While airlines continue to feel the impact of COVID-19 which affected their operations during the lockdown and is still affecting them by way of passenger traffic and depleting fleet size, their woes have been further compounded by high foreign exchange rate.
Since the resumption of domestic flight operations in July, after the airports were shut down to contain the spread of COVID-19, airlines have been struggling due to a slowing economy and naira depreciating, resulting in increase in cost of operations and services.
Airlines buy spare parts, lease planes and sometimes pay service providers in dollars but are paid in naira for tickets sold to passengers. The depreciation of the naira has since forced them to increase airfares to cushion the effect of the naira to dollar variations on their operations.
Hadi Sirika, minister of aviation, had said that the aviation sector is the most hit by the coronavirus pandemic, saying many airlines won’t survive the crisis.
Airline operators disclosed that over 120 aircraft are parked at various airports across the country, with airlines required to pay accumulated cost on leased aircraft, staff salaries, allowances for crew, parking and maintenance fees, and recurrent training.
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It is for these obvious reasons that experts have called on the government to make available urgent substantial bailouts for the airline or many airlines may go under in a few months or years.
Countries provide bailouts for its airlines
Several countries have had to devise various measures to help airlines recover from losses resulting from the impact of COVID-19.
For instance, President Trump signed a historic $2.2 trillion stimulus bill into law on March 27 which includes $61 billion in relief for the airline industry. The relief package includes a combination of direct grants and loans for the airlines, with the grants conditioned on the discretion of the government to take an ownership stake.
The Australian aviation industry received a $715m relief package, as the federal government waives a range of fees to help support the sector, reeling from the effects of the coronavirus and associated travel restrictions.
The package will see the government waive fees including aviation fuel excise, Airservices charges on domestic airline operations and domestic and regional aviation security charges.
Cathay Pacific and other Hong Kong-based airlines will gain substantial financial benefits from a new COVID-19 aid package unveiled by the government.
Direct relief includes subsidies based on aircraft fleet size. An airline will receive HK$1 million ($129,000) for every large aircraft registered in Hong Kong, and HK$200,000 for every small aircraft. The aviation measures are part of a HK$138 billion stimulus package for the broader economy announced late on April 8.
Why domestic airlines should also get support
In light of these realities and taking a cue from what other countries have done to keep their airlines alive, Nigerian airlines should therefore not be alienated from a bailout.
There have been arguments for and against a bailout for domestic airlines based on past support that did not yield the desired results.
It is alleged that business owners and promoters diverted the funds to other areas against the funding objective. However, many of these past airlines that benefited thereof are now moribund.
Experts have therefore suggested that rather than deny airlines a substantial bailout at this critical time, a proper bailout structure should be put in place for eligible airlines to benefit from.
The federal government has approved a N4 billion bailout fund for domestic airlines to mitigate the adverse effects of Covid-19 pandemic on them.
However, experts say this sum is meagre as domestic airlines alone owed about N22 billion to the Nigerian Civil Aviation Authority (NCAA) and had lost N360 billion as a result of the pandemic.
Olumide Ohunayo, an aviation analyst told BusinessDay that bailouts are supposed to stabilise the economy, the industry and the airlines, adding that giving the airlines bailouts does not mean it is for the airline alone as airlines cannot operate on their own.
Ohunayo said bailouts should also be extended to service providers, the tourism sector and ground handlers amongst others who are all part of the value chain.
He said the support for the airline is one that would sustain the industry, will save the value chain and the passengers, so that the passengers will be able to fly again.
“When there are no airlines, no one can fly. The fewer the seats, the higher the fares. When the fares get high, passengers cannot travel and when passengers cannot travel, you begin to kill the economy. We need movement to jump start the economy back to pre-COVID. Bailouts will in the long run enable people to move goods and services.
“Not all airlines will survive without a palliative. Those that will survive, will have to cut down on frequencies and capacity/aircraft size due to the paucity of funds and lack of liquidity. The economy is just picking up. We need to encourage the airlines to begin to increase capacity and frequencies and this can only be done when they have access money,” he added.
Other forms of palliatives for airlines
Olumide Ohunayo told Business that aside from providing monetary bailout, the government can work with the banks to put a moratorium on all outstanding debts, interest rates, loans and principals for about one year to help airlines recover quickly.
Ohunayo also suggested that the government can also look at the interest rate for those applying for fresh loans. “The government can help subsidise the interest rate. These are some areas the government can assist. IATA has advised governments across the world to work together and push more for the certification, testing and vaccination rather than quarantine, which is killing the spirit of travel,” he added.
Seyi Adewale, the chief executive officer of Mainstream Cargo Limited told BusinessDay that the primary objective of government’s support and bailout is to discourage sacking of workers in the first instance and to ensure economic sustainability.
“The more important role of aviation and airline in particular is that they are business catalysts. Efficient airline operations and connectivity ensures business efficiency and growth. Alternative means of transportation are in dire straits due to bad roads, insecurity, slow speed, amongst others. Aviation remains the fastest, safest and best means of transportation,” Adewale said.
He hinted that after the bailouts are given to airlines, if the government is determined, recoveries would be made through several debt recovery strategies and this will discourage potential future beneficiaries from diverting funds or carelessly applying for bailout funds.
Creating proper bailout structure
To avoid business owners and promoters from diverting bailout funds to areas against the funding objective, experts have suggested proper bailout structures.
Seyi Adewale listed some requirement to be made before bailout funds are approved to include management accounts, Profit and Loss (P&L) Accounts, valid Air Operating Certificate (AOC) and training certificates, number of retained staff versus total staff, number of serviceable aircrafts versus fleet, performance guarantee to ensure funds are channelled to area approved under funding, payroll structure and last payroll.
Olumide Ohunayo also hinted that the government will need to set out criteria for the airlines to bid for these palliatives, as not all airlines should benefit from the bailout.
Ohunayo said operators who abused past privileges should be made to pay their outstanding debts before they are allowed to participate in a fresh one.
“Not everyone would benefit from the bailout funds. Those who have not collected before and those who have collected and have been paying back outstanding debts gradually should qualify for the palliatives. Airlines earn their money in naira while they buy spare parts and pay for operational cost in dollars.
“The high exchange rate is a big hit on the bottom line for them and a window for forex should be open for the airlines. Non-scheduled operators are not supposed to benefit from the bailout fund. The schedule operators, the airports and other value chains are critical. Airlines should also be given moratorium on fixed charges for the period operations were not available. The airports with low traffic need to cut down costs of operation. The government should subsidise charges in these airports,” he explained.
Airlines continue to drive economy, provide jobs
As experts have earlier stated, airlines more than ever before need bailouts and support from the government because they continue to drive economic activities and provide jobs.
For instance, Air Peace, the most stable of the airlines, accounts for about 40 percent of the 2018 total passengers on the local front.
Today Air Peace has over 3,000 direct employees and has created over 6,000 indirect jobs for Nigerians.
Air Peace placed a firm order for 10 brand new Embraer 195-E2 aircraft. The order comprises purchase rights for another 20 E195-E2 jets and 124-seater jet in dual class and 146-seater jet in single class configurations. With all purchase rights exercised, the contract is valued at N640.5 billion ($2.12 billion) based on current prices.
The carrier also ordered 10 brand new aircraft from Boeing, increasing its fleet size then to 37 aircraft. With the new order, Air Peace’s fleet size has increased to 67.
These fleets will be helping boost economic activities by facilitating movement of people from one state or one country to another.
