Economic uncertainty propelled by rising costs, shifting regulatory policies, difficulty in accessing rising foreign exchange and other market forces in the air travel ecosystem is threatening the birth of new local carriers.
Many would be airline owners, who have filed applications for either processing of their Air Transport License (ATL) or Air Operators’Certificate (AOC), with the Ministry of Aviation and Aerospace Development and the Nigerian Civil Aviation Authority (NCAA) are applying the brakes to watch the unfolding economic situation before they decide the next step.
Their worry: rising exchange rate with the dollar exchanging in excess of over $1 to over N1,500, is changing their calculation in the projected sum for aircraft acquisition.
Besides the lopsidedness in the exchange rate, the regulatory policy in a minimum of six aircraft for a start up carrier as put out by the NCAA, is also a huge cause of concern for such investors.
Investigations by The Nation show that some applicants that have attained some levels in their five-stage certification, before they are awarded a certificate of airworthiness to carry out scheduled flights are returning to the strategy board to rethink their business model.
An operator, who pleaded not to be named, said the uncertainties in the air travel space where operating costs are spiralling arbitrarily does not bode well for a potential investor.
He cited the oscillating price in the cost of aviation fuel, which sells at N1,300 per litre, ground handling firms’ plan to raise their charges by over 400 per cent, and other developments as a disincentive to go into aviation business.
Besides the fledgling investors, some airlines, which suspended operations a few years ago, hoping to return to flight operations, were weighing the options because of the stringent conditions attached to renewing of their Air Operators’ Certficate.
A source hinted that the new NCAA policy pegging the minimum aircraft in the fleet of an airline at six, has put a spanner into such works.
Chairman of the new carrier Bellagio Airline Limited, Dr. Oludare Akande said the regulatory agency, through its policies, could make the operating environment less difficult for carriers to survive.
The operator said the aviation business is laced with risks and uncertainties.
He faulted the six – aircraft in a fleet model proposed by the NCAA,arguing that such a prescription suggests a barrier to new entrants.
He said if Nigerian investors cannot scale the hard conditions given aircraft lessors due to the labelling of a high risk country for aircraft leasing, how will they raise the huge sums required to buy an airplane.
Investigations by The Nation reveal that if the NCAA makes good its plans to implement the six aircraft fleet policy, many existing operators may be out of business, as the high cost of offshore maintenance of their aircraft is already depleting their fleet.
With wet leasing off the way, some of the carriers may not have the financial muscle to acquire an aircraft for $10million per piece.
With over $60 million required to acquire six aircraft some of the carriers may be charting their exit from the air travel pace.
Speaking in an interview at the weekend, spokesperson of the umbrella body of indigenous carriers : Airline Operators of Nigeria (AON), Prof. Obiora Okonkwo declared that its members were facing existential threat ranging from scarcity of Forex, and the difficulty in acquiring aircraft due to country risk.
Besides these challenges, he said aircraft that are due for maintenance have been grounded and cannot be ferried overseas because of the scarcity of Forex.
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He said there is continuous depletion of airplanes in their fleet without replenishment, warning that if this continues the country may not have operating aircraft for domestic services.
Okonkwo said airlines need urgent Federal Government intervention without which many carriers would go under with the government becoming the undertaker.
He pointed out that lack of stability in foreign exchange and the soaring price of aviation have eroded their ability to plan and has created uncertainty in airlines business.
“We are making losses on factors that are beyond our control. We are not only faced with the problem of scarcity of dollars; even the aviation ecosystem is feeling the heat. Handling companies have increased the cost of their services, airports have increased their charges and those that service the aircraft have also increased the cost of their services. The monies for these payments are coming from the passengers who are already exhausted financially,” he said.
“It is impossible to bring in more aircraft. Aircraft owners have become skeptical because of country risk. A Nigerian airline may meet their terms, all the standard criteria but the aircraft owners consider country risk above other factors. Country risk supersedes everything and lessors have their own obligations. There is nothing personal. Some airlines deposited money with the Central Bank of Nigeria (CBN) but they cannot provide us the needed dollars,” Okonkwo said.
He also noted that there are fixed costs which airlines must pay whether they fly empty or with passengers, lamenting that even if an airline borrows money to support the current downturn, the interest rate is still at 26 per cent, reiterating that airlines need special allocation of dollars for them to survive because airlines need dollars to buy aircraft, maintain their fleet and order spares.
