Aero: More airlines may shutdown over forex, diesel crises

By ADEBAYO OBAJEMU

The crisis in the aviation sector took a dramatic turn last week with two airlines shutting down operations for different reasons but with the same root cause. It was doomsday foretold for both airlines which derived from operating difficulties.

Airlines operators and experts have consistently warned of imminent crisis in the sector caused by the twin problems of forex and Jet A1 or aviation costs, which has hit the roof-top. The situation is compounded by fixed low air fares making it difficult for the airlines to break even.

Aero airline first announced its suspension of operations as a result of skyrocketing costs to avoid compromising safety due to poor maintenance of aircrafts, promising to return when the situation improved.

Then, the unexpected happened with the bear air mattress shape of a Dana airline flight in Abuja, which led to its suspension by the Nigeria Civil Aviation Authority, NCAA.
Earlier in May, airlines had threatened to shut down operations, a decision they later rescinded. Last week, the Nigerian Civil Aviation Authority (NCAA), wielded the big stick as it slammed suspension on Dana Air operations indefinitely over its alleged inability to run safe operations.

The development, Business Hallmark learnt was sequel to the aviation authorities’ investigations which led to the immediate withdrawal of the airline’s Air Transport Licence (ATL) and Air Operator Certificate (AOC) indefinitely, with effect from midnight of Wednesday, July 20, 2022.

The airline it was gathered, had an air return at Abuja Airport last Tuesday afternoon, with 100 passengers disembarking safely.
All had not been well with the airline as report has it that the carrier has also been embroiled with in-house challenges that saw to its Deputy Chief Executive Officer, Sukhjinder Paul Mann, resign his appointment after about eight months in the saddle.

Capt.Musa Nuhu, the Director-General of the NCAA, said that the suspension was made pursuant to Section 35(2), 3(b) and (4) of the Civil Aviation Act, 2006 and Part 1.3.3.3(a)(1) of the Nigeria Civil Aviation Regulations (Nig.CARs), 2015.

Nuhu stated that: “The decision is the outcome of a financial and economic health audit carried out on the airline by the authority, and the findings of an investigation conducted on the airline’s flight operations recently, which revealed that Dana Air is no longer in a position to meet its financial obligations and to conduct safe flight operations.

“The NCAA acknowledges the negative effect this preemptive decision will have on the airline’s passengers and the travelling public and seeks their understanding, as the safety of flight operations takes priority over all other considerations,” Nuhu said.

The airline, in its reaction, noted that operational audits are regulatory and airlines are obligated to suspend their operations when the NCAA calls for it and “we understand the impact this suspension will have on our partners, staff, passengers and the general public but we are very confident that we would come out stronger as we have done in the past.”

Reacting to the development that has affected their organization, Kingsley Ezenwa, spokesperson of the airline, in a release assured of his company’s readiness to cooperate with NCAA in the course of this audit and to also reassure customers and partners that “we are safe, efficient and reliable”.

“The recent skyrocketing cost of Jet A1 at N830/litre, unavailability of forex, and inflation are also contributory factors to this decision regrettably.

“We crave the understanding and patience of our customers, travel and business partners and sincerely apologise for any inconvenience our short absence from the market might cause.

“Our customer service team will continue to operate 24/7 to assist affected customers with necessary information on refunds and our offices will be open to all our existing partners,” Ezenwa stated.

Sources say what has happened to Dana may be a tip of the iceberg considering operational challenges the airlines are facing over rising costs.

The greatest challenge has been the rising costs of diesel. Competent sources told Business Hallmark that over 80 per cent of domestic airlines are not credit worthy and, therefore, find it difficult to be trusted by marketers supplying aviation kerosene, otherwise known as Jet A1 fuel.

Sources informed this medium that in the coming weeks airlines might be forced to raise the price of flight tickets to N100, 000 for single movement following the significant rise in the price of the product.

Discreet investigations revealed that the fuel marketers are no longer comfortable to sell on credit because the airlines do not have money to pay immediately, this usually leads to cancellation of flights which affects the passengers.

John Atteh, an aviation analyst said “many of the airlines suffer from poor financial management, and on account of this in the past had led to flight delays and cancellations, a means operators have devised to continue to remain in business.

“The resultant effect of poor financial management has seen a shut down of operation of over seven airlines, including First Nation, Medview, Chanchangi, Discovery Air, IRS Airline, amongst others in the past four years.

It was learnt that currently, operators now buy Jet A1 at N745 per litre, a 74 per cent increase over the N429 it was sold in January this year and a further 137 per cent increase compared to the price a year ago.

