• Thursday, June 13, 2024
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BusinessDay

Airlines to save N4.9bn yearly on spare parts waiver

Airlines to save N4.9bn yearly on spare parts waiver

Domestic airlines and commercial jet operators in Nigeria are projected to save over N4.9 billion annually with the removal of a 7 percent surcharge on imported aircraft spares parts.

Before now, the Nigeria Customs Service (NCS) charged aircraft operators 7 percent of the value of each spare part imported.

The Federal Government in a recent announcement removed this surcharge following consistent pleas by the Airline Operators of Nigeria (AON) that had complained the surcharge was squeezing the operations of airlines struggling to survive amid economic downturn and COVID-19 impact.

Allen Onyema, Chairman, Air Peace, had said the surcharge often caused delays in the clearance of aircraft and aircraft spares leading to grounding of aircraft that were supposed to be flying.

Onyema said since July 7, 2021, airlines have been clearing their aircraft spares and aircraft without having to pay any 7 percent surcharge.

BusinessDay’s checks show that the average maintenance cost on an aircraft is about $950 per flight hour. With each aircraft achieving about 1800 flight hours per annum, an airline would expend about $1.7 million on maintenance of each aircraft every year.

Read also: Brazil urged to establish aircraft maintenance facility in Nigeria

However, this cost is on planned maintenance, as each unscheduled maintenance and repair event such as bird strike, engine failures, burst tyres, among others are not included.

Available information also shows that local airlines and jet operators carrying out scheduled and unscheduled operations cumulatively have about 100 aircraft.

With $1.7 million spent on spares for maintenance on an average aircraft annually, this implies that operators spend over $170 million annually for maintenance of 100 aircraft.

Therefore, airlines would be saving about $12 million annually as a result of the removal of the 7 percent surcharge on aircraft spares. With the CBN current exchange rate of N410 to a dollar, airlines would be saving about N4.92 billion annually.

Obi Mbanuzuo, accountable manager, Dana Air, told BusinessDay that some items on the aircraft were replaced on schedule, measured either by flight hours or calendar time (days or months), while others need to be replaced ‘on condition’ when they become unserviceable.

According to Mbanuzuo, it is very easy to budget for first set that are replaced according to a fixed schedule that cannot be changed, even if it is serviceable and working perfectly while the second set can malfunction at any time.

“Imagine that an average B737-300 engine that Dana Air operates costs up to $1.5 million so an unscheduled engine change due to a malfunction, bird-strike or other defect can be very expensive and unplanned.

“Therefore, costs vary. In some months, the airplanes are humming along nicely requiring only scheduled maintenance inputs and at other times unexpected events cause huge capital outlays,” he explained.

Seyi Adewale, CEO, Mainstream Cargo Limited, told BusinessDay that in the last six months, the value of imported aircraft spares by domestic airlines, which he has assisted in applying for waivers, range between N1 billion and N4 billion.

Adewale said technically, it would be double this amount or more annually as spares needing constant change or replacement include: brakes, tyres, aircraft engine on repair and return, Integrated Drive Generator (IDG), APU, lifesaving appliance, fire extinguisher, nose landing gear, ELT and bottle ASSY, among others.

Experts globally are saying the aircraft spare market is growing following the inability of airlines to buy new planes as a result of COVID-19 impacts, thereby forcing them to rather opt for more spares and maintain their old aircraft.

The cheapest form of spare parts is from existing aircraft from defunct carriers or carriers looking to downscale. An example of this would be Virgin Australia’s recent decision to sell off its Boeing 777-300ER fleet.

“Flights will resume, but revenue starved airlines will be desperate to conserve what cash they have left. Many airlines will eschew expensive factory fresh products for less expensive, well maintained used planes and parts,” Andrew Curran at Simple Flying, said.

Airlines can snap up these second-hand planes at reasonable prices, and strip them for required assets. However, there are only so many planes in the market that are kept in good enough shape to be useful, and as soon as aircraft start flying again, the market will turn upside down.