BUSI­NESS Smooth flight for Afrex­im­port air­craft ac­qui­si­tion

In a strate­gic move to sim­plify air­craft ac­qui­si­tion by lo­cal car­ri­ers in Nige­ria and other African coun­tries, the African Im­port-Ex­port Bank (Afrex­im­bank) and the Rus­sian Ex­port Cen­ter (REC) have en­tered into a pact to bring Rus­sian air­craft to Nige­ria.

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Rus­sian air­craft have not oper­ated in the Nige­rian airspace in over 90 years of the coun­try’s avi­a­tion. In Nige­ria, in­dus­try play­ers, stake­hold­ers and mem­bers of the pub­lic eas­ily iden­tify with US brands like Boe­ing, Air­bus, Bom­bardier, Em­braer, among oth­ers.

How­ever, more of­ten than not, Nige­rian car­ri­ers have wob­bled over in­ad­e­quate fleet ca­pac­ity, re­sult­ing in stunted and skele­tal op­er­a­tions. It was re­cently re­vealed that all the eight Nige­rian car­ri­ers put to­gether have 40 reg­is­tered air­craft which are not up to the fleet size of Kenya Air­ways alone not to talk of the big­gest car­rier in Africa, Ethiopian Air­lines.

But air­line op­er­a­tors have blamed their tra­vails on the op­er­at­ing en­vi­ron­ment which has made ac­cess to easy loans vir­tu­ally im­pos­si­ble.

Capt. No­gie Meg­gi­son, Chair­man of Air­line Op­er­a­tors of Nige­ria (AON), said Nige­rian car­ri­ers bor­row at 26 per­cent from banks to ac­quire air­craft, in­sist­ing noth­ing mean­ing­ful can hap­pen in such an en­vi­ron­ment. He said such a bor­row­ing port­fo­lio makes avi­a­tion “a dead-on-ar­rival” busi­ness.

But the in­tro­duc­tion of Rus­sian air­craft be­ing fa­cil­i­tated by Afrex­im­bank is seen as a re­lief and an en­abler for the de­sired growth and de­vel­op­ment of avi­a­tion busi­ness in Nige­ria.

Dur­ing the week, Afrex­im­bank, the rep­utable trade fi­nance bank in Africa, came to Nige­ria with of­fi­cials of the Rus­sian Ex­port Cen­tre to show­case the Rus­sian air­craft and dis­cuss ac­qui­si­tion plans with Nige­rian op­er­a­tors.

Air­line op­er­a­tors like Dana Air, Air Peace, Caver­ton, among oth­ers, were at the Mur­tala Muhammed In­ter­na­tional Air­port (MMIA), La­gos to see the air­craft and even ne­go­ti­ate ac­qui­si­tion.

Afrex­im­bank’s in­volve­ment in the deal is not only to pro­vide guar­an­tee for the air­lines in ac­quir­ing the Rus­sian air­craft, it will also make the ac­qui­si­tion seam­less and cheaper. At a time Nige­ria is on the verge of bring­ing back the na­tional car­rier, the deal has opened a win­dow of op­por­tu­nity for the gov­ern­ment to look at the ac­qui­si­tion op­tion.

“Our part­ner­ship with the Rus­sian Ex­port Cen­tre gives key play­ers in Africa’s avi­a­tion in­dus­try tremen­dous op­por­tu­ni­ties. The 17-year av­er­age fleet age of African air­lines is the old­est of any re­gion, and by show­cas­ing state-of-the-art and more fuel-ef­fi­cient air­craft and the newest he­li­copters to­gether with our ex­per­tise and ex­pe­ri­ence in air­craft fi­nance, we can en­able the up­grade of Africa’s avi­a­tion in­dus­try. This up­grade is a key el­e­ment in boost­ing economies and many in­dus­try sec­tors. We look for­ward to con­ver­sa­tions with au­thor­i­ties and the avi­a­tion in­dus­try to dis­cuss their de­vel­op­ment plans and iden­tify ar­eas where they re­quire fund­ing and tech­ni­cal as­sis­tance,” said Rene Awambeng, Afrex­im­bank’s Global Head for Client Re­la­tions.

The air­craft show­cased at the road show in La­gos in­cluded the Sukhoi Su­per­jet (SSJ100) and MC-21. The SSJ is a 100-seater air­liner which ac­cord­ing to Awambeng has in­cred­i­ble fuel and en­vi­ron­men­tal ef­fi­ciency.

Awambeng ex­plains that Afrex­im­bank would in­ter­face with avi­a­tion au­thor­i­ties in Nige­ria to­wards cer­ti­fy­ing Rus­sian air­craft to op­er­ate on Nige­rian soil, stress­ing that the seam­less ac­qui­si­tion process with Afrex­im­bank pro­vid­ing the credit guar­an­tee makes it the best op­tion for air­line op­er­a­tors in Nige­ria to in­crease their fleet with the newest and more en­vi­ron­men­tally stan­dard air­craft.

