AVIATION: BANKRUPTCY: HOW FG CAN BAIL OUT AILING DOMESTIC AIRLINES

Plagued by a myriad of problems that tend to stifle efforts at efficient service delivery to passengers, investors in Nigeria’s domestic airline industry have called for an urgent government bailout to save the industry from imminent collapse. The call comes as most of Nigeria’s domestic airlines are still under AMCON’s receivership, a trend that tells the story of an industry on the throes of bankruptcy.

 

 

Reasons for bankruptcy

High fuel cost; absence of a functional maintenance hangar; exorbitant insurance premium, a by-product of rising tales of air crashes and near-crashes; high interest rates by creditor banks; and the recent multiple designation of routes to foreign airlines under the existing BASA agreements between Nigeria and 88 foreign countries have all combined to render most domestic carriers unprofitable. Mandatory fleet maintenance and statutorily payment of staff remuneration have been greatly hampered. But in the last three months, the high cost and scarcity of aviation fuel (Jet A1) has wreacked the most havoc on the airline industry leading to several flight delays and even outright cancellations. Given the weight of the existing challenges, industry analysts foresee a situation where most of the domestic airlines would not be able to declare any meaningful profit for investors at the end of this year.
The call for bailout
In a release by the Chairman of the Airline Operators of Nigeria, Captain Nogie Meggison, the operators lamented that the industry had sunk into its worst form of financial state and that only a direct Federal Government financial bailout could salvage it from imminent collapse.
“We call on the Federal Government to, as a matter of urgency, come up with a strategy to bring all parties to the negotiating table, to seek for the first time, direct funding intervention to airlines to save the aviation sector from collapse, considering that without the airlines, there is no aviation,” lamented Meggison.
“Airlines in Nigeria are grossly over burdened by the numerous charges from government agencies, taxes, overheads, epileptic and exces­sively priced aviation fuel of N200 per litre, unavailability of foreign exchange that they have to grapple with on regular basis to meet repairs and maintenance costs, purchase of spare parts and ex­cessive bank loan interest of 26 per cent, as well as training of pilots and other technical per­sonnel abroad on regular basis.
“It is very sad to note that despite all the numerous burdens of Nigerian airlines, which leaves them virtually unable to make ends meet; airlines are still expected by the Federal Inland Revenue Service (FIRS) to pay taxes out of their losses, making the operating cost of operators more expensive in Nigeria than anywhere else.
Past failed bailouts
In the past, various palliative programmes designed to alleviate the plight of airlines had failed to yield any tangible dividend. Under President Goodluck Jonathan’s administration, attempts to buy and supply the airlines with new aircraft had failed to scale through. In the same way, about N200 billion was set aside as an aviation sector intervention fund, but sadly, domestic airlines have openly refuted claims it benefited from the fund just as the National Assembly has demanded a probe into how the monies were spent.
“I have to state unequivocally that domestic airlines in the country did not and have not received any form of funding from the Federal Government,”said Meggison.
Rather, what happened was that the funds released went to the banks in an effort to keep them afloat for bad debts owed them by airlines during the period of economic recession of 2011,” he added.
Immediate bailout options
Most stakeholders in Nigeria’s aviation sector would readily agree that what airline operators need as bailout in the ‘immediate term’ is not really the injection of fresh funds into their business or even the acquisition of new aircraft on low interest rates for them by the government. Rather, taking away some of the multiple taxation by regulatory agencies as well as the provision of requisite infrastructure and the steady supply of fuel would suffice –assisting them in the short term to stabilise, even faster that getting direct government funds.
“What most operators would appreciate in the form of a bailout would be for the Federal Government to order an immediate stop on the payment of Value Added Tax (VAT) on air transportation, because air transport is the only transport service being made to pay VAT in Nigeria,” an airline official told Daily Sun.
“That would ease their burden a lot. Road, rail and waterway transportation services are VAT exempt. The airlines also need uninterrupted fuel supply; that would be a great bailout if the government can work with marketers to achieve that as fuel accounts for more than 40 per cent of cost of operation for the airlines,” he added.
Another form of bailout the airlines would welcome would be for the Federal Airport Authority of Nigeria (FAAN), Bi-Courtney Aviation, NCAA and other government agencies to immediately review downwards their landing, parking and other charges because the airlines consider such charges as rather arbitrary, especially when compared to other economies.
According to analyst, Captain Dele Ore, who is also a former President of the Aviation Round Table, “given the critical role played by airlines in the socio-economy upkeep of the country, airlines must be made to enjoy some fiscal ease in fleet acquisition and maintenance programme under a legislative process worked out by regulatory agency, the Nigerian Civil Aviation Authority (NCAA) and the National Assembly, just as the government should halt the multiple routs designated to foreign airlines in the country.”
According to Nigerian pilots, the best form of bailout for the domestic airline industry was for the government to legislate the mergers of the airlines.
“The Federal Ministry of Aviation should foster an arrangement through incentives that will bring about mergers of airlines, culminating in the emergence of one or two mega-carriers which can become global players,” said Balami Isaac David, President, National Association of Aircraft Pilots and Engineers (NAAPE).
“The government could through the Bank of Industry (BoI) adopt a carrot and stick method. The carrot could be offering soft loans to merger carriers that achieve a certain level of capitalisation while the stick would be withdrawing or suspend the Air Operator Certificate (AOC) of airlines that fail to meet prescribed capitalisation after a given time, or restrict them to particular hubs only,” David added.