Maintenance investors shy away as domestic airlines thin out

The consistent depletion in the number of aircraft on the fleets of Nigeria’s domestic airlines, along with poor government policies, are pushing the hope of having a viable Maintenance Repair Overhaul, (MRO) facility in the country, out of reach.

BusinessDay’s checks show that between 2015 and 2016, the sector lost over $2 billion in intended investment from international financiers who wanted a stake in Nigeria’s air transport sector by building an MRO, but were dicouraged by the sharp and constant depletion of the fleets of domestic carriers, as well as inconsistent government policies.
Considering the huge potential market for aircraft maintenance in Nigeria in mid-2015, a European aircraft maintenance company started discussions with a Nigerian carrier, to establish an MRO facility in Lagos, but the company eventually withdrew from the deal, citing the above listed reasons, as well as the drastic drop in the value of the naira agaist the US dollar, which in their view , was caused by poor fiscal policy.
Also in 2016, an African airline which has entry points in Nigeria was said to have commenced feasibility studies to locate an MRO facility in Lagos, to serve the West African sub-region, but later decided to locate the facility in Togo, targeting the Nigerian market.
“The major reason why foreign investors will want to invest in the construction of an MRO in any country is when they see a market for the investment. Presently, Nigeria doesn’t have adequate aircraft fleet to attract MRO investors.
“Domestic airlines are the ones who will contract maintenance agreement with the MRO companies. If we do not have real airlines, even the MRO operators will wonder what you want them to come and do in Nigeria,” Dong Pam, a pilot and chairman, Governing Board of the Nigerian Aviation Safety Initiative (NASI) told BusinessDay.
Gbenga Olowo, President of the Aviation Round Table (ART) an industry think tank, observed a recent trend of sharp depletion of the fleets of domestic airlines. Olowo said this development cannot encourage investors to set up an MRO, which is a capital intensive project.
He further recalled that in 2010, Nigerian airlines had 54 operating comercial aircraft but that by 2014 the fleet had reduced to 39 aircraft. BusinessDay’s checks show that domestic carrier, Aero Contractors, which used to have ten aircraft, currently has only two operational aircraft, three on maintenance, while others have been returned to the leasing companies.
Similarly, Dana Air, currently has three operational aircraft, while two are abroad for maintenance. First Nation, has recently grounded its operations because all its aircraft are abroad for maintenance, Medview has four operational aircraft and one abroad for maintenance.
Arik Air, the biggest domestic airline in Nigeria, which had 28 aircraft on its fleet, presently has less than nine operational aircraft.
However, Tayo Ojuri, an industry expert and Chief Executive Officer, Aglo Limited, argues that despite the aircraft reduction, government can implement policies to attract investors to set up a great MRO that will service the aircraft that operate within the country and and those that operate within the region.
Ojuri pointed out that Ireland and South Africa are hubs for aircraft maintenance and repairs and if West Africa has a great MRO, operators within and outside the region will come over and service their aircraft.
“On one hand, there is a challenge of the dearth of airlines, on the other hand, a challenge of foreign exchange. Government should create a free trade zone, so that when the aircraft come in, taxes should not be applicable and forex should be at a discounted rate.
“To also attract the expertise, Nigeria has to guarantee investors of safety, security and guarantee them that their investment will not be tampered with,” he added.
BusinessDay’s investigations show that at the exchange rate N199 to a dollar, it cost an airline between $1 million and $2 million, amounting to N199 million to N299 million to carry out a comprehensive C-check and a D-check, depending on the aircraft type.
However, with the interbank exchange rate at an average of N370 to a dollar, airlines now have to pay about N370million for their aircraft maintenance, which must be done once every 15 to 18 months.
However, Fola Akinkuotu, former CEO of Aero Contractors Company of Nigeria Limited, suggested that the best way to establish an MRO in a country like Nigeria is to start by renting or leasing existing facilities, loaning tools and assets required to get the job done. This enables the MRO generate revenue and reputation to ensure future financial resources, which could then be invested in providing the needed assets and facilities.
“The funds required for any strategy adopted can be sourced in the following ways: Direct Initial Investment by establishing partners or owners of the MRO; MRO revenues, which are reinvested back into the business; private placement to raise the required capital or approach institutional investors for venture capital funding; establishment of the MRO as a full-fledged, registered company (different from the airline) to obtain loans from a bank,” Akinkutui said.