Aviation
Three airlines face imminent collapse
By AYOOLA OLAOLUWA
Local airlines operating in the country are presently facing uncertain future over harsh economic environment weighing down their operations, Business Hallmark can reveal.
The airlines, BH checks revealed, are battling myriads of challenges, especially scarcity of foreign exchange, high cost of maintenance checks and aviation fuel, as well as depleting passenger traffic owing to rising fares.
The Airline Operators of Nigeria (AON), it would be recalled, had recently warned that three airlines currently in operation may soon collapse.
While speaking in Abuja at the recent National Aviation Conference (NAC) organised by the Federal Airports Authority of Nigeria (FAAN), the Chairman of Air Peace, Allen Onyema, who is the deputy chairman of OAN, blamed airlines unprofitability and high turnover rate to several challenges, including rising cost of aviation fuel and high taxes.
“There are so many issues in the aviation industry. Issues like high taxes are making airlines to be unprofitable here.
“We pay excessive charges to the Nigerian Airspace Management Agency. Paying navigation charges is absurd for domestic operations. The mortality rate of airlines in Nigeria is alarming. Over 70 airlines have gone into extinction in the last few years.
“The current fuel crisis will take away three airlines in the next few weeks. How do we make money in a situation where we pay salaries and charges to different aviation agencies?”, Onyema had lamented.
However, findings revealed that the majority of the airlines are not doing well and may soon join the over 70 failed airlines in the graveyards.
One of the major headaches being faced by airlines is the rising cost of aviation fuel, popularly known as Jet-A1.
A check by our correspondent on Friday, July 29, 2022, showed that the commodity which sold for N280 in early February 2022 before jumping to N400 at the start of the Ukraine/Russia on February 24, currently hovers above N800.
The situation, BH learnt, is also not helped by old planes currently being used by many of the local airlines.
Apart from Air Peace and Air Max which have relatively new aircraft in their fleets, the other airlines, it was gathered, are using old and fuel-guzzling planes to fly passengers.
For instance, the MD83 aircraft which account for over 80% of planes owned by the now suspended Dana Air, are said to be fuel guzzlers and will continue to bleed the airline’s finances until they are rested.
“Dana Air was spending an average of N60 million daily on aviation fuel alone. With fuel-efficient aircraft like those in the fleets of Air Peace and Air Max, the airline could cut it down to N45 million. This is about N25 million saved on fuel.
“If the management of Dana wants the airline to stay in business, it must strive to acquire more modern aircraft that are more fuel-efficient.
“If they fail to do that and fuel prices continue to soar, I won’t be surprised if the airline soon close shop like others before it”, warned Engr. Jide Ojo, an aeronautical engineer based in Lagos.
Plagued by the sharp rise of aviation fuel, local airlines have struggled to maintain flight operations.
There have been recorded delays in flight schedules in recent weeks, forcing air passengers’ to vent their frustrations on airlines staff and equipment.
The persistent delays in flight schedules currently being experienced in local airports across the country, a source informed BH, is attributable to the rise in vacant seats on planes and unavailability of Jet-A1.
An investigation by BH revealed that economy class domestic tickets (Lagos-Abuja and Abuja – Lagos) now cost between N150,000 to N200,000, depending on the airline.
For instance, while Lagos to Abuja trip through Air Peace, United Nigeria, Azman Air and Arik Air cost between N160,000 and N180,000 on Friday, a one-way ticket to Port Harcourt cost N85,000, while a one-way ticket to Kano via Azman cost about N100,000 on the same day.
An Abuja bound passenger who had planned to travel by air to Abuja on Friday, opted to go by road when the cost of going by air increased from N60,000 to N80,000.
“I had planned going by air to Abuja today (Friday) but could not get a fair price. I have a church programme in the city on Saturday and Sunday and had budgeted N250,000 (inclusive transportation, hotel accommodation and feeding) for the trip.
“If I had gotten a return ticket for N120,000, I would have had another N130,000 to play around with.
“Unfortunately, air ticket alone is costing almost N200,000. That is outside local shuttles within Lagos and Abuja, accommodation and feeding.
“As you are seeing me, I am on my way to ABC Transport terminal at Jibowu for this trip by road”, declared the passenger who preferred to be identified only as Bolutife.
Due to the low patronages being recorded, BH learnt that airlines often disembark passengers already seated in the planes to join a more filled plane belonging to rival airlines.
“Owing to the sharp rise in the cost of air transportation, Nigerians, especially the lower middle class, are daily abandoning air travel. This has caused a lull in passenger traffic.
“For instance, an Azman Airline flight from Lagos to Kano scheduled for 6.45am just departed about one hour ago (9.20am) after other airlines transferred the passengers on their almost empty planes to the Boeing 737.
