April, the airline had only two 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 its planes in the air.
In 2016, AMCON took over the receivership of Aero Contractors. Capt. Ado Sanusi was appointed the Managing Director in February 2017, but the airline was then at the brink of bankruptcy. 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 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, thereby increasing its fleet to three. The passenger traffic increased to over 70 per cent from 40 per cent 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 that it was not able to renew its fleet as the airline’s survival depends on it.
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 go to 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 seems not 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. To resolve the issue, the committee headed by Nnolim Nnaji summoned AMCON, the Receiver Manager, heads of aviation agencies and the unions and at the meeting, Omokhide claimed that Arik’s debt owed to the agencies and other creditors would likely be classified as bad debts.
But the unions rejected his proposition, insisting that the majority of the debts owed the agencies were statutory taxes which include ticket sales task, (TST) and passenger service charge, (PSC) which Arik collected on behalf of the agencies from travellers. At the moment, Arik is not yet above the water and its debt profile has not lessened and there are calls for the airline to be liquidated in order for its creditors to be repaid and the opinion of observers is that AMCON seems helpless because it doesn’t not have the expertise to manage airlines.
NCAA suspends Dana Air’s operations
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/litre, unavailability of forex and 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.
Experts speak on way forward
An aviation expert, John Ojikutu, who spoke to Saturday Sun on the way forward for the airlines, said AMCON has no experience in commercial airlines management and therefore cannot get the experience from airlines like Arik or Aero that just changed its foreign technical management to inexperienced Nigeria Board management.
He said the idea is not only to collect debts but applying the necessary and deserved corporate aviation management. He insisted that most of these new airlines do not have the business plans needed in commercial aviation, rather they all are recycling the business plans of past and defunct airlines with different fleet.
“Right from the day Arik was taken over by AMCON, it was obvious from the record of its balance that it will not take less than 30 years for the new management of the airline to liquidate its debt of N300bn if it makes net profit of N10bn annually. I suggested at the time of the taking over that both local and foreign debts of the two airlines be assessed; invite foreign and local investors and technical partners willing to take over and let them pay initial offer to settle the airlines debts before any consideration for their designation as flag carriers.
“The fall of Aero Contractors was not surprising to me because it happened not too long after the British technical partners disengaged itself from the country. I remember saying in my book that the airline would not last longer than five years after the departure of the technical partners. Two years after the departure of the technical partners it went for government intervention funds.
“Similarly, Arik that was less than four years in operations went for same intervention funds so also did Air Nigeria that collapsed within a year after the collection. All these gives one the impression that the funds were not meant for the operations of the airlines but for a different purpose; otherwise why would all these airlines that collected the funds nose dive at the same time and have no signs of recovering; Aero, Arik, Air Nigeria, Chachangi, etc,” he said.
Also, the president of the Aviation Safety Round Table Initiative (ASRTI) Dr. Gabriel Olowo advised airlines to sell what they buy following the galloping prices of Jet A1.
Olowo advised that given all the uncontrollable circumstances within the aviation set up, airlines should factor in their extra costs.
He said: “This is my candid opinion to airlines, given these uncontrollable factors of production in the airline industry sector. Demand will definitely drop but much better than cut corners and plan an accident.
“If a trip fuel is 4000litres for a one hour trip, for example at N800 per litre which gives N3,200,000 and a load factor of 100 passengers, it means fuel cost per passenger is N32.000 and this is approximately 30 per cent of total cost. This will translate to N107.000 tariff for one way journey QED. PHCN has introduced Premium Tariff on power and those who can afford it are settling for it. This is not the time for frivolous and reckless competition nor uneconomic patriotism. Operators should intensify cooperation, collaboration, consolidation, prune schedules to minimise perishable seats and maximise load factor. The spirit of Spring Alliance must be strengthened. The sector must not negotiate an accident. NCAA is encouraged to be more vigilant to watch cutting corners.”