These are troubling times for airlines. Almost forced on their knees by rising cost of aviation fuel and difficulty in repatriating foreign airlines’ $464 million, the challenge of sourcing foreign exchange (forex) to buy spares and pay for repairs, has added to the industry’s problems. Experts and stakeholders say that unless the Federal Government takes urgent steps to resolve these issues, the negative consequences will not bode well for the beleaguered industry. Aviation Correspondent KELVIN OSA-OKUNBOR reports.
For operators in the air transport and allied sectors, these are challenging times. While many of them are still struggling to come to terms with the skyrocketing cost of aviation fuel, otherwise known as JET AI, which hit about N1, 000 per litre, last week, the window for accessing Foreign Exchange (forex) from the Central Bank of Nigeria (CBN) is getting narrower, thereby adding to their list of woes.
With the increasing difficulty in accessing forex from the CBN’s official window, there are fears that airline operators may be in for more troubles in the coming weeks and months, unless urgent steps are taken to resolve the impasse.
The fear is that if the forex crisis persists, more local carriers may be forced to shut, this could force them to secure it at a higher cost at the parallel market, with its attendant unsavoury effects on their operations, including lay off of workers and possibly, shut operations.
Already, with the increasing cost of operations that the crisis has triggered, local carriers are said to be finding it extremely difficult to procure forex to either purchase spares for aircraft, which have developed faults, otherwise known as Aircraft on Ground (AOG), or payment for repairs of aircraft in offshore locations.
Investigations by The Nation revealed that many airplanes on the fleet of local carriers are on the waiting list for routine maintenance, but lack forex to purchase spares and meet obligations. Forex crisis was cited as part of the reasons why one of the oldest indigenous carriers – Aero Contractors – temporarily suspended scheduled operations, recently.
Indeed, in the last few months, the Umbrella body of local carriers – Airline Operators of Nigeria (AON) – has been lamenting the scarcity of forex, noting that it was one of the major challenges facing the business.
AON spokesman Prof. Obiora Okonkwo said: “Airlines carry out most of their activities in the United States dollars which today, sells for over N700/$1; and is sadly also, in short supply. To say the least, airlines are in a ‘life and death’ struggle to secure the forex that is urgently needed to acquire spare parts to ensure the regular routine and scheduled maintenance of aircraft.”
According to Okonkwo, access to forex is a major influence on howc quickly a grounded aircraft can be fixed and restored for flight operations, which impacts greatly on the reliability of schedules, growth of the industry, as well as economic growth and sustainability.
However, forex crisis is only an addition to the list of woes of operators in the nation’s aviation industry. For instance, the over 27 foreign carriers operating into Nigeria are groaning over difficult in repatriating over $464 million trapped in the country.
Expectedly, the development has since drawn flaks from international aviation organisations, including the International Air Transport Association (IATA), which last week, berated Nigeria for what it termed an ‘undiplomatic conduct.’
IATA a few months ago listed Nigeria among some African countries, which are holding on to revenues accruing from ticket sales by foreign carriers operating in their countries.
It’s Director-General/Chief Executive Officer, Mr. Willie Walsh, at its conference on Doha, berated African countries, including Nigeria for taking steps to undermine the growth of air transport on the continent by withholding airline funds. He said carriers operating in the continent have over $1 billion trapped.
“We are looking at ways to get these funds out. It is really having an impact on the airlines and the recovery of the market as well because airlines will be reluctant to bring capacity into markets where they can’t repatriate their money.
“It affects national growth and additional capacity. If you can’t get your money out, I am sorry, it is a simple business decision, and you are not going to give additional capacity to the market.
“Airlines are looking to recover their money and they are not going to put their funds into markets that they have no confidence in. I think this is a significant factor against recovery in the continent.
“It is unfortunate because it would affect the consumers, they are not going to get the choice, they are not going to get the competition and they would not be able to get the choice that they have been getting if the funds were not blocked. They are big issues, really big issues,” Walsh fumed.
Already, one of the affected airlines – Emirates- said it will suspend flights into Nigeria effective September 1, 2022, citing ongoing difficulties in repatriating trapped funds in Nigeria amounting to $95 million by the Central Bank of Nigeria.
In a statement, Emirates Airlines said: “Emirates has tried every avenue to address our ongoing challenges in repatriating funds from Nigeria, and we have made considerable efforts to initiate dialogue with the relevant authorities for their urgent intervention to help find a viable solution.
“Regrettably, there has been no progress. Therefore, Emirates has taken the difficult decision to suspend all flights to and from
“Nigeria, effective September 1, to limit further losses and impact on our operational costs that continue to accumulate in the market.
“We sincerely regret the inconvenience caused to our customers.
“However, the circumstances are beyond our control at this stage. We will be working to help impacted customers make alternative travel arrangements wherever possible.
“Should there be any positive developments in the coming days regarding Emirates’ blocked funds in Nigeria, we will of course re-evaluate our decision. We remain keen to serve Nigeria, and our operations provide much needed connectivity for Nigerian travelers, providing access to trade and tourism opportunities to Dubai, and to our broader network of over 130 destinations.”
Apparently throwing his weight behind Emirates’ decision, IATA Regional Vice President for Africa and Middle East, Kamil Alawadhiit, berated the Nigerian Government for withholding $$64 million funds belonging to foreign carriers, pointing out that such unfair practice prompted Emirates Airlines to stop flying into Nigeria effective September 1, 2022.
“IATA is disappointed that the amount of airline money blocked from repatriation by the Nigerian Government grew to $464 million in July.