“This (the air­craft) is a blend of Ital­ian, French and Rus­sian tech­nolo­gies, it is very spa­cious. They are for re­gional routes. They can take up to 100 pas­sen­gers in dif­fer­ent con­fig­u­ra­tions of busi­ness class and econ­omy. The air­craft are quick in take-off and land­ing, which means they can ser­vice short dis­tances. These are brand new air­craft”, he said.

Awan­beng added, “We have 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 we can meet one of our strate­gic ob­jec­tives. The Rus­sians have in­vested sig­nif­i­cant amount in re­search and de­vel­op­ment in their air­craft which are very ef­fi­cient in terms of fuel con­sump­tion which are eco­log­i­cally very friendly.

“We have part­nered with the Rus­sian Ex­port Cen­tre to pro­vide fi­nanc­ing so­lu­tions so that African en­trepreneurs, ei­ther pri­vate sec­tor, na­tional air­line or pri­vate sec­tor op­er­a­tors of air­line com­pa­nies can ac­quire these air­craft through as­sets struc­ture or lease fi­nance struc­tures to meet our ob­jec­tive of mov­ing peo­ple from one part of the coun­try to an­other.”

The chair­man of AON enthused that Afrex­im­bank’s part­ner­ship with the Rus­sian air­craft man­u­fac­tur­ers had opened a new win­dow of wider op­por­tu­ni­ties for op­er­a­tors to ac­quire the brand new air­craft with a less bur­den­some fi­nanc­ing struc­ture.

He said, “With Afrexim Bank com­ing into the pic­ture to guar­an­tee and fi­nance it, it opens win­dow, a new door and a new chap­ter for us into ac­qui­si­tion of brand new air­craft.

“Our prob­lem in Nige­ria as car­ri­ers is our fi­nan­cial struc­ture and ac­cess to mar­kets. You can­not fi­nance an air­craft like this us­ing 26 per­cent from Nige­rian banks. It is a dead-on -ar­rival busi­ness. With Afrexim Bank com­ing in now, in­stead of tak­ing a $7m or $5m to go and buy a 737-400 air­craft, to lease this air­craft like what Amer­i­can air­lines, British air­lines, Sin­ga­pore and Emi­rates do, they are go­ing to ask you for a 10 to 15 per­cent de­posit of the ac­tual value of the air­craft.

“For ex­am­ple, if this air­craft is about $25m, 10 per cent of that is $250,000, even if you are asked to pay 15 per cent, that is bet­ter com­pared to the $7m you are go­ing to put down. So you can see your cash flow im­me­di­ately gets bet­ter and you have dis­pos­able in­come to take shock. So you can af­ford to pay a six months lease or put a de­posit of 10 per­cent and still have cash in your pocket. So in­stead of you buying a 10-15 year-old air­craft, you only need 10 per cent of that money. So the money for two air­craft now can al­most give you 10 com­pared to buying 10 in cash. Now it changes the whole avi­a­tion busi­ness in Nige­ria”.

While the op­er­a­tors agree that the air­craft are up to the stan­dard that the Nige­rian fly­ing pub­lic would ad­mire, the main­te­nance, re­pair and over­haul (MRO) base is an­other is­sue that needs to be con­sid­ered. At ev­ery 18 months or at most 22, air­craft are re­quired to be fer­ried for a com­pre­hen­sive check over­seas. In re­cent times, a Nige­rian car­rier re­vived its C-check ca­pac­ity for the main­te­nance of Boe­ing clas­sics but there are no fa­cil­i­ties for the main­te­nance of the Rus­sian air­craft. Stake­hold­ers are now call­ing for the es­tab­lish­ment of a main­te­nance base in the coun­try to go hand-in-hand with the in­tro­duc­tion of the Rus­sian ma­chines.

Meg­gi­son said, “The spare and the main­te­nance is where we have come to. I think that should be the be­gin­ning. Be­fore now to start, you buy air­planes first, you now start to look for en­gi­neers to fix it. That is the wrong way and that is what has caused a lot of epilep­tic life in our in­dus­try. Now we need to turn it around and put the main­te­nance base down first, then you get the skilled labour be­fore talk­ing about the lease of the air­craft be­cause a small thing as 1000 dol­lars to re­pair a ma­chine of $30m can hold that air­craft for two months and you have can­celled schedules be­cause no­body knows how to fix it”.

Also speak­ing with our cor­re­spon­dent, the Chief Op­er­at­ing Of­fi­cer of Dana Air, Mr. Obi Mbanuzuo who was also on ground to as­sess the air­craft, said the out­look was very pos­i­tive for Nige­rian car­ri­ers, say­ing, “It eases a lot of bur­den on air­line in terms of fi­nance. The air­craft is very good. We had a very good dis­cus­sion with the team yes­ter­day. Specif­i­cally, this is a very good air­plane. One of the things we dis­cussed about was what kind of sup­port they will give to air­lines in Nige­ria and they are very forth­com­ing. The out­look is very pos­i­tive. It eases the bur­den on air­lines in terms of fi­nanc­ing and there are many pack­ages”.

Sen. Hadi Sirika, Min­is­ter of State, Avi­a­tion

Capt. No­gie Meg­gi­son, Chair­man, AON

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