Hope Rising for Aviation Sector
The review of the first half of 2018 indicates a beckoning hope for the aviation industry in Nigeria as government policies, African Union, regional financial institutions gear up to grow air transport in the continent, writes Chinedu Eze
The aviation industry showed greater prospects in the first half of 2018, than in the previous years, with African Development Bank and African Export-Import Bank (Afreximbank) coming out clearly to support aviation.
There are also recent policies by the federal government that have given fillip to hope and high expectation that the industry will turn out better this year.
The Ease of Doing Business, which was introduced at the airports last year, has culminated in better passenger facilitation, while the cashless policy introduced this year has also enhanced transparency in business transactions at the airport and potential boost of revenues for the aviation agencies.
The waiver on Value Added Tax (VAT) given to domestic airlines recently, analysts pointed out would ensure that they have more operating funds at their behest and such would be deployed to meet critical needs. These are key issues that will reshape the aviation industry in the second half of 2018 and beyond.
SAATM
Many African airlines were elated when the Single African Air Transport Market (SAATM) was introduced. It is a flagship project under the Agenda 2063 of the African Union (AU) that seeks to liberalise and unify the African skies. It was launched during the 30th Ordinary Session of the Assembly of Heads of State and Government of the AU on 28 January 2018 in Addis Ababa, Ethiopia.
SAATM is the offspring of Yamoussoukro Declaration (YD), which aims to liberalise the African air transport market. The conception is that African registered airlines could operate seamlessly from one country to another without immigration hindrances, so flights could connect, for example, from Port Harcourt to Lagos, Lagos to Accra and Accra to Freetown, operated by an airline registered in Nigeria or even Cameroon.
However, looking at the bigger picture of SAATM, it has the capability of giving African airlines the opportunity to expand their profitably and boost passenger movement across the continent. It would also boost trade among Africans, which would enable revenues generated by the African market to circulate in Africa; instead of taking them overseas to Asia, Europe and other markets.
But in the short run, Nigerian airlines did not feel that Nigerian government did well to endorse SAATM because they said other African countries would not be enthusiastic about opening their markets in the spirit of SAATM; rather, they would close their markets to their own airlines while they erode the Nigerian market, the biggest market in West and Central Africa.
While commenting on the initiative, the Chairman and CEO of Air Peace, Allen Onyema said: “No country gives blanket approval for whatever treaty they signed, no country does that. So SAATM does not favour Nigerian airlines as it stands today.
“Have the authorities bothered to find out the landing charges these other countries in Africa give to Nigerian airlines that are coming into their countries?
“Look at Abidjan (Cote de Ivoire); have they bothered to find out what their countries do for them in terms of charges? They are not paying the same charges as we do. In Ghana, AWA (African World Airlines) is not paying the same charges in their country as we do. So, they can afford to crash their fares. We cannot afford to do so because when we get into their country they over charge us.
“Why have we not started operation to Abidjan? Because they gave us something out of this world. They charged us $6000, to $7000 per landing. How many people are you carrying to justify paying such exorbitant charges? But when they come to Nigeria they pay peanuts. So why won’t they run out the Nigerian airlines?
However, members of the Airlines Operators of Nigeria (AON) wrote to Present Muhammadu Buhari and expressed opposition to SAATM, saying that it would impinge on the operations of domestic carriers, at least in the short term.
But the International Air Transport Association (IATA) commended African Union for endorsing the policy, saying that it would boost passenger movement in the continent, open more flight routes and enlarge the African air transport market.
“Enhanced connectivity will stimulate demand, improve the competitiveness of the African airline industry, and make air travel more accessible. In turn, this will enable higher volumes of trade, expanded tourism and growing commerce between African nations and with the rest of the world,” IATA said. Afrexim Bank and ADB
Nevertheless, the African Development Bank (AfDB) expressed its preparedness to support the growth of air transport in Nigeria and in Africa and had launched a new framework to support the revitalisation of the continent’s aviation sector.
AfDB President, Dr Akinwumi Adesina, said the Bank and its partners would also unveil initiatives to help to de-risk financing for aircraft acquisition and upgrading of airports.