This is airline money and its repatriation is protected by international agreements in which Nigeria participates.
“IATA’s many warnings that failure to restore timely repatriation will hurt Nigeria with reduced air connectivity are proving true with the withdrawal of Emirates from the market. Airlines cannot be expected to fly if they cannot realize the revenue from ticket sales.
“Loss of air connectivity harms the local economy, hurts investor confidence, impacts jobs and peoples livelihoods. It’s time for the Government of Nigeria to prioritise the release of airline funds before more damage is done,” Alawadhiit said, in a statement.
Last week, Aviation industry safety watchdog and think tank group – Aviation Round Table Safety Initiative (ASRTI), also expressed dismay over the appalling handling of accumulated foreign airline funds trapped in the CBN. It also described as unacceptable the non-allocation of forex to the affected carriers.
The ASRTI berated the Nigerian Government for violating extant articles in all bilateral air services agreements it signed with
other countries, which expressly requires Nigeria to facilitate transfer of earnings to foreign carriers.
In a statement last Friday, ASRTI spokesman, Mr. Olumide Ohunayo, said the Federal Government is under obligation to allow designated carriers the right to convert and remit to its country on demand, local revenues in excess of the sum locally disbursed.
According to Ohunayo, the refusal of the government to allow foreign carriers repatriate their trapped funds is already serving as a disincentive to investors in the aviation sector.
“In all Bilateral Air Services Agreement (BASA), an Article in the agreement — transfer of earnings, clearly states that each designated airline shall have the right to convert and remit to its country on demand, local revenue in excess of sums locally disbursed. Conversion and remittance shall be permitted without delay in accordance with the prevailing foreign exchange regulations.
“International trade is bound by agreements which are sacrosanct and respected. Nigeria cannot do otherwise if we crave the attention of investors in our industry.
It’s important to state that foreign airlines sold these tickets at the official IATA rate and cannot be expected to go to the parallel market to source, convert and remit as opined in some quarters. “The CBN should do the needful as enshrined in the BASA agreements.
These funds should have been remitted at the official rate on date of sale immediately the Airlines get clearance after paying the local obligations, including taxes.
“The damage that our action has done to the Nigerian image as an investment friendly nation is far reaching, while the citizenry is faced with high fares, reduced capacity and limited travelling options, which will worsen if we continue on this trajectory.
In the light of the forgoing, the Chairman of Finchglow Holdings, Mr.Bankole Bernard, said palpable anxiety has gripped foreign carriers operating flights into Nigeria over fears of naira devaluation by the Federal Government.
He said if the currency devaluation sees the light of day, the over $464 million ticket revenues belonging to foreign airlines could lose significant value.
The Nation learnt that the inability of the affected carriers to repatriate their funds has forced some to cut flight frequency into the country, raise air fares arbitrarily as well as implement other measures.
Two carriers namely, Emirates and British Airways recently announced plans to cut flights into the country. Bernard confirmed the development when he said the agitation by the foreign carriers was fueled by mistrust with the Federal Government.
He said though the issue of trapped funds was not new, its effect on air travel in Nigeria was forcing passengers to cough up more funds to purchase tickets for overseas trips.
Bernarnd said: “This is not the first time that we are facing the issue of trapped funds. This also happened, I think in 2016 when the total trapped fund of the airlines was far higher than whatever we have now.’’
“It was about $750 million then and they were making a particular comparison because at that time, Venezuela was also going through the same challenges and they owed a lot more to the extent that Lufthansa had to stop flying to Venezuela.
“Then, some of the things we noticed were reduced capacity, air tickets became more expensive and that is exactly what we are seeing now.
“But, one critical reason they are more agitated is that in 2016 after their money was held back without being repatriated, Nigeria devalued its currency and as a business person, they felt that if they had taken their money out, they would not have been affected by the devaluation.”
Bernarnd said foreign airlines are now nursing the fear that if the currency is devalued, it means that they would have lost several percent of that money they intend to repatriate.
“The only way we can reduce or stop this agitation is that there should be a communiqué from the government, which will give them some assurances that the country is not planning to devalue and this won’t affect them and that they will repatriate their money as it were,” he suggested.
The President of National Association of Nigeria Travel Agencies (NANTA) Mrs. Susan Akporiaye, appealed to the CBN to take urgent steps to resolve the trapped funds belonging to foreign airlines operating in the country.
She said the issue, if not properly handled, could wane the confidence of investors into the aviation sector. She said the current situation presents a real threat to the industry and the continuity of their business as travel professionals, bearing in mind the potential jobs losses and the attendant national economic losses as the world is gradually coming out of the pandemic era.
Akporiaye said NANTA was worried that foreign airlines may resort to taking out lower inventory in the system resulting in high cost of tickets from the Nigerian market. She stated, for instance, that a six hour trip to London may attract a fare rate of about $2000 or more and also encourage tickets sold outside the country to flood Nigeria, thus affecting the survival of Nigerian travel agents and consequent loss of taxes and levies from such transactions.
The NANTA boss said if the matter is not handled quickly, a bleak future worse than the pandemic awaits Nigeria travel operators.
“As Nigerians, we are patriotic and have presented our country well in the global travel industry and rightly felt disturbed that Nigeria is
on the brink of a wrong narrative at the just concluded 78th Annual General meeting of IATA in Doha, Qatar on the account of airlines’
trapped funds.
“We are by this outing once again, appealing to the CBN, the Ministry of Aviation and the office of the Vice President to speedily
intervene to bring down the amount of trapped funds to help resolve the operations of these airlines,” she said.