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Domestic airlines on thin ice over FG’s N4bn proposed bailout

For stakeholders in the Nigerian aviation industry, the huge impact of COVID19 pandemic is one that would take some time to normalise. Suddenly the global airline industry which was hitherto financially stable began laying off workers and grounding fleet as the pandemic created a huge dent on the finances of most companies.

Just recently the International Air Transport Association (IATA) presented a fresh insight and analysis showing why the aviation industry cannot slash costs sufficiently to neutralise severe cash burn required to avoid bankruptcies and preserve jobs in 2021.

IATA reiterated its call for government relief measures to sustain airlines financially and avoid massive job losses.

Total industry revenues in 2021 are expected to be down 46per cent compared to the 2019 figure of $838 billion. Its initial projection was for 2021 revenues to dip around 29 per centrelative to 2019. This was predicated on expectations for a demand recovery commencing in the fourth quarter of 2020. Recovery has however been delayed, owing to new COVID-19 outbreaks and government mandated travel restrictions including border closings and quarantine measures. IATA expects full year 2020 traffic to be down 66 per cent compared to 2019, with December demand down 68 per cent.

Although airlines are taking drastic steps to reduce costs, around 50 per cent of their  have been fixed or semi-fixed, at least in the short-term. The result is that costs have not fallen as fast as revenues. For example, the year-on-year decline in operating cost for the second quarter was 48 per cent compared with a 73 per cent decline in operating revenues, based on a sample of 76 airlines.

In Nigeria, the industry was almost paralysed following a five month shut down of flight operations. At a recent forum with the League of Airports and Aviation Correspondent (LAAC), the Director-General of the Nigerian Civil Aviation Authority (NCAA), Captain Musa Nuhu, admitted that indeed, COVID-19 has levelled even the strongest of carriers as most are being handed bailouts to survive across the globe. He said the weakening financial health of airlines is not limited to Nigerian airlines; but remains a global issue.

“We have seen airlines that recieved millions of dollars in subsidy from their governments still having issues. Many airlines have sacked workers, BA, Emirates, Lufthansa sacked workers in addition to withdrawing some aircraft. It is a global thing. But government is working on the palliative,” he said.

Many domestic airlines which were already in debt even before the onset of the pandemic were practically gasping for a breath as stakeholders kept pleading with the Federal Government to immediately provide palliatives to resuscitate the industry.

FG promises N4bn bailout

At a recent  three-day Senate public hearing on the amendment of six aviation bills, the Minister of Aviation, Captain Hadi Sirika, said the Federal Government has approved N4 billion bailout for the industry. Sirika who spoke in reaction to the opening remarks of the Chairman of the committee said the government has provided N5billion with N4 billion going to airlines and N1billion for disbursement to other businesses. “The Federal government has proposed N4billion for airlines and N1billion for other businesses. We are putting criteria in place for the disbursement of the funds,” he said.

With respect to the conditions airlines must meet to benefit from the palliatives, Captain Nuhu of the NCAA said that funds will only be given to operational airlines with valid Air Operator Certificate (AOC) and that Airline Operators of Nigeria (AON), would not err in putting forward a defunct airline for the palliative.

“Any airline can apply, whether functioning or not but it is a policy that participating airlines must be functioning and with Air Operators Certificate. I also believe that the AON has its own set of rules and they know the criteria, I believe the AON will not put forward a non- functioning airline,” he said.

Even the Senate Committee on Aviation said the COVID-19 intervention fund was inadequate and unacceptable as it will not be enough to save jobs in the industry or keep aircraft in the air.

Committee chair, Senator Smart Adeyemi, said: “I do not think that N4billion is what we are talking about if we do not want the civil aviation to park their aircraft and let go of their staff. N4billion for airlines is too small.  We do not want a situation where airlines will have to be cutting corners that would be too wrong for aviation. I recall that the United States gave and are giving airlines bailout staggered. I am not saying we are the US but we plead that the federal government takes a look at this and increase it.”

Airlines’ huge debts

In defending the Federal Government’s proposal, Sirika  revealed that the Airline Operators of Nigeria (AON) owes the Nigeria Civil Aviation Authority (NCAA) the sum of $6, 993, 284 million and N19, 365, 374,336 billion as non remittance of Ticket Sales Charge (TSC) and (CSC).

