There are concerns that more foreign airlines may be forced to suspend flights to Nigeria if the government does not find a lasting solution to their trapped funds, writes JUSTICE OKAMGBA
One of the biggest tasks currently before the Minister of Aviation and Aerospace Development, Festus Keyamo, is to ensure that more airlines do not suspend their operations from the Nigerian market.
Experts said any exit could be catastrophic to the entire aviation sector and the economy in general.
Following his return from the Dubai Airshow in November, Keyamo revealed that Emirates Airline was poised to resume flight operations in Nigeria, having suspended its operations in the country twice in 2022.
Emirates had previously suspended flights in September 2022 but resumed after the Central Bank of Nigeria released $265m in outstanding ticket sales.
And barely two months later, the airline halted operations in the country, citing unsuccessful negotiations with Nigerian authorities over fund repatriation.
Etihad Airways also suspended flights to Nigeria during the same period.
Keyamo wrote on Twitter, “On the sidelines of the Dubai Airshow in Dubai last week (November 2023), I met with the top echelon of Emirates Airline and we continued very warm and fruitful discussions towards the resumption of flights from Dubai to Nigeria, an effort that was championed by President Bola Ahmed Tinubu.
“We are presently working on the small details and the airline will soon announce the exact date of their resumption of the flights.”
The Nigerian government holds the highest amount of airline-trapped funds in the world, with over 27 foreign carriers operating in the country, according to the International Air Transport Association.
Data obtained from IATA showed that the funds had risen to about $792m at the end of last year.
Africa’s largest economy has been struggling with dollar shortages, which has made it difficult for foreign airlines that sold tickets in the local currency to repatriate their funds from the country.
The country’s foreign currency shortages have been worsened by declining oil production, which accounts for more than 90 per cent of dollar inflows.
Nigeria’s foreign reserves have maintained a steady decline since 2021, currently standing at 33.25bn as of January 18, according to the CBN.
The Chief Executive Officer of Centurion Aviation Security and Safety Consult, Captain John Ojikutu, said it was challenging for airlines to continue to pay in dollars while they collect naira from travellers.
He told The PUNCH, “We owe Emirates Airline and many others from Europe and the Middle East. These airlines collect naira on ticket sales but pay dollars for every service charge like passenger service charge, aircraft landing, and parking, ground handling services, fuel sales, etc.”
Ojukutu, who was also the former commandant of the Murtala Muhammed International Airport, Lagos estimated that Nigeria generates at least $2.5bn annually from all the service charges on passengers and air traffic figures.
He said, “The questions to ask are these: Where is the money, and who authorises their spending without the authority of the responsible authority?
“In 2007, ex-Nigerian President, Olusegun Obasanjo, at a public hearing in Aso Rock, directed that the dollar earnings in aviation should be domiciled in the CBN and the naira values be collected by the depositors. Since that time, how much has been deposited in the CBN and who has been spending the money?”
According to the National Bureau of Statistic, the aviation sector contributed N22.6bn to the country’s Gross Domestic Product in the third quarter of 2023, a 109.26 per cent rise from N10.8bn in the corresponding period of the previous year.
Beyond the pronouncements made by the minister on social media, the precise time frame for the resumption of operations by the airline is still unclear.
The minister’s spokesman, Tunde Moshood, told The PUNCH, “I can assure you that everything needed to be done has been done.”
He emphasised that the assurance was not unilateral from Nigeria but stemmed from a mutual agreement between the two countries.
Fear of more exit
Experts said if the crisis is not resolved early, some airlines may follow the steps of Etihad and Emirates Airlines in withdrawing their service from Nigeria.
They noted the government must find a solution to the forex crisis and prevent the loss of foreign airlines in the country.
Reacting to speculations that more airlines may exit the Nigerian market, Ojukutu told The PUNCH, “We are moving down fast into the valley of death of the industry if these airlines carry out their threats of withdrawing their commercial operations from Nigeria.”
According to Ojukutu, foreign airlines are crucial to Nigeria’s aviation industry, and the country needs them more than ever, adding that they contribute over 80 per cent of Nigeria’s commercial aviation services earnings.
“Pay off their earnings or kill the industry. You cannot be selling goods to debtors who are not ready to pay, otherwise, it will run you aground as you too can run aground if you don’t have dependable credible customers as they are,” he warned.
