Concern over safety as Nigerian airlines face crippling debts
31 January 2011
Aviation experts have raised concerns over the safety of airlines operating in the country as their operations are threatened by crippling debts.
They fear that the huge debt overhang may force airlines to cut corners in the area of maintenance and other flight operations, adding that they may never get out of their present predicament unless there is a far-reaching intervention."How would airlines concentrate on their operations when they are daily faced with threats to ground them over huge debts? And what is an airline that cannot pay or service its debt still doing in the business?" a concerned stakeholder asked.
Sixteen domestic airlines, both active and non active, are reeling under the burden of over N25 billion debt owed various aviation agencies. They also owe local banks and spare parts suppliers billions of naira and millions of dollars.
Aero, Afrijet and IRS were embroiled in crises with their financiers. Aero is currently servicing a $200 million aircraft financing facility with Oceanic Bank. It was nearly grounded on account of its indebtedness to Oceanic Bank before the intervention of Aviation Minister, Fidelia Njeze, Nigerian Civil Aviation Authority (NCAA) director general, Harold Demuren, and former National Security Adviser, Aliyu Gusau, who prevailed upon Oceanic to soft-pedal on the issue.
First Bank and Union Bank were locked in a struggle over the survival of IRS Airlines. While First Bank put up the airline for winding up, Union Bank placed a caveat emptor against it, saying its investment in the airline was at stake.
Aviation experts said the airlines could be forced to cut corners to meet the debt obligations and, in the process, compromise on safety.
BusinessDay gathered that the airlines are indebted to the Nigerian Airspace Management Agency (NAMA) and the Federal Airports Authority of Nigeria (FAAN) respectively to the tune of N10 billion and N14 billion. The aviation minister granted them a concession to spread the payment over a period of 36 months, but were to pay for other receipts as and when due. Some of the airlines not only reneged on the payment of previous debts, they also did not pay for current receipts.
In addition, the airlines owe the Nigerian Civil Aviation Authority (NCAA) – the sector regulator - N4 billion, being the five percent ticket sales charge (TSC) due it.
Active domestic airlines in the country are Chanchangi, Caverton Helicopters, IRS, Allied Air, Dana Air, Aero Contractors, Air Nigeria, Wings Aviation, Bristow Helicopters, Arik Air, Associated Aviation and Overland Airways. Afrijet, Capital and Bellview have closed shop as a result of debt and poor management.
To compound the woes of the already troubled airlines, the Presidency has directed that henceforth, before services are rendered to the airlines, the aviation agencies must deduct their payment at source; from the airlines' accounts which should be domiciled with the Central Bank of Nigeria.
In late January, the FAAN withdrew its services from some airlines and has stopped them from operating their flights until they pay their debts.
Besides the aviation agencies, airlines are also heavily indebted to aviation fuel marketers, who have just introduced the 'pay as you go' system to avoid further debt accumulation. Before the 'pay as you go' system was introduced, the airlines collectively owed over N10 billion.
But the airlines have complained about heavy taxes ranging from agencies' high levies, custom duties on spare parts, currency rates and VAT on sundry operations.
Among the charges the airlines are complaining about is the recent 5% fuel price increase. "Aviation fuel accounts for 50% of an airline's operations and once that is not taken care of, they may not break even, and unless the airlines in Nigeria are reduced to three strong ones, all of them will continue to groan", Sam Akerele, an airspace expert said.
Airline officials disclosed that government granted a waiver on custom duties on plane, plane spares, engines and test equipment, but regretted that it was never implemented.
They lamented that airlines are made to pay excessive duty on plane importation, adding that one of their major airlines had to pay a total of N256.8 million duty on imported aircraft. Also, the bailout package planned for the airlines is still hanging as they have not been able to access the N300 billion intervention fund due to stringent conditions set by banks.
Passengers are already paying heavily for flights as an hour flight has been increased to N20, 000 after the fuel marketers effected a five percent increase in the price of aviation fuel.
Demuren however gave the assurance that the agency would not, under any condition, allow any airline to operate below standards and recommended practices.
