Adedeji Adegoke: What the government needs to do about aircraft financing

by Adedeji Adegoke

Recent reports puts the average age of airplanes flying on the domestic route at between 19 and 20 years, with the exception of Arik Air and Air Nigeria. This is not good for our reputation as a nation and certainly not for the safety of our people. The Federal Government ought to peg the maximum age of planes permitted in our air space to 15 years.

The panel of enquiry set up to investigate the incident should, among other things, analyse the viability of air transport operation in Nigeria so as to gain an insight into the major issues affecting the aviation sector. For instance, if you analyse the average air ticket from Lagos to Abuja, what you will find is that government receives close to 40 per cent as taxes and the airline is left with 60 per cent. Can this percentage realistically provide the necessary cash flow for a successful airline operation with its high overheads?

Airline operators have to contend with aviation fuel (an aircraft must have at least 60 per cent load factor to break even on fuel alone), insurance (this could be in excess of $1m annually per aircraft); lease rentals (depending on whether it is a wet or dry lease; and the age of the aircraft, which could exceed $100,000 monthly per aircraft); salaries of pilots, engineers, and cabin crew, as well as landing charges, parking charges and aircraft spares and tyres, pilot simulation tests, other training, cost of bird strikes, and so on.

With these myriads of problems, our regulators and government need not be told that though the business generates cash flow, the bottom line is always red because of the long list of expenses to absorb. Thus, the temptation by operators to cut-back on certain expenditure to retain cash in the business for other activities is ever present!

Why did the government cannibalise Nigeria Airways and sell its assets to fund recurrent expenditure if the giant of Africa could run an airline successfully? Where are the Albarka, ADC, Bellview, Harka, Chachangi, and Kabo airlines of old? Is it best practice to suspend the operational licence of an airline immediately there is a crash? What is the effect of this suspension on the long term solvency of the airline and how does it impact on potential future investors in this sector?

The airline sector needs a huge bail-out which should be far more above the monies spent on the banks if we want safe skies. Government has a responsibility to its citizens; we should not run government solely as if it is a business venture. Where is the place of public good in Nigeria of today? Is it electricity or water or security?

It is time the government saw the airline business as a quasi-public good because the costs involved in running a successful airline are far beyond the capacity of a Nigerian individual or corporate body.

Government should immediately enter into discussion with a major commercial airline manufacturer in the world with the aim of purchasing brand new aircraft and for the manufacturer to have at least two hangars in Nigeria where the various A to D checks can be carried out.

The brand new aircraft can then be leased to the airlines, on a wet or dry lease, depending on what suits the government. The funding for the aircraft can be obtained through multi-lateral finance, on a back to back basis. A long term loan can be secured for this purpose from international financial institutions like the US EXIM bank. If, for example, we are going into partnership with Boeing, the terms of the loan can be passed on to the airlines which would pay government interest and principal on a monthly basis. In this scenario, a Federal Government guarantee will suffice as security, in addition to the aircraft financed acting as the collateral and comprehensive insurance.

The renewed confidence that new planes are flying in our airspace buoys our collective spirit. The airlines are now more focused in service delivery and running the operations profitably.

However, broader reforms like reduction in landing and parking fees, a 24–hour power supply regime, enhanced regulatory framework, ensuring that aviation fuel is unadulterated, construction of functional emergency landing sites near all airports in the country, and a sound radar system must be embarked upon.

The journey of a thousand miles begins with a single step. The costs are enormous, but we need to move in the right direction for a safer Nigerian sky today.

God bless the Federal Republic of Nigeria.

*This piece was first published in The Punch.

Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija.

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One comment

  1. I support a hundred percent, everything that Mr adegoke has said. I mean Govt shdnt be run as a business venture, so what's up with all those high taxes. They're basically telling them to make their profit however else they want! It's crazy, even though this is also done in developed countries, but I think it's wrong. There should be enough spread for airlines to make their profit, outside of other investment of the bulk sums they receive.

    And he also rightly pointed out, they basically just kill the biz once there's been a crash. It's discouraging for everyone involved (investors, staff employed and their dependants, customers who now have more limited and still not secure choices).

    Govt really needs to take a chill pill with this aviation sector. They can steal their money from elsewhere.

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