The General Secretary of the Aviation Safety Round Table Initiative, Olumide Ohunayo, pointed out that blaming Emirates Airlines for its departure due to trapped funds was unjustified.
“You cannot blame Emirates Airlines for leaving because its funds are trapped. It had just declared a profit. So, even without Nigeria, they are profitable. They can do without us, and their position is understandable,” Ohunayo told The PUNCH.
He highlighted the ongoing issue of paying in dollars for certain services in Nigeria, particularly in aviation fuel supply, which refused to accept payment in naira.
“Why wouldn’t they accept the naira in Nigeria? It’s one of those bases that made them pull the plug. If they return, you will see a slight drop in airfare. But, unfortunately, the local fuel supply refused to accept naira.
“They pay in dollars for almost everything, and you are not paying them. So, everybody is not getting money, agencies, and even the fuel suppliers. The entire value chain has lost money,” said Ohunayo.
Apart from the trapped funds, there are also concerns about high operating costs in the aviation sector.
The PUNCH gathered that it costs about $3,000 to operate a B737 aircraft on a one-hour flight when aviation fuel was less than N100 per litre.
However, with the current exchange rate and the increase in aviation fuel to over N800/litre, airlines operate a B737 aircraft for over triple that amount.
The Regional Vice-President for Africa and Middle East for IATA, Kamil Alawadhi, warned that if the current trend persisted, airlines may reconsider operating in the country.
Alawadhi told The PUNCH that the operational costs of running airports in Nigeria, at Lagos and Abuja airports, had become a critical concern for operators.
He said, “Nigeria happens to have the two most expensive airports to operate to, which are Lagos and Abuja airports. The fees are almost double and half than of the Gulf Cooperation Council Regions airports.
“The airports do give that much; they do not give that high quality of services to the passengers or the airlines, yet they charge humongous amounts of money to operate to and from those airports.”
Cleared backlog insignificant
Last week, the CBN paid $2bn to clear a part of its backlog of matured forex obligations to the Deposit Money Banks.
The apex bank confirmed, in a statement, that foreign airlines received $61.64m from the disbursement.
However, the airlines said the $61m they got was insignifi¬cant compared to the $792m owed the airlines in the country.
The President of the Association of Foreign Airlines and Representatives in Nigeria, Dr Kingsley Nwokoma, recently said the government must pay something reasonable to the airlines so as not to risk leaving the country.
He said, “The foreign airlines are not talking about the released funds because they felt it is a little drop. It is not some¬thing to be too excited about. If we have had about $300m now or half of what the airlines are owed, then, you can say there is hope.
Nwokoma recalled that the conversation with the Min¬ister of Aviation and Aerospace Development, Festus Keyamo, on the issue seemed worthwhile but only $61m had been paid thus far.
He said, “We are not saying the government should pay all, but the government should have a plan to pay a chunk of the money every quarter. The fear is that if it continues like this, some of the airlines may go.
Nwokoma said Nigeria was found wanting in terms of honouring the Bilateral Aviation Services Agreement.
BASA is an air transport agreement between two countries that allows designated airlines to operate commercial flights, covering the transportation of passengers and cargo.
He noted, “Nigeria is just a very strange country. Some are still saying that the airlines should not be asking for any money from Nigeria. What is BASA? BASA is signed by countries and not airlines. We signed our commitment to BASA and we are not doing any¬thing about it.
“If all countries are defaulting like Nigeria, there will not be any airline that comes into the coun¬try again. The aviation industry is predicated on the US dollar. You pay your catering, handling, hotel and a lot of things in dollars and if you don’t pay, your crew would be sent out.”
He advised the Federal Goverrnment to discuss with the foreign airlines the modes of payment for the blocked funds.
“The government should sit with the foreign airlines just like how you sign your BASA agree-ments and agree on quarterly payment of these funds. The gov¬ernment should please keep to that agreement. By then, we will be making progress,” he said.
The President of the National Association of Nigerian Travel Agencies, Susan Akporiaye, told The PUNCH that the $61.64m paid to foreign airlines was part of the accumulated debts.
Akporiaye explained, “The old debts are being settled at the prevailing rate when tickets are sold, with the exchange rate around N400/450 to one dollar. The debt, which was originally over $800m, has been reduced.
“This specific issue led to Emirates discontinuing flights into Nigeria. The government has committed to paying the old outstanding debt at the rates prevalent during the sales period.