“How can airlines break even when they buy fuel at over N800 and then fly aimlessly around the country half empty. The situation is quite pathetic”, lamented a ticketing staff of one of the struggling airlines.
Another problem threatening the continued existence of the airlines is the excessive charges paid by operators in the sector.
Some of the operators who spoke on the issue of excessive taxes in Lagos at the weekend, said the little gains they make go to numerous government agencies in the form of taxes.
Some of the taxes, the sources revealed, include parking, navigation, ticket sales, cargo sales, value-added tax, passenger service, charter sales, aircraft inspection, simulator inspection and landing charges.
Other charges paid by airlines include enroute charge, fuel surcharge, electricity charges, airport space rent, apron pass, ramp access charges, ODC, terminal navigational charge and the newly imposed registration fee, among other fees paid to government agencies.
According to BH calculations, the fees paid by airlines are close to 80.
The high numbers of multiple taxes was confirmed by the operators who claimed they pay excessive charges to the Nigerian Airspace Management Agency (NAMA), particularly the payment of navigation charges which they described as absurd for domestic operations.
“There are so many issues in the aviation industry. Issues like high taxes are making airlines to be unprofitable here.
“We pay excessive charges to the Nigerian Airspace Management Agency. Paying navigation charges is absurd for domestic operations. The mortality rate of airlines in Nigeria is alarming. Over 80 airlines have gone into extinction in the last few years. And another 3 are on the verge of joining them”, warned Air Peace boss.
Further breakdown of the fees paid by airlines shows that they pay 5% ticket sales charge, 5% cargo sales charge and the 7.5% value-added tax.
The Chief Commercial Officer (COO) of Green Africa, Obiukwu Mbanuzuo, who also spoke on the development, revealed that on a one-way ticket sold by airlines, his airline pays N2,000 to the Federal Airports Authority of Nigeria (FAAN) as passenger service charge, and five percent (N2,500) to NCAA.
“From whatever is left, the airline also pays N2.50 for each litre of fuel to FAAN (via the marketer) and landing fees, which depend on the aircraft landing weight.
“Basically, FAAN collects a ‘throughput’ charge on each litre of Jet A1 sold to airlines. I understand that this was historically due to the underground fuel hydrants that supply international airports but those no longer work.
“Anyway, whatever price Jet A1 is, the marketer adds N2.50 per litre that the airline pays and this is paid to FAAN,” Mbanuzuo stated.
The Green Africa Airline COO further said that on every flight, airlines pay between N20,000 to N25,000 to NAMA as terminal navigation charges and enroute navigation charges.
Meanwhile, these excludes other charges to airports for space rental at the check-in counters, to handlers (NAHCO/SAHCO).
The airlines are also reeling from the impacts of the huge costs paid on taking their aircraft abroad for mandatory checks.
Based on NCAA requirements, airlines operating in the country must go for specified checks at stated intervals, especially the flight line maintenance checks and the four different types of higher-level maintenance: A, B, C checks, as well as the D Check, which is the heaviest and most capital intensive.
Unfortunately, all the maintenance checks are presently done outside the country and come at very huge cost.
The C-check, for instance, is mandatory every 18 months for commercial aircraft and cost over $1 million (N460 million/official rate) per session on just one aircraft.
Available records suggest that Nigerian airlines spend about $3.5 billion on aircraft maintenance in 2021 in foreign yards, especially the Ethiopia Airlines MRO facility in Addis Ababa
With increased aircraft being added to the fleets, the amount is expected to hit $5 billion by year end 2021.
Meanwhile, these cost are outside the normal repairs and purchase of spare parts such as engines and tyres.
However, the Nigerian Civil Aviation Authority (NCAA) has begun an economic and financial audit of some of the domestic airlines.
This is coming on the heels of a recent audit of Dana Air by the regulator. The outcome of the audit, our correspondent learnt, led to the withdrawal of the airline’s operating licence.
Impeccable sources in the aviation industry confided in our correspondent that the ongoing audit is targeted at two local airlines Onyema subtly broached over during his Abuja speech in order to ascertain their financial health.
“NCAA DG has mandated a team to audit three domestic airlines to ascertain if they can still continue operation. Dana Air is one of them. This development led the agency to stop Dana from operating.
“We don’t know whether the two remaining carriers would fail the audit too,” a top official of the NCAA disclosed.
Though BH could not Independently confirmed the claim, multiple sources mentioned Aero Contractors which recently announced the suspension of its operations as one of the affected airlines.
Giving reason for shutting down operations, the airline’s management blamed it on the rising cost of aviation fuel, scarcity and high cost of acquiring foreign exchange, high cost of servicing planes and many others.