He told the committee this after the AON through its lawyer, Chinasa Unaegbunam, asked the Senate to repeal Clause 23 of the Civil Aviation Act asking for the reduction of the 5 per cent TSC/CSC.

Unaegbunam said operators need a lifeline and also asked that the governing board of the Nigerian Civil Aviation Authority ( NCAA) should include a member of the AON stating that this would give the airlines a voice. But Sirika who initiated a point of order, said that the monies owed were not charges as stated by the lawyer but a charge collected on the NCAA’s behalf from the airlines to be remitted which was not done. According to him, the AON currently owes US$6, 993, 284 million and N19, 365, 374,336 billion on the 5 per cent currently shared by the regulator, the Nigeria Airspace Management Agency (NAMA), Nigeria Meteorological Agency ( NIMET), Nigeria College of Aviation Technology ( NCAT) and the Accident Investigation Bureau (AIB). Currently, there are plans to review the sharing formula from the current situation where the NCAA gets 56 per cent, NAMA 22 per cent, NiMET 9 per cent, NCAT-7 per cent and AIB 6 per cent.

Aviation security expert, Captain Ojikutu supported Sirika’s stance and queried the claims made by domestic airlines that they lost N360 billion as a result of the pandemic. “I had said earlier that it is not possible that the domestic airlines have made a loss of N360billion in 8 months and could not have made that much with the five-million average passenger traffic in a year. To get that amount in a year from five million passengers, each would have to pay average fare of #72,000.

“Secondly, it was obvious from the senate public hearing that the domestic airlines don’t pay custom duty on imported spares; it was also known that most are indebted to the NCAA to the tune of 19bn and $6million. The amount owed the other government and private services providers are not known; for how long are going to dole out the commonwealth to the private airlines that show no responsible obligations to the state. If other countries give financial bailout to their airlines, it is because they show their States responsible obligations in taxes.

“We once had Okada, Kabo, GAS, Triax, etc who made over 2,000 sorties to Liberia and Sierra Leone in the mid 90s; collecting $50,000 on BAC-11; $80,000 on B727; $100,000 on B707 and $120,000 on B747 on a sortie; they were not paying landing and parking both ends and no navigational aid charges, yet they went down on their own not ‘killed’ by government. Most of the current airlines that were less than five years in operations shared more than N200bn in 2012 without COVID, some collapsed others are still on some sort of life support.

“Like the chairman of the Senate committee on aviation said, we must find out what is the real endemic sickness of the Nigerian private airlines; we cannot afford to be dishing out public monies to them and to them alone always. Those who are not owing the government services providers alone should be the only one that should access the palliative which should be for staff salaries alone and not for any other operational costs that never took place. Please let us note that there are other essential social needs for more Nigerians than the few air travelers, let’s think of such Nigerians.”

Expert says N4 billion, insensitive

The president of Aviation Round Table, Dr. Gabriel Olowo said what the airlines lost is much more that what they owe and that the proposed N4 billion is insensitive given that it has been eight months since the pandemic, yet nothing has been done for the industry.

He said: ‘’Domestic airlines alone are owing about N22 billion to the Nigerian Civil Aviation Authority (NCAA). In business losses, they lost N360billion. This is all as a result of the COVID-19 pandemic. Reasonable countries intervened in their aviation industries in the second or third month. This is the eighth month and Nigeria is just responding.

‘’I think the government should just leave us to die, and then we will know Nigeria has no aviation industry. N4 billion palliative for the aviation industry is very insensitive. I condemn it totally. The airline industry is not made up of aeroplanes alone; there are allied services, people that produce onboard service are part of it; there are those who produce distribution, which we call sales and marketing, these are now outsourced and it is all part of the aviation industry.

“This is without forgetting handling companies; they are all part of aviation. So how do you want to share N4billion among them? If you put that money into the well of debt of Arik alone, it will swallow it. It is better the government does not intervene and tell us they cannot help us because they have to pay Senators and House of Representatives members. For us, aviation as a means of travel is the fastest and safest, and we will make sure we do the right thing in the industry. Safety is our foremost concern and government interference will not disturb us.’’

Sunnews

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