BY PHILLIP ISAKPA & SADE WILLIAMS
- Experts weigh in with solutions to crisis fallouts
- CBN urged to act on trapped airlines’ funds
- Passengers to suffer high fares, poor capacity, limited options
Nigeria’s lack of capacity to compete in the international air travel space is responsible for its high outflow of foreign exchange to meet the needs of foreign airlines who are providing the services for international travelling passengers in Nigeria.
The painful stings on the country’s already fragile foreign exchange position are at the heart of current moves by international carriers flying into the country to either suspend flights or task Nigerians to pay for flights in the United States currency, the dollar.
Multi-national destination carrier Emirates, faced with trapped funds believed to now be in excess of $85 million, only last week issued a statement announcing its planned withdrawal of flights into Nigeria from September 1 because it says it is unable to repatriate its funds from ticket sales in Nigeria.
But an aviation industry lobby in the country, the non-governmental organisation, Aviation Safety Round Table Initiative (ASRTI), says the problem is deeper than just the unavailability of foreign exchange in the country. They think it is a systemic issue bordering on the management of the industry and the lack of clarity on the goals that the country wants to achieve of its aviation as a business that contributes to economic growth and development.
“We found ourselves in this unenviable situation because we lack capacity to compete, which would have reduced the remittance volume,” ASRTI said in a statement to Business A.M.
The crisis now brewing with regard to ticket sales remittances to foreign-owned carriers has once again brought to the open the negative position that Nigeria continuously finds itself in its dealing with the rest of the world, especially in its trading positions. As a consumption and high import country, experts say the country is a leaker of the paltry earnings it now gets from crude oil and its less-than-impressive non-oil export earnings.
For decades now, even against the existence of four refineries with a capacity to refine 445,000 barrels of crude per day to produce different types of petroleum products, and despite being one of the leading crude oil exporters in the world, the country’s successive governments have stood idly by as the refineries went comatose, producing no drop of petroleum products for tens of years.
Economists say this shameful abandonment of responsibility by the government has brought Nigeria to its knees as it spends billions of dollars importing petroleum products, and as a result bleeding its external reserves, tanking its currency, the naira, with its value against the dollar now on a race to N1,000 to $1.00, grounding its economy and bringing misery and hardship to its citizens with inflation at its highest level in decades at near 20 percent.
The claim by ASRTI of Nigeria’s lack of capacity to compete in the international aviation carrier space, industry players say, is validated by the fact that Nigeria does not have a recognised national flag carrier and the managers of the industry at policy, regulatory and administrative levels appear not too keen to pursue the creation of an environment that enables this capacity to emerge and to compete.
Experts cite the case of the Bilateral Air Services Agreements (BASA) Nigeria has with countries and how many of them are skewed in favour of other countries. They say it is almost as if no deep thinking goes into what the officials are going into on behalf of the country.
For instance, when flight operations began to return to some normalcy after all the issues associated with Covid-19, a major disagreement between Nigeria and the United Arab Emirates over how the BASA between both countries would operate led to a spat. The major contention was the near refusal to allow the Nigerian carrier, Air Peace, the number of frequencies or slots it requested flying into the UAE.
But when the spat between both countries died down, Nigeria allocated multiple flight frequencies into more than one airport to Emirates and Qatar Airways which no Nigerian carrier could match because the country has no capacity.
Airline industry operators say there are many international destinations that Nigeria cannot exercise its BASA rights on because it lacks capacity to service them. Nowadays, more international airlines are being given rights to fly into multiple airports in Nigeria directly, a policy that has been described as short-sighted because of its impact on the domestic aviation industry who believe it should serve as onward carriers for passengers landing in designated international airports, in particular Lagos and Abuja.
After the total collapse of the government’s attempt to run a national carrier in Nigeria Airways and Air Nigeria, the country has been romanticising the idea of birthing another national carrier. This time it wants minimal government participation and it is out now looking for partners for this project. While it looks like an attempt to close the country’s capacity deficiency in the aviation sector and help reduce its leakage of foreign exchange to international airlines, ASRTI thinks this might not be enough.
“The unborn Air Nigeria cannot produce this capacity, irrespective of the funds allocated,” ASRTI said in a note to Business A.M.
The group’s suggestion for building the required capacity and hence stopping the leakage of foreign exchange by Nigeria through international airlines is what it says would be “by an aggregated process of developing our industry to produce vibrant flag carriers that will be courted for commercial partnerships which is the purveyor for successful international flight operations”.
ASRTI also said it is of the view that to kick-start this process, a functional and credible data gathering methodology for the industry is a necessity.
“We cannot continue to blow hot air without verifiable data,” the group stated.
Nigeria’s aviation managers, led by the Ministry of Aviation, are currently out looking for investors for a number of areas in the sector. But experts, including members of ASRTI, say the current issue of foreign airlines not being able to repatriate funds is doing a lot of damage to the image of the country as an investment destination.
“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,” ASRTI said.
One senior official with deep knowledge of airport management told Business A.M., on condition that he won’t be mentioned, that he does not subscribe to the concept of a national carrier as is currently being pursued by the government.
“There is no need for a national carrier,” he said, adding that his solution would be for the authorities to create the enabling environment for operators to thrive, which would be to “organise the airlines and airports as partners”, and for government to “give intervention funds”, under stringent conditions that sees operators aiming for excellence in flight operations and experience for users.
