Spare parts costs on FX crisis ground planes

Some domestic airlines in Nigeria have been forced to ground their aircraft over the inability to afford the costs of spare parts driven up by the foreign exchange crisis in the country.

Airlines sell tickets in naira but buy aircraft spare parts, carry out maintenance and repairs in foreign currencies. The naira has depreciated against the dollar and other major currencies in recent months. At the widely-used parallel market, the naira plunged to as low as 900 against the dollar earlier this month before paring its losses last week. At the Investors & Exporters’ window, the naira-dollar exchange rate closed at N443.87/$1 last week.

BusinessDay’s investigations show that when airlines apply for dollars at the I&E window, it takes them between six and 10 weeks to get dollars, forcing some of them to buy at the parallel market or ground their aircraft pending when they are able to get at the official market.

The ability of airlines to secure the forex they need to acquire their spare parts to maintain their aircraft determines how quickly a grounded aircraft can be fixed and restored to its flight schedule, which in turn has a huge impact on the schedule reliability of the domestic airlines.

The development is said to have impacted on ticket availability for the festive season as tickets on Air Peace and United Nigeria for Christmas are all sold out as at Wednesday.

“Airlines are grounding aircraft due to a lack of spare parts because of dollar scarcity. We have aircraft unserviceable for parts. Sometimes for a few days, but sometimes for two weeks. Even when we get our bid at CBN I&E window, we can wait up to six weeks for the dollars; so in extreme cases, we have to go to the parallel market to source funds, by which time the parts have been sold and we start searching again,” Obi Mbanuzuo, chief commercial officer at Green Africa, told BusinessDay.

Mbanuzuo said the dollar scarcity is also affecting airlines that have wet leased contract, also known as aircraft, crew, maintenance and insurance, which are normally short-term and used for temporary increase in capacity.

“Leasing rates may have increased due to higher demand in Europe from where most of the wet lease aircraft come,” he said. “Green Africa only has operating leases where our own crews and engineers service the aircraft and our agreements are normally very long term like four or five years during which the rates are constant.”

Ibrahim Mshelia, owner of West Link Airlines Nigeria and Mish Aviation Flying School, said the forex scarcity is a serious problem for the industry as everything airlines use to operate, from the aircraft to crew training and retraining, is all dollar-based because they are imported.

He said: “So the high naira exchange value to the dollar and scarcity is a real issue. Parts and maintenance definitely have a share of the problems. There is a need to deliberately help the industry to avoid liquidation.

“We are having to live with what we can safely do. Once the conditions get tougher, then we would decide. But for now, there is hope that things may change in the future. It’s good some airlines are grounding their planes because safety is key. Once they cannibalise the aircraft to the graveyard, they will pack up.”

He said the fall in the value of the naira affects how much airline operators buy dollars to pay for foreign exchange bills. He said ticket prices have to be adjusted upwards as a result of the decline in the number of passengers airlines can accommodate.

On aircraft leasing rate, he said it is usually one percent of the sale value of the aircraft, adding that this is usually standard.