Why Nigerian Airlines Cannot Access Credit Facility from International Financiers

Chinedu Eze

Unlike their counterparts all over the world, it has become increasingly difficult for Nigerian airlines to access credit facilities from international financiers, competent sources in the industry have disclosed.

Running an airline is a capital intensive business, which needs high capital outlay. As a result,  many airlines in different countries of the world rely on funding from international financiers with single digit interest rate and long-term repayment plan.

To access credit from foreign banks, airline must meet certain conditions, which may include the economic and business status of the country the airline operates from.

Some African carriers like Ethiopian Airlines, Air Maroc, Egypt Air, Kenya Airways, easily gets credit facilities from international financiers, just like their counterparts in Europe, the Americas and Asia.

However, for several years, Nigerian commercial airlines have not been able to access loans from financial organisations, including Afrexim Bank and African Development Bank (ADB).

Industry experts told THISDAY that country risk, government policies, safety status and airline regulation standards are important factors to be considered before an airline is qualified to access such credit facilities.

A few years ago, Afrijet Airline, which had become defunct, accessed funds from international financiers to acquire aircraft fleet for its operations. Similarly, Arik Air accessed loan facility from the US Exim Bank to finance the acquisition of seven Boeing B737-700 and eight Boeing B737-800. It also accessed credit from Export Credit Agency of Canada to finance the acquisition of four Bombardier CRJ 900 and four Q400 Dash 8 aircraft. The airline also obtained credit facility from EU Export Credit Agency for the acquisition of two Airbus A340-500 aircraft.

The Managing Director and CEO of Aero Contractors, Captain Ado Sanusi, attributed the problem to many factors, which include country risk.

He explained that any country that has high country risk would inhibit airlines operating in that country from accessing such credit facilities.

Another factor, he said, is inconsistent government policies noting that any country that changes its policies arbitrarily without long-term development plans might frustrate airlines operating in that country from credit and low insurance premium.

“Some of the factors that could frustrate airlines from accessing international financing could be country risk. There is the issue of forex. How easy is it for you to access foreign exchange? Recently the inability of foreign airlines to repatriate their revenue and inconsistent policies of government are factors that are put into consideration. The financial institution will look at the airline’s books, the country it is operating in, the policies guiding airline operation and business in that country and if they feel that it would be high risk extending credit facility to that airline they will not acquiesce to that request. It was easy for Arik Air to access those loans because of the goodwill the airline enjoyed then and the country then enjoyed good reputation in international circles,” he said.

Commenting, the Managing Director of Flight and Logistics Solutions Limited, Amos Akpan, told THISDAY that international financiers would not want to invest in an environment where given factors prevail, which include: no consequences for violation of corporate governance regulations, change of administration could lead to no honouring of agreements and the judiciary could be compromised.

“If you are looking for a territory and environment to invest, you would not choose where the following factors prevail: there are no consequences for violation of corporate governance regulations; where a change of administration in governance could lead to not honouring the obligations entered by the previous administration; the judiciary process is known to be influenced or compromised. Court orders are not obeyed. It takes years to obtain justice from the judiciary.

“Monies of foreign operators are currently trapped in the system. They cannot repatriate their funds. Your assets and capital can be forfeited without due process. We hardly get clarity of implementation on International treaties and laws we’ve signed and domesticated.Planning and projections don’t fit into calendars. If you planned 150 per cent fuel increase as an operator in in June 2022, you’ll get N400 per liter by 2023. But fuel alone was N195 per liter from June 2022 to N800 per liter at January 2023.Projections don’t seat within a period, ”Akpan said.

He also said that Nigeria needs open and clear processes understandably and equitably applied to all operators by the agencies of government in the aviation industry.

Speaking in the same vein, an industry operator told THISDAY that the takeover of Arik Air and Aero Contractors by Asset Management Corporation of Nigeria (AMCON), went a long way in damaging the image of the aviation industry.

“Before Arik Air was taken over by AMCON it had built a good reputation in the international aviation circles because it acquired brand new aircraft and Lufthansa Technique was maintaining its fleet, then suddenly it was taken over by a government agency. It is not only that Aero Contractors, Nigeria’s oldest airline and the biggest airline, Arik Air were taken over; their performance after take over was sub-par. So, how do you expect international financier to trust other airlines operating in that country? Laws seem arbitrary and government can take any action at any time. I don’t think that since 2015 any Nigerian carrier has benefitted from such credit facility from international financiers,” he said.