Airlines Spend $3.5bn Yearly Overseas on Maintenance, Others

Chinedu Eze

Expenditure by airlines for maintenance, training of personnel and funds repatriated by foreign airlines yearly has been put at $3.5 billion, THISDAY’s investigation has revealed.
The expenditure also included cost of reinsurance with international companies and purchase of aircraft spare parts.

The figures were compiled from data made available by the International Air Transport Association (IATA) and two other companies involved in Maintenance, Repairs and Overhaul (MRO) – Aero Contractors and 7 Star Global Hangar Limited.
The amount, according to industry experts, is huge considering the low contribution of the aviation sector to Nigeria’s Gross Domestic Product (GDP).

A breakdown of the amount showed that about $1 billion was spent in 2019 on maintenance and $1.3 billion on training and insurance.
Aircraft insurance cost has also risen from an estimated $560 million in 2018 to $720 million last year due to the country’s security challenges and the failure of some airlines to abide by leasing agreements with lessors.
In addition, in 2019 over $1 billion was repatriated as earnings in Nigeria by foreign airlines, which was about 20 per cent higher than the $800 million repatriated in 2018, according to records from IATA.

The Accountable Manager of 7 Star Global Hangar Limited, a start-up MRO facility in Nigeria, Chief Isaac Balami, told THISDAY in an exclusive interview at the just-concluded MRO Africa Conference, held in Addis Ababa, Ethiopia that the total cost of aircraft maintenance in West Africa was over $1 billion annually.
He said Nigeria had the highest number of aircraft ferried overseas for maintenance and therefore expended about 75 per cent of the said amount.

“When you talk about Nigerian airlines you are talking about West Africa because Nigeria is actually West Africa, whether you like it or not; and across the sub-region, over $1 billion is spent annually on aircraft maintenance and that is a fact. Nigeria contributes about 75 per cent of this expenditure.

“That is a huge capital flight. Those of us that are in the sector and in MRO business we feel frustrated about it.
“This is obviously a serious blow to Nigeria’s economy because I think that if the Aviation Ministry has $1 billion, you can imagine what they will do with it. So the point is that we must stop that leakage. It is not a matter of let’s try; we have to stop it. The private sector has to be involved because government cannot do it alone.

“Yes, there is 100 per cent interrelationship between cost of airline failure and cost of maintenance overseas. Aside aviation fuel, maintenance is the second biggest cost for Nigerian airlines and it is affecting our airlines badly.

“The issue is when you put Boeing 737 on the ground and it is not flying, you will be losing over $100,000 every day. This is because your fixed cost and your variable cost are known. You cannot change it because whether you fly or you don’t fly you will still do maintenance; whether it is after 500 hours, 1,000 hours or 18 months, whether it is D-check, whether it is C-check; that you are not flying does not mean that you won’t conduct checks on the aircraft,” he stated.

Balami identified high cost of maintenance overseas as the major reason why Nigerian airlines go under after a short period of operation.
“Aircraft maintenance is determined by the calendar and cycles. So when you are not flying, you may not be getting the cycles, but the calendar is affecting it; so at the end of 18 months, you must do it.

“When you do it overseas you spend extra cost, including visa for your crew, allowances you have to pay, hotel accommodation and time you are going to spend. You are also going to pay for navigational charges. If you are going to the US, you will be losing about three to four days. You will stop and fuel. What you will spend on your aircraft taking them overseas will be enough to pay your staff for a certain period,” he explained.
The head of Aero Contractors MRO, Mr. James Ominyi, also told THISDAY that for Nigerian MROs to develop the capacity to take over the maintenance of aircraft and stop airlines from ferrying their equipment overseas, they have to ensure that they have modern equipment and personnel.

He stated that huge foreign exchange was being expended by Nigerian carriers on overseas maintenance of their aircraft.
“MROs in Nigeria first need to spend money to improve their equipment, training, tools to be able to compete with MROs outside the country. One thing airlines think about is if I go to Aero will they have everything to do what they need to do? But thank God that our chief executive officer has been buying new equipment every month.
“Last month, our set of jacks came in. So the truth of the matter is that in Aero MRO and other MROs locally, once you patronise us, your man-hour rate is lower than you can get in Europe. That is already a saving. If an airline has to leave Nigeria and fly six hours to Europe; that is a huge cost you would have saved if you towed your aircraft to Aero Contractors’ hangar.

“The growing MRO sub-sector in Africa is a $3 billion business. Most of that business is going outside. We need to retain that business within Africa. For Nigerian airlines they need to retain their hard-earned foreign currency by patronising Nigerian MROs,” Ominyi said.
On expenditure, training and insurance, the CEO of Aero Contractors, Captain Ado Sanusi, had told THISDAY that in addition to Nigeria being responsible for over 70 per cent of overseas aircraft maintenance in West Africa, $400 million was being expended on aircraft spares while training costs about $300 million.

On insurance he said: “Cost of insurance increased globally since the crash of Boeing 737 MAX in Indonesia and in Ethiopia but domestically aircraft insurance has increased because of the global record of security breaches in Nigeria and the cost of leasing has also increased because of the failure of some airlines to abide by the leasing agreements.

“Insurance goes up because leasing companies may think that they may not retrieve their aircraft because of uncertainty occasioned by the countrywide insecurity and this has also increased insurance premium in Nigeria. So we pay more for insurance premium.”
In the Insurance Digest publication that shows quantum of each insurer’s business in the last five years, 2018 recorded about N21.4 billion on aviation insurance while in 2017, insurers recorded N22.1billion; N19.5billion for 2016; N19 billion for 2015 and N20.7billion in 2014.

But the Managing Director and CEO of Financial Derivatives Company Limited, Bismarck Rewane, told THISDAY in a telephone interview in Lagos that it would be wrong to designate the money spent overseas in the aviation industry as capital flight, noting that in accordance with global practice, this are costs of services rendered. He added that such expenditure could only be described as capital flight if money from Nigeria is taken and invested elsewhere.

“This is obviously international transactions, which means whatever you have to pay for trade, tourism, education. It is value for money. These are services we pay for travel, reinsurance etc. We can only call it capital flight when it (the money) is taken and invested elsewhere. This is services received for money,” he said.
It is believed that this amount could be halved if more local carriers begin to operate international destinations and reciprocate the service of foreign carriers in Nigeria.

Industry experts believe that the lopsided foreign receipts would be corrected when Nigeria airlines conduct most of their aircraft maintenance locally, carry out retraining of airline personnel locally and when Nigeria begins to refine aviation fuel locally.
Rector and Chief Executive of the Nigerian College of Aviation Technology (NCAT), Zaria, Captain Abdulsalami Mohammed, told THISDAY that the federal government was working towards conducting recurrent training for pilots locally with the acquisition and installation of B737 simulator at the college with a plan to acquire another aircraft type soon.