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Nigerian airlines buy planes in anticipation of rebound despite low passenger traffic

…experts say airlines may be cashing on crashed price of parked planes

Despite global low air passenger traffic occasioned by COVID-19 disruptions, Nigerian airlines are taking the bold step to purchase airplanes with anticipation that the industry will rebound soon.

Azman Air, one of Nigeria’s domestic carriers, has announced the acquisition of a second Airbus A340 aircraft as part of its expansion drive in 2021.

The Kano-based airline says it will also buy three Boeing 737-800 aircraft to expand its network into West Africa and for international operations, and an additional acquisition of five lower capacity aircraft to serve less passenger routes.

The airline had tweeted on January 4, 2020, “Mega Plans is underway @AzmanAir to dominate the Aviation Market in 2021 with arrival of 2nd Airbus A340-600, arrival of three Boeing 737-800 for West Africa and international operations, acquisition of five lower capacity aircraft to serve less passenger routes.”

Air Peace, Nigeria’s leading airline, will receive two brand new E195-E2s by the end of January 2021, and had also taken delivery of two new ERJ-145 aircraft to help boost its domestic and regional operations.

The airline also signed a firm order for the delivery of 13 E195-E2 brand new jets and will be expecting three of these jets in this year. The airline says these jets would be used to feed local and regional routes.

Dana Air also recently expanded its fleet with acquisition of two Boeing 737-300 and had recently received two aircraft that had gone on maintenance.

In the heat of the Covid-19 pandemic, Green Africa, owned by Babawande Afolabi, is completing the process of acquiring the Air Operator’s Certificate (AOC) that will be issued by the Nigerian Civil Aviation Authority (NCAA), a required step before any airline can start flying passengers.

These aircraft acquisition and new entrance are happening at a time the sector is experiencing a downward trend in passenger travel, which is largely informed by restrictive measures undertaken in various jurisdictions, including lockdowns and closure of boundaries.

Tewolde Gebremariam, CEO of Ethiopian Airlines, said in an interview with Bloomberg TV that African skies could reopen and recover much earlier, against the backdrop that global flights would require about 48 months to bounce back to 2019 levels.

Tolu Odutola, operations manager, Tropical Arctic Logistics Limited, told BusinessDay that even as restrictions had been lifted from time to time, at the heart of the pandemic are safety concerns by passengers, many of whom have had to reschedule or altogether halt their travel plans indefinitely, which led to the sinking of African airlines’ traffic by 76.7 percent in November 2020.

Odutola wonders why at a time when India is curtailing fleet expansion plans scheduled for 2020 and taking delivery of less than a third of its target by end of the year, Nigeria is acquiring more aircraft.

The pilot however envisages that aircraft production is poised to be on the acceleration path in 2021.

“The idea of airlines moving from leasing to buying of planes could be informed by a number of factors in their strategic planning: first and foremost, this move increases their credibility in competition logistics. Further, it significantly brings down the overall operational costs in a lifetime, allowing them to accelerate their quality of service, reliability, and expansion rate.

“Another point of reference by airlines for expansion is the good news from both Moderna and Pfizer that their Covid-19 vaccine has proven to be more than 90 percent effective in combating the disease. This increases optimism, that amid all the challenges that came with the epidemic, the ball could be set rolling, opening the skies for passengers. As the vaccines become available to both developed and developing nations, passengers will feel safe to travel, and the fear that gripped the world will gradually fade away,” he explained.

John Ojikutu, aviation security consultant and secretary general of the Aviation Safety Round Table Initiative (ASRTI), told BusinessDay that Nigerian airlines might be buying aircraft possibly to cash on the crashed price of parked airlines’ aircraft.

According to Ojikutu, however, it may not be wise to be buying aircraft in anticipation of a rise in the passengers’ figures in the next two years to the pre-Covid-19 periods.

For Tayo Ojuri, industry expert/CEO, Aglo Limited, an aviation support service firm, the assertions that airlines are buying planes in anticipation that the sector would rebound and that they may be cashing on crashed price of planes are valid.

The implication of having more airplanes that are up for lease is that airlines would have more negotiating power, Ojuri said.

Seyi Adewale, CEO, Mainstream Cargo Limited, said, “There are many issues regarding purchasing these new airplanes: firstly, domestic airlines had effected orders prior to the outbreak of Covid-19, and yes, there could be the possibility to cancel these orders based on business limiting realities as experienced during pandemic 2020.

“However, there are many considerations; is Nigeria a fertile ground for aviation business continuity during and aftermath of Covid-19? The answer is Yes! This is even made more significant because the sector confidence level is rapidly improving and customer confidence is increasing due to accident free years.”

Many of the first aircraft acquired by these airlines, particularly Air Peace and Azman, could have lived out their contract leasing agreements and instead of renewing these aircraft leases, it is better to enter into new contracts with newer aircraft and as fleet replacement strategy, Adewale explained.

He further explained that airlines in Nigeria appear now to be more disciplined and fulfilling their financial obligations in line with their financial models and repayment plans for same such that bankers, investors and financiers are willing to offer them new credits to grow and expand fleet or attract new investors through the track record of performance and imminent and emerging opportunities.

“It is important to add that aircraft purchase or leasing cost is on the downward tread because more aircraft are up for sale or lease, demand during this period is very low and surely the prices would fall. So, it is the best time to invest in a new aircraft fleet, especially for emerging and growing economies. You can recall for example that Nigeria had the best stock exchange performance in the world. This is a very good indication of the potentials of our local markets,” the CEO of Mainstream Cargo Limited stated.

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