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.”
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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.
He said rates are basically within the same range but the problem is not really an increase in lease rentals but the challenges of falling naira and scarcity of forex.
BusinessDay’s investigations show that airlines pay between $800,000 and $1m for scheduled aircraft maintenance outside Nigeria every 18 months.
While maintenance costs have not increased, airlines have seen an increase in naira-dollar exchange rate from N280 per dollar two years ago to over N750 to a dollar. This implies that airlines would be paying almost triple what they paid for aircraft maintenance two years ago as a result of the currency depreciation.
Amos Akpan, managing director of Flight Logistics Solutions, said: “From my over 30 years’ experience at the senior management cadre of airlines, maintenance is the costliest component after fuel and funds. No component of aircraft is manufactured, fabricated, or overhauled in Nigeria.
“You have to keep the aircraft serviceable to fly at least 12 hours a day to make sensible economic utilisation. You constantly have to repair and change units/parts in the aircraft. Some by calendar, some by hours, and some just snag, as it is common with machines. You need forex (which is in very short supply in Nigeria) to buy the parts from where these parts are produced, fabricated, or overhauled.”
Akpan said the problem is that at the time airlines carried out the business plans and budgets, the exchange rate would have been N200 per dollar.
Stanley Olisa, spokesperson for Air Peace, said the forex crunch has a serious impact on the operations of airlines as it can be challenging procuring forex, adding that when airlines get it, the exchange rate is high.
“As a result, airlines spend much more on spare parts and maintenance now than they did a few years ago because these transactions are processed in foreign currencies and affects overall operating costs and ultimately, the bottom line,” Olisa said.
Musa Nuhu, director general and chief executive officer of Nigerian Civil Aviation Authority (NCAA), said the NCAA will leave no stone unturned in ensuring all airlines operate safely.
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He said if it would mean grounding some aircraft to ensure safety, the agency would do that.
Nuhu disclosed that the NCAA has been carrying out audits on airlines to ensure that they comply with technical and financial safety requirements.
He said: “Of recent, we grounded two airlines based on financial sustainability as they were having financial difficulties but one of them has met the requirements and we have released them to commence operations.
“We are auditing the entire industry to ensure there is complete compliance. The industry is just coming out of COVID-19, then Jet A1 prices quadrupled within a short period and this has put the industry in a very difficult situation. But I know the government and the minister of aviation are doing all their best to find palliatives in place and reduce the challenges facing the industry.”