Recall that the Airline Operators of Nigeria, AON, Nigeria National Petroleum Company Limited, Central Bank of Nigeria, together with other relevant regulators, had in May, come together to end volatility in the price of Jet A1.
The parties agreed that six million litres of aviation fuel would be provided at N480 per litre for three months in what looked like Foreign Exchange, FOREX subsidy pending when the carriers would be granted a license to import the commodity.

However, the remedial action planned by the stakeholders is yet to become operational. According to a recent survey Jet A1 fuel now sells at N714 per litre in Lagos, N740/L in Abuja and N745/L in Kano.

The astronomical upsurge in the price together with the what looks like a lull in passenger traffic among other factors, is already engendering some sort of fear and panic in the sector, as the airline operators say they cannot break even under the current circumstances.

It was learnt that between Lagos and Abuja using Boeing 737-Classic, the most common aircraft available to operators in the country, gulps about 4,500 litres for one leg of the flight.
Experts say airlines normally gulp between 90,000 and 190,00 litres of Jet A1 fuel per day, depending on their level of operations.

In Lagos where the product is sold at N714 per litre, with daily consumption of 90,000 litres, the least spending of most airlines stood at N64.26 million, while in Kano where the product is sold at N745/ litre, that same airline with the same usage spends N67.05 million on an average daily.

Using the same parameters to calculate the consumption for aircraft utilising 190,000 litres daily at N714 per litre, the airline spends N135.66 million daily, while at N745 which is the price of the product in Kano, the airline spends at least N141.55 million on daily basis.

Already, operators are worried over how to continue to cope as the cost of Jet A1 continues to rise and prices of flight tickets have remained the same, in spite of the fact that a further increase in the ticket price might cause major catastrophe in the sector.

It would be recalled that in February, domestic airlines in Nigeria raised the price of airfares by over 100 per cent.

Prices of economy class tickets hover from N50,000 and above due to the hike in price of Jet A1, access to FOREX and other sundry reasons.

Executive Director and Chief Operating Officer, United Airline, Osita Okonkwo, recently told another medium that the current hike in the price of aviation kerosene has put is operators in a tight corner.

“Airline operators are battling to survive at the moment because of this development. Our businesses are really challenged by this development. Although there is an intervention in the development by the Federal Government, the intervention is not sustainable.

“We got the product at N585 per litre at the beginning of this month, (June) but the market price remains N714 per litre.

“This price is for Lagos alone. Outside Lagos, the addition of transportation amongst others, pushes the price higher. Operators are just holding out to do the best they can for the travelling public, but beyond that, it is not sustainable.

“Within the supply constraint that we have, there is not much the government can do, it is just for the marketers and NNPC to continue to do their bit to manage the situation.

“The next thing is for the operators to do the necessary things they need to do. If they need to increase prices to sustain themselves in the business, that will be a private decision to make.”

In June, the Vice Chairman of Airline Operators of Nigeria, AON, Mr. Allen Onyema, sounded the alarm bell at the maiden edition of Federal Airports Authority of Nigeria, FAAN, National Aviation Conference, FNAC, with the theme, ‘’Advancing the Frontiers of Possibilities for Safe, Secure and Profitable Air Transport’’, in Abuja.

Onyema, at the conference, who refused to name airlines which may go under, said aviation fuel challenge was not limited to Nigeria alone, but was emphatic that the case was made worse in Nigeria because of the sharp fall in the value of the naira against major currencies, especially the dollar.

“That is why we ran to the government and the Federal Government has given us about 10,000 metric tonnes of fuel at the cost of N580 per litre in Lagos and about N607 per litre outside Lagos.

“This is not the only issue. Since the COVID-19 crisis, most airlines all over the world, including Nigeria have not recovered except those whose countries have injected so much funds to assist them.

“This is nobody’s fault. It just happened. Government has tried its best by giving us this aviation fuel. This aviation fuel can take airlines out, not only in Nigeria but everywhere in the world.

“Some airlines outside Nigeria have closed down because of the effects of rising aviation fuel. If these things are not addressed in Nigeria, it can affect the bottom line of all airlines in Nigeria.

“We have come to realise that there is little or nothing the committee set up can do because this is as a result of foreign exchange and price of oil all over the world now.

“The fuel marketers will sell according to what they are paying. The cost of aviation fuel has increased, even in London and every other country. Our own is worse because of the increase in foreign exchange.”

The danger is present. With increasing financial difficulties airlines may compromise standards and safety to stay afloat, as Dana was accused of doing, which put the safety of 100 passengers at risk.

It must be noted that many airlines that went under in Nigeria happened at operational crisis point, and this could happen during scarcity of aviation fuel, high exchange rate, some inimical government policies that attracted massive criticism and low passenger traffic.