They also look to support expansion of regional navigational and air safety and deregulation of the aviation industry to boost competitiveness and efficiency.
“We must make regional aviation markets competitive and drive down costs, raise efficiencies and improve connectivity and convenience,” Adesina had said
With financial support to airlines to acquire or lease aircraft, the bank would go a long way to boosting airlines’ fleet, which would enable them to open more routes and airlift more passengers. The major challenge Nigerian and African airlines face is the difficulties accessing credit facility from local and international financiers.
Also, respite may have come to Nigerian carriers as Afreximbank has shown commitment to supporting the local operators to acquire new aircraft.
The regional bank said it would re-fleet Nigerian airlines in partnership with the Russian Export Centre to provide brand new aircraft for operations in Nigeria and others in Africa.
Airlines said that would be a great relief to them as they would not pay the high interest rate of 26 percent to acquire aircraft. THISDAY learnt that some airlines have made firm commitment with Afreximbank and airlines are looking at the offer from the bank which would give them the opportunity to acquire new aircraft with staggered payments, which cannot be compared to the current system where Nigerian airlines would raise and go and buy old aircraft.
Speaking during the partnership earlier this year in Lagos, the Global Head, Client Relations, Afreximbank, Rene Awambeng, said the Bank entered into a strategic partnership with the Russian Export Centre, which is the export bank of the Russian Federation to promote aviation in Africa, so that it can meet one of its strategic goals.
VAT
Recently the federal government issued an Executive Order for the removal of Value Added Tax (VAT) from all forms of transportation, but before now it is only domestic airlines among different modes of transportation that pay VAT.
The airlines said this would increase passenger movement in the domestic routes and would boost the financial contribution of the sector to the GDP, increase revenue for the aviation agencies and enhance aircraft acquisition.
VAT is the deduction of 5 per cent from the passenger’s airfare remitted to the Federal Inland Revenue Service (FIRS.
The CEO of Aero Contractors, Captain Ado Sanusi said that the waiver would bring down air fares and make more people to travel by air and increase airline’s profit margin.
Sanusi said that one of the major reasons why airlines fail in Nigeria is lack of financial liquidity, noting that the charges and taxes squeeze airlines to the extent that they generate revenue without profits, so with the waiver, Nigerian airlines would save the 5 per cent fund, which is huge amount of money when put together.
The Chief Operating Officer of Dana Air, Obi Mbanuzuo said the waiver would reduce the financial burden on the airlines, which would improve their operations, make more funds available for aircraft maintenance, leasing and also enhance spare parts acquisition, noting that these are inevitable expenses, which airlines squeeze out funds to attend to after the payment of taxes and charges.
Aero MRO
Nigeria’s oldest carrier, Aero Contractors in February this year unveiled a Boeing B737-500 it successfully conducted C-check on, thus ushering the airline into the club of airlines that have the capability to conduct major maintenance checks on aircraft.
The Minister of State, Aviation, Senator Hadi Sirika said this would save Nigerian airlines about N90 billion annually, which is the amount of money airlines spend on aircraft maintenance overseas as the airline would now offer maintenance services to domestic operators up to C-check.
Aero now offers maintenance services on Boeing B737 classics, which is the major aircraft type operated by many Nigerian airlines.
The maintenance facility was approved recently by the Nigeria Civil Aviation Authority (NCAA) and given certification to the airline as Aircraft Maintenance Organisation (AMO) for C-Check on the B737 Classic. Also, Ghana Civil Aviation Authority (GCAA) had given Aero certification which empowered the airline to maintain aircraft registered in Ghana.
The Chief Executive Officer of the Aero Contractors, Capt. Ado Sanusi, said the approval represents a major milestone in their turn-around efforts.
Since the AMO certification, many Nigerian airlines have been taking their aircraft to Aero facilities instead of ferrying them overseas at huge costs. Aero has also expressed the willingness to stagger payment for the cost of maintenance for the local carriers.
With all these incentives from government, African Union and financial institutions, it is hoped that air transport would be given a new lease of life in 2018 and beyond.