BusinessDay
NigeriaDecides2023

25 carriers shelve take-off plans amid rising costs

Twenty-five prospective carriers that have submitted applications to process their Air Operating Certificates (AOCs) have been slowed down by the current high operating costs, BusinessDay’s investigations show.

BusinessDay found out that there are 27 prospective operators that have applied to the Nigeria Civil Aviation Authority (NCAA) to get their AOCs. Apart from Nigeria Air that has reached the advanced stage and a prospective Toucan Air, which is currently on the fourth stage of the five AOC stages, the others have been slow in meeting the NCAA requirements.

There are five stages airlines must pass through before they are issued AOCs.

According to Sam Adurogboye, public relations manager of the NCAA, out of 27 prospective airlines on its list that have applied for AOC, only one prospective airline, Toucan Air, is on stage four; eight airlines are on stage three, three airlines are on stage two and four on stage one. The remaining 11 carriers have indicated interest but never continued the process.

Some experts have said no airline would come into the airline business at a time when costs have surged, a situation that has led to the temporary exit of two major carriers, Dana and Aero Contractors.

Eighteen months ago, the NCAA had 25 prospective airlines on its list that applied for AOC, and only two airlines, Green Africa and XE JET, have since received their AOC, with others delaying and suspending the process, while existing carriers struggle for survival over operating costs.

Taxes, surcharges and maintenance costs have risen because of the scarcity of foreign exchange. Airlines carry out most of their activities in the US dollar, which is sold for N680 at the parallel market and is in short supply.

The aviation fuel crisis, which began in late February, has worsened and is currently threatening the ability of airlines to continue operations, with the price of JetA1 rising from N200 in December 2021 to over N400 per litre in February this year. Currently, the price has skyrocketed to over N800 per litre.

Olumide Ohunayo, an aviation analyst, told BusinessDay that the airline business is very challenging now as the cost of operations is very high and that is why prospective carriers are slowing down.

Ohunayo said: “Even airlines world over that have so many aircraft, capacity are stable currencies are reducing capacity at this period, despite having passenger surge. Airports too are reducing capacity.

“There is an increase in the cost of aviation fuel worldwide and the general inflation that has accompanied it has made organisations to reduce capacity to be able to meet operating costs. We also have the continuous depreciation of the naira and fuel scarcity. These have been compounded, with fuel price that has risen from N190 per litre last year to N800 per litre.”

Ohunayo said the prospective airlines applied for AOC when fuel price was N190 per litre.

“It is only reasonable for these prospective carriers to slow down and delay the processes. Apart from salaries of workers, every other expense, from equipment to spares to training will be done in foreign currencies. The demo flights will also require the same scarce expensive aviation fuel,” he added.

Read also: Airlines can mitigate costs by implementing tech solutions – AeroCRS CEO.

Seyi Adewale, chief executive officer of Mainstream Cargo Limited, said it would not be strange for the regulator to request for a revision of the business plans submitted by the prospective airlines.

He said: “Many of these prospective carriers have international partners that are supporting them with aircraft leasing (arrangements), and as such, they have to ensure that the business plan and model adopted will work or else they will suffer and lose their investments in the long run.

“An advantage to local partners and promoters is that there are many aircraft parked globally seeking those that have the capacity to lease them and make them operational and thereby earn an income rather than incurring costs. So, the cost of operations, maintenance and ticketing must all be revised and looked into to see that they are still feasible at this time in time.”

Adewale said there are many hurdles to cross to get the NCAA Air Transport Licence/AOC approvals.

According to him, the NCAA has very detailed, very technical, thorough, long and cumbersome acquisition criteria that can only be met by a determined and serious aviation professional team.

“Many of industry professionals usually complain that the requirements for a cargo airline should be separate from that of a ‘passenger and cargo’ airline but NCAA requirements are the same for both,” he added.

Adurogboye, however, said the issue of AOC issuance is not with the NCAA but the prospective operators.

He said: “When an operator applies for the licence, they must go through the five stages required by the NCAA and meet all the requirements therein before they can be issued AOC.

“They have to scale one stage before they move to the next stage. This has been the issue. Operators have to be willing to meet these requirements and each stage comes with some requirements and if they don’t meet up, then it would slow the process.”

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