Nigeria’s aviation crisis

An economic recession and a shortage of foreign exchange is having a significant impact on the operations of local and foreign airlines in Nigeria. CNBC Africa’s Onyi Sunday spoke to Pekun Sowole, Aviation Lawyer and John Oladipo Ojikutu, Aviation Security Consultant

OJIKUTU: The whole system is actually gasping for breath. This problem was seen, it is not something that started today. It cuts across all the airlines. The problem actually started in 2008 and it is multifaceted. The main problem with Nigeria’s civil aviation sector is about debt; mismanagement of public and private fund in the sector. The second problem is the lack of adequate regulations of the sector by the responsible authorities, which is the government. The third aspect is political interference of both the public and private sectors.

Political interference in the sense that we have some politically exposed individuals whether they are in government or they are outside the government that are manipulating the system. Now, let us talk about the issue of debt. It started in 2008 when most airlines were owing the public sectors who were providing safety services for them i.e. FAAN, NAMAA, foreign marketers and because the debt was huge, they had to approach the minister who then decided to pay their debts for four years. He had barely started paying their debts before he was removed. Then they started anther move of approaching the president for intervention and at the time they were approaching the president, the ministry had no knowledge. Two hundred billion was eventually given to the private operators to settle their debts and not to re-fleet their aircrafts and for those of us outside, this did not make sense. Unfortunately for them, the government that provided that money for them is no longer in seat and that is why some of these issues are coming up now.

Captain Ojikutu, I am worried hearing these figures, talking about the huge debt in this sector and the government coming to bail them out. Isn’t the aviation sector a lucrative sector? Are they not making money?

OJIKUTU: They are making money and if anybody says otherwise, it is a lie. Two weeks ago, I mentioned the fact that they all need to be audited before the government can begin to give them concession of foreign exchange. There is a lot of foreign exchange earnings in the sector, Let us know how much they are earning so we can be able to know if you really need help from the central bank.

Pekun, what do you make of all this?
SOWOLE: I would disagree to an extent. I think the sector is not that profit-making. The margins are very low and the only airlines that can survive are those who have a good mix of the oil sector contracts, these are dollar contracts. A lot of them don’t have and you’ll find out if you look at some of the airlines which got the government funds and have gone under like the IRS airlines, were purely domestic and did not have that mix to survive. Of course I will agree that the owners did not manage the airlines well but the question is what really happened to the funds that were provided to these airlines by the government? They need to have a forensic audit to trace where these funds went to because at the end of that audit, it might be revealed that most of the funds fleeted away.

Before we begin to call for an audit for funds they received, I will like you to explain to me how Nigeria’s aviation sector isn’t making money.
SOWOLE: If you look at the sector now, you will find that their fares are totally unrealistic. The average one hour flight in Nigeria now is about twenty-six thousand naira and twenty-six thousand naira is roughly about sixty-five dollars, going by 400naira/USD. Now, if you go by four or five years ago, the airlines charged about fifteen thousand naira and the dollar rate was at 150naira/USD so, on the average, it is 100USD per one hour flight so when you are charging fifty dollars, you know there’s no way that airline is going to be able to maintain its fleet and pay the salaries because the major component of their operation is in dollars. The spares, the equipment, and most of what they do is in dollars, which includes sending their aircrafts for sea checks.

So if you’re earning about fifty dollars, when the average flight should be about one hundred and fifty dollars, there is a major problem. Also, you look at the charges by the aviation parastatals in Nigeria. I think they are unreasonable, they need to come down. Most of those parastatals are over bloated and the staff strength, unbelievable. That’s why there is this clamour to almost kill the airlines. If you did an analysis and compared for instance, the staff in FAAN and the staff in FAA, Vis-à-vis the number of aircraft we have operating in Nigeria, It will shock everyone.