Nigerian airlines have identified their inability to acquire aircraft as one of the challenging factors eroding their success and profitability.
Outright purchase of aircraft is difficult because of the huge funds involved and the banks are not willing to give them long-term loans at single digit interest. The federal government is yet to direct the Bank of Industries (BoI) to create asset capitalization department for the acquisition of high end mobile assets like aircraft and ships at very low interest rate.
So, the airlines are left with aircraft leasing; but even in that they face another hiccup: lessors and aircraft manufacturers are not willing to lease aircraft to the Nigerian airlines on long term, known as dry lease. Their reason is that in the past some Nigerian carriers, which have become defunct, acquired aircraft on long-term lease but did not keep to the tenets of the agreement terms. Some of them went to court to contest the recovery of the aircraft by the lessors. Some of them seized the aircraft and kept them in Nigeria longer than the period agreed.
This unsavoury situation prompted lessors to have tacit agreement that they won’t lease aircraft to Nigerian carriers on long term. There are three main types of leases: wet lease, damp lease and dry lease. Wet lease is normally used for short term, damp lease is a wet lease with partial crew and dry lease is lease arrangement where the airline gets the aircraft on long term, register it and operate it with its own full crew.
Wet lease and damp lease are very costly because they come with crew, where the lessor maintain the aircraft and insure the aircraft and numerous charges and costs paid in foreign exchange. The situation is exacerbated by the fact that Nigeria is designated as high countryrisk; so, the cost of everything is almost doubled. There are views, however, that lessors so designated the country to ensure a continuous rip of domestic airlines. This is because in the past 10 years nothing unusual in the area of safety or security that could justify such designation. Some industry stakeholders see it as stereotyping, just believing that Nigeria has high country risk.
Fielding questions on the sideline of Air Peace Lagos-London inaugural ceremony last week, the Chairman of United Nigeria Airlines and spokesman of Airline Operators of Nigeria (AON), Professor Obiora Okonkwo, said current airlines would not continue to suffer the sins of old airlines.
Okonkwo commended the Minister of Aviation and Aerospace Development, Festus Keyamo for the efforts he is making to rescind the country risk stigmatization and allow Nigerian carriers to lease aircraft on long term. He also noted that the Federal Government could use policy to also protect Nigerian carriers in the area of aircraft leasing.
“We are happy that the Minister has agreed with us that there is a problem in that area, which is access to equipment and others, but I can tell you that it is just the policy that needs to be done. It is the business of the operators to go and source aircraft, but there are areas in terms of policy that need to be touched. That is what we want the Minister to focus on. I do not see any reason modern day operator should suffer the sins of the old-time operators because any lessor will tell you that there had been some violations in the past, but today, we are not violating any lease agreement. Rather, they are the ones that are violating us. So, this is very critical. And also policy wise, there must be a window for foreign exchange because when you need aircraft, there are specific days of demand, you must be able to pay what is accruable,” Okonkwo said.
In other words, he is suggesting that government should have a policy that will enable airlines to source forex easier to pay the lessors whenever the lease payment is due; so that they will not default; noting that striving to source forex in the open, parallel market could cause delays and make the airline default in time scheduled for payment.
“Also, policy-wise, there must be a window for foreign exchange because when you lease an aircraft, there are specific days of the month you must be able to pay what is accruable, but if you are left alone as an airline to be scampering for foreign exchange in the open market, like any other importer, you will probably miss the deadline.
“So, if we sign our lease agreement, let’s submit it to the CBN through our banks and let them guarantee it. As long as it is guaranteed, it is about money. There are aircraft all over the world, it is not our business to buy aircraft. The biggest operators do not buy aircraft because the presence of that amount of money in your balance sheet, does not make your feasibility study bankable. So, that is why people prefer to lease.
“Even, if you look at the bigger carriers, they have a leasing company that is separate from the operating company. You can imagine if you have hundreds of millions of dollars in your balance sheet and then, you are just turning in few millions on a monthly basis, you will not look for any lender,” he said.
He also called on the government to look at aircraft insurance, which he said has exploitative premium.
“Also, our insurance too has to be looked into. We are paying so much premium. The risk is very high. So, we think that the Minister having identified the challenges, let him work closely with the airlines to look at the policies that will work from the angle of NCAA. More importantly, the government of the day through the CBN, Minister of Finance, looking at certain policies that would work,”, Okonkwo further said.
On aircraft maintenance facility, Maintenance, Repair and Overhaul (MRO), he said: “Talking about MRO, airlines can put up their own MRO here. United Nigeria is working on its own MRO. Look at a situation where you have an MRO, which will serve you and other operators, there, you will only order spare parts from foreign countries. The CBN is asking for certification for engine of aircraft importation. This is not going to work. These are policy issues. We are ready to sit down with the policymakers to see how these things will work.”