Also speaking on the problem of capacity and how to solve the problems plaguing the sector, John Ojikutu, a retired group captain and a former commandant of Lagos airport, told Business A.M. that the blame for the problem of the aviation industry in Nigeria should be put on officials of the Ministry of Aviation for taking unilateral decisions, which have adversely affected the industry, especially with regard to capacity.
He expressed worry that if deliberate actions are not taken to put things in order, the sector might collapse in the next six months.
Ojikutu detailed his position thus: “What has been happening over the years in the Nigeria commercial aviation policies, regulations and administration is nothing but what I call unilateral exploitation of the systems. We are going to be the loser if the foreign airlines withdraw their services of flights to our country because about 70 to 80 percent of our foreign earnings in commercial aviation is from the foreign airlines. What will happen further is that we will see Nigerians going to Accra, Cotonou, Lome, etc to connect the flights of these foreign airlines making them hubs over Nigeria.
“I saw this happening to us when a minister unilaterally cut off the Commercial Agreements between us and them and when we indirectly opened the domestic routes and markets for some of them for multiple destinations. The consequences are staring at us all; now who will save us from ourselves?”
Ojikutu is also of the opinion that the government also limited the capacity of Nigerian airlines by granting multiple entries to foreign airlines, adding that at the last count, an average of about 30 foreign airlines operate into Nigerian airports unhindered based on multiple entry policy, and depriving local operators of some earnings.
“BA operates twice daily into Lagos and Abuja, Emirates operates into both Lagos and Abuja, Ethiopian operates daily into Lagos, Abuja and Owerri airports, Qatar Airways operates into Kano and Port Harcourt airports recently, in addition to Lagos and Abuja.
“But this is what the main ministry officials fail to do. They fail to cut these airlines’ capacity on domestic routes to favour Nigerian airlines. They can limit the foreign airlines to one airport each and ask domestic carriers to distribute to other airports and still be paid in dollars, this will develop the local carriers and empower them financially, but when the government designates a foreign carrier to five Nigerian airports, the local carriers will continue to shrink,” Ojikutu further explained.
He also blamed part of the woes of the sector on the refusal by Ministry of Aviation officials to open a domiciliary account with the CBN as advised by former President Olusegun Obasanjo.
“First, ask for the forex earnings by all the domestic operators and service providers. If we cannot account for these earnings in the commercial aviation of this country, then there is very little to hold the CBN on. In 2006, Obasanjo had advised that a forex domiciliary account be opened with the CBN; had that been done, we wouldn’t find ourselves in this mess,” he added.
Sindy Foster, principal managing partner, Avaero Capital Partners, weighing in on different fallouts that have been thrown up by the current crisis, told Business A.M. that with the development other foreign airlines are in a wait-and-see mode whether to exit Nigeria.
“The other foreign airlines apparently are waiting to see whether there is any movement in repatriation of funds from Nigeria by the end of the year. However, I would have thought that they would closely monitor the situation and make a commercial decision should that no longer be possible. Airlines are in a precarious financial position as a result of the interruptions to travel due to the Covid pandemic and vaccination protocols, and the ensuing increased aviation fuel costs which were exacerbated by the fuel crisis as a result of the Russia-Ukraine war,” Foster said.
For the government and the lesson for Nigeria, Foster said: “The CBN needs to find a way to allow the repatriation of the blocked funds; if they can’t do all in one go they should negotiate a schedule which they can stick to, so that the airlines know when they are going to receive their funds.
“This is a hard lesson for Nigerian aviation. If the foreign airlines pull out, this will reduce the number of passengers transported by the domestic airlines as well. Data showed that when international travel was stopped, there was a decrease in domestic travel as well. So the importance of international travel to the domestic market cannot be underestimated. Imagine a ‘Dutty December’ without international visitors. In reality some of the visitors will travel via third party countries, but Nigeria will lose the revenue from the foreign airlines. 80 percent of the revenue enjoyed by the agencies comes from the foreign airlines. So this will have a big impact on the aviation sector in Nigeria.”
Foster also said if Nigeria had a national carrier now it would not have made a significant difference in this scenario, noting: “As long as foreign airlines are unable to repatriate funds, the reputational damage would have had an impact on Nigeria. Don’t forget the national carrier itself would have needed dollars. The domestic airlines also cannot access dollars for their needs which is severely impacting on their operations.”
But while the saga continues and while the world is on the lookout to see how Nigeria resolves the issue, Aviation Safety Round Table Initiative (ASRTI) is urging the Central Bank of Nigeria (CBN) to immediately do the needful to stop the crisis that has brewed as a result of foreign airlines’ $464 million funds trapped in the country.
The non-governmental organisation, through Olumide Ohunayo, expressed dismay over the handling of the matter by the federal government, adding that the whole scenario portrays a sector that is in need of urgent intervention.
“ASRTI is dismayed by the appalling handling of the accumulated foreign airline funds trapped in our banks, due to the non-allocation of forex to these airlines. In all Bilateral Air Services Agreements, an article in the agreements — transfer of earnings — clearly states that ‘each designated airline shall have the right to convert and remit to its country on demand, local revenues in excess of sums locally disbursed. Conversion and remittance shall be permitted without delay in accordance with the prevailing foreign exchange regulations’,” ASRTI said.
“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 central bank 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 all the local obligations including taxes,” it said.