Economic Downturn Takes Toll on Aviation Industry

The economic downturn in Nigeria is threatening the operations of domestic airlines as two of them have suspended scheduled service. Chinedu Eze x-rays the challenges facing the aviation industry

There are four key factors threatening Nigeria’s airline industry. One is that everything about aircraft maintenance, including repairs and most often technical personnel is imported and C-check is done overseas. So in a recession whereby over N400 is exchanging for $1, it is difficult for Nigerian airlines that sell tickets in naira to raise enough funds to maintain their aircraft.

Two, over 40 per cent of operational cost is spent on aviation fuel. Today that product sells at N230 per litre because it is imported. Nigeria has refineries that are not working. They were not privatised and under the Nigeria National Petroleum Corporation (NNPC) they have not been put to good use for years, so Nigeria imports its fuel products.

Three, airfares do not reflect the actual cost of operation because of the low disposable income of Nigerian citizens. At the current cost of aviation fuel and maintenance, for a Nigerian airline to make profit it should charge about N45, 000 for one-hour flight, according to aviation analysts. This amount will seem outrageous but that is the actual pricing that could generate profitable revenue for airlines.

But airlines cannot charge N45, 000 for one-hour flight. If they do they would lose customers.

The fourth factor is that Nigerian airlines have lost over 40 per cent of their passenger traffic since February this year due to the downturn of Nigeria’s economy. The passenger traffic continues to deplete as recession sets in and the industry continues to degenerate.

It is all these challenges that are threatening the operations of Nigeria’s domestic airlines. Aero and First Nation Airways have suspended their scheduled services and there is fear that other airlines may join as the economy bites harder and as they find it difficult to continue to maintain their aircraft and purchase aviation fuel at a very exorbitant rate.

Aero Contractors on Wednesday announced suspension of scheduled services from Thursday September 1, 2016.

A statement from the Chief Executive Officer, Capt. Fola Akinkuotu, said the development was part of the strategic business realignment to reposition the airline and return it to the part of profitability.

The airline said this business decision, which is a result of the current economic situation in the country, has forced some other airlines to suspend operation or outrightly pull out of Nigeria.

In the case of Aero, Akinkuotu said the airline had faced grave challenges in the past six months, which impacted its business and by extension the scheduled services operations.

“These factors, according to him are both internal and external environmental factors that have made it difficult for the foremost airline to continue its scheduled services,” the airline said.

Asset Management Corporation of Nigeria (AMCON) took over Aero in 2011 because of its toxic loans owed to the now defunct Oceanic Bank.

THISDAY learnt then that Aero became a victim of a bad deal which some interest group made at the expense of the company. The then Oceanic Bank funneled money through its subsidiary, Oceanic Capital, and seven aircraft were earmarked to be purchased, but six were eventually acquired without a refund and the aircraft, which were supposed to be purchased at $3 million each, were allegedly inflated to $7 million each and they were purchased from the Arizona aircraft graveyard in the US. The toxic loan was inherited by Ecobank when it took over Oceanic Bank, which handed it over to AMCON.

By February 2016 the signs of Aero going under became evident because AMCON decided to stop putting money into the airline and requested that it should sack about 70 per cent of its staff for the airline to reposition. Labour kicked against this and alleged that the AMCON representatives in Aero had connived with the management to corruptly enrich themselves at the expense of the airline.

By then Aero had its three Boeing 737-500 at maintenance facilities overseas but did not have money to bring them back. By last week all the 11 aircraft in its fleet were unserviceable and only one aircraft was still airworthy. The airline did not have the funds to send about five aircraft on AOG (Aircraft on Ground) out for maintenance; neither did it have funds to complete the payment and return the ones that had undergone maintenance overseas. It was a cul-de-sac for the most promising Nigerian carrier.

Today Aero has suspended its schedule operation but can do charter and can carry out maintenance of some aircraft types. If Aero eventually goes down it means that the aviation industry had degenerated substantially because Aero is the only Nigerian carrier that has maintenance facility. It carries out A to C checks on turboprops like Dash 8 and other smaller aircraft. No other airline has that technical ability.

“Aero has invaluable goodwill; it has the first maintenance organisation in Nigeria. We have the capacity to do all checks on Dash 8 aircraft and all checks below C-check on Boeing 737. We have the expertise to do C-check and we have applied to the Nigeria Civil Aviation Authority (NCAA) to get approval. We do Kings Air, Hawker, Hawker Sidney and Dash 8 Bombardier,” inside source told THISDAY.

If Aero goes down 1,100 Nigerians will lose their jobs. The airline used to have 1, 453 workers but recently reduced it to the above figure. AMCON wants the airline to reduce its workforce by 70 per cent but the aviation unions have kicked against it. On Thursday the workers occupied Aero’s head office at the Murtala Muhammed International Airport, Lagos made up of workers comprising of the Air Traffic Services Senior Staff Association (ATSSSAN) and the National Union of Air Transport Employees (NUATE).

President of ATSSSAN, Comrade Benjamin Okewu, said that the take over of the airline followed the indefinite leave given to the over 1,400 workers by Aero management.

Okewu said that what Aero management had just done by locking out the workers was shocking, adding that negotiation was still ongoing when Aero sent workers on indefinite leave.

But the workers know that if they insist that Aero should retain all the workers the airline would eventually go down and all the workers would lose their jobs; but if they allow the airline to lay off 70 per cent of the workforce it will be repositioned and in future would absorb some of the workers earlier laid off. But the workers insisted that they must not be sacked.

First Nation Airways had explained that it is currently undergoing maintenance on its A319 fleet, adding that the maintenance exercise would be completed by mid September.

In a statement signed by the airline’s commercial manager, Sarah Awogbade,

First Nation Airways said the airline planned this maintenance action well ahead and scheduled it would resume operation later in the month.

“This will ensure that passengers continue to enjoy safe and reliable service that the airline is reputed for. Current foreign exchange constraint, coupled with over 70 per cent devaluation of the naira, partly contributed in no small measure to this development. The Airline’s plan remains on track to reinstating service as advised herein,” the airline said.

Nigeria’s economy will be further eroded if the country does not have airlines on scheduled services, operating at least 40 aircraft. Now, the airlines that are still operating effectively are Arik Air, Air Peace, Medview Airline, Dana Air and Overland Airways. These airlines have about 56 aircraft in their fleet and if more airlines stop operation the Nigerian travel public will feel the impact. This will hike the fares and further deplete passenger traffic.

The consequence is that the few operating airlines would ground most of their aircraft as fewer people travel by air and when airlines ground their aircraft they would make losses that would eventually put them out of business.

Industry observers are positing that the government should come in at this critical juncture to help the airlines sustain their operation. The Chairman of Airline Operators of Nigeria (AON), Captain Nogie Meggison, has suggested that government should dedicate the Warri refinery to the refining of aviation fuel. That would make the product available and at affordable price. If this is done it will give the airlines a lifeline because reduction of the price of aviation fuel, which cost them over 40 per cent of their operational expenses, will definitely bring them back from the brink.

In addition to that, it is expected that government should facilitate forex for the airlines as almost everything about aircraft is imported. They will remain unprofitable in their operations if they continue to exchange the dollar for over N400.

On the long term, government should enhance the establishment of Maintenance, Overhaul and Repair (MRO) facility in the country.