Foreign airlines to reduce operations over forex policy
Operators’ trapped funds hit N160b
Some foreign airlines operating in the country are considering gradual withdrawal of operations from Nigerian routes over inability to fully repatriate funds that are stuck in the economy.
The funds, being proceeds of ticket sales, have again accumulated to $400 million (N160 billion) as at November, after the airlines repatriated $300 million between June and September 19, 2016.
Part of the worry, The Guardian learnt, is the alleged unfavourable policy of the Central Bank of Nigeria (CBN), which mandated the airlines to sell tickets at the rate of N308 to $1, but to have them repatriated at N386 to $1.
Efforts to get the CBN to react to the claims failed. Several calls and text messages to the Acting Director of Communication, Isaac Okorafor, were replied with “I’m in a meeting”. As at press time yesterday, the CBN was yet to react.
Sources told The Guardian yesterday that some of the airlines might, therefore, begin to quit routes like Abuja, Port Harcourt and Kano “to cut losses on account of stranded funds and unfavourable foreign exchange policy of the CBN.”
“Most airlines do not want to leave Lagos as long as Nigeria is one of their destinations. But other routes, given their already low passenger traffic, can be scaled down to prevent further losses for the airlines. The airlines are running at a loss and that is the problem,” the source said.
It was learnt that the Turkish Airline has withdrawn from Mallam Aminu Kano International Airport, Kano. The airline followed the path of Emirates and Kenyean Airways that both closed down their Abuja offices in September.
The implication is that Nigerians outside Lagos will have greater difficulty and also spend more to connect international flights.
Regional Manager of one of the African airlines, who would not want his name to be mentioned because of possible sanctions from concerned authorities, said the withdrawal from some routes was due to losses the airlines were incurring in Nigeria, despite the slow pace of repatriation.
The manager observed that prior to the forex market reopening after CBN introduced the flexible policy in June this year, airlines were selling tickets between N165 to N200 per dollar. Following the new policy, airlines could only repatriate at N285, which means 40 per cent loss in revenue.
He said: “As at today, we are selling tickets at N306/ 308, while the parallel market is N474. But when we want to exchange from naira to dollar, we still cannot get it at N306 that we sold tickets. We are still buying from CBN at N330/ N350. Why the imbalance?
“We would have preferred it to float, that is, if the market rate is N400, then we sell at N400. That is what the market entails and the CBN should make it dynamic. Right now, what they are telling us is that they don’t care, more so, we are not their priority. The loss is pinching us and putting the business at risk,” the source said.
The General Manager of British Airways, Kola Olayinka added that getting forex to repatriate funds remained one of the main challenges that forced the aviation sector “on its kneels, either praying or falling.”
Olayinka said that in the interest of all parties concerned, the government should make forex available to the airline operators, “who should not be begging for it in the first place.”
The local office of the International Air Transport Association (IATA), the central clearing house of 260 airlines around the world, confirmed the rather slow process and dissatisfaction of the airlines in repatriating funds from Nigeria.
Prior to the CBN’s introduction of flexible foreign exchange policy in June, the airlines had over $600million stuck in the economy with IATA negotiating for its release to the airlines.
IATA Lagos office yesterday confirmed to The Guardian that $300million was approved by the CBN in June, in the first forex intervention given to the airlines. The second intervention had another $300milion bill submitted on October 17, but only $69million was approved by the CBN.
However, since October 17 when the last bill was presented, the stuck funds have again risen to over $400 million, as the foreign airlines in total make about N100 million in ticket sales daily.
An official said: “The issue is more of propaganda than actually repatriation on the part of the government. If airlines were actually repatriating their funds, the stuck funds would have been at zero by now.
“Truth is that some airlines, like EgyptAir have still not received anything. Some airlines were selected and they were given. Since then, more money is till there and has piled up despite losing revenue.
“No airline will come and add any frequency in this kind of system that does not allow them to get dollar, even where they do, it is at a colossal loss. We have made it known to the minister that the system is not working. No airline makes profit of 40 per cent. Where they are losing 40 per cent in revenue, then there is a big problem. That is why they are groaning, but nobody seems to care.
“Airlines will continue to move out from some routes. They cannot continue to run at a loss. If it continues like this, most of these airlines will close shop totally. This is business,” the official said.