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Heavy maintenance fees stifle domestic airlines on account of FX shift

domestic airlines

Nigerian airlines are now spending more on aircraft maintenance and purchase of spare parts as cost of maintenance has risen by over 40 percent in recent times, as a result of the high exchange rate, BusinessDay’s investigation shows.

It is feared that the situation might force airline operators to skip routine checks or cut corners, a development that could hurt air safety.

The naira adjusted by 29 percent to N282 against the dollar in the interbank foreign exchange (FX) market as the Central Bank of Nigeria (CBN) intervened massively to ease demand for the greenback.

The CBN sold $4.02 billion in special secondary market intervention sales (SMIS) and $46.5 million on the interbank market at N281 to N285 to the dollar on the first day of trading, after its currency peg was removed, Thomas Reuters data showed.
“Operational costs are stifling the country’s domestic airlines, such that they cannot afford to acquire hangars on their own,” Nogie Meggison, president, Airline Operators of Nigeria, told BusinessDay.

“Unfortunately, only Arik and Aero have maintenance hangars in their bases in Nigeria. That is not to say they are in anyway different from others, because Arik Air is in partnership with Lufthansa, where they pay heavily. Also, Aero cannot go beyond C checks,” Meggison said.

According to Meggison, other airlines can only carry out ‘line checks’ at the airsides, even though airlines are no longer required to pay duty on parts imported into Nigeria, the manufacturers directives on aircraft maintenance have to be strictly adhered to.

He noted that following this development, domestic airlines expenditure on maintenance was shooting even higher.

Aviation experts and operators had called for the establishment of functional aircraft Maintenance, Repair and Overhaul (MRO) facilities, otherwise known as ‘hangars’ over the years, to cut down on the cost and time of airplane repairs.

Experts say that maintenance of airplanes here in Nigeria will cost the airlines less than half of the present sums of ferrying them abroad for repairs in Europe, the US, Asia, Ethiopia, Kenya, Egypt, and South Africa, which are the usual repair destinations.

Some are also advocating for a Public Private Partnership on the project.

Sheri Kyari, managing director of Finum Aviation, a service firm in the Nigerian aviation industry disclosed that private investors would have undertaken to build aircraft maintenance hangars in the country, but for the fear of policy inconsistency, which had made them hold back.

Kyari urged government to provide guarantee and assurances to investors, either by getting involved or providing a conducive environment for them.

Apart from linking various deadly crashes in the country to lack of adequate maintenance, aircraft engineers say the country may have lost over $170 billion in the last 10 years to capital flight, as they say about 10 domestic airlines could be losing N50 billion annually.

The carriers are groaning under the weight of industry charges ranging from 5 percent ticket sales; landing and parking fees; navigational charges; port charges and fuel surcharge, among others.
They also pay heavily to source for aviation fuel, which is sometimes not readily available because local refineries are not working.

“The domestic airlines have in the last few years been burdened by debt of over N130 billion with a bail-out of over N200 billion from government, a greater part of their funds are expended on maintenance, then fuel,” Dave Adedoja, a travel analyst, said.

“One eventually finds the airlines moving around the same spot and then going comatose after sometime because major issues are left unresolved,” Adedoja said.

He stressed that a deliberate plan by government in this direction to save the sector by establishing a national hangar that will comprise compartments where various aircraft types can be checked will go a long way in stabilising the sector, Maintenance checks on aircraft range from A, B, C and D checks, which are done periodically.

An aircraft is subject to C check every 15 to 18 months. This type of aircraft maintenance is a comprehensive inspection that covers hidden parts so that any damage or cracks in the internal parts of the aircraft can be detected.
The most detailed inspection is the D Check. This inspection is generally an overhaul.

Experts say it could cost between $1 million to $2 million to carry out a C-check on an aircraft, depending on the type.

They say comprehensive (C) Check on B737 classic and maintenance in Europe, the US or in Egypt or Ethiopia costs $1 million.

At present, Nigerian airlines carry out C and D Checks abroad in millions of dollars, periodically.

Harold Demuren, former director-general of Nigerian Civil Aviation Authority (NCAA), said recently that Nigerian airlines were going through difficult times because they earn their revenues in naira and carry out maintenance, buy spares and pay some technical personnel in foreign currency.

“Nigerian airlines are going through hell to survive. There is high fuel cost; all the business they do, they have to pay in dollars; their sales are in naira; they have to use the naira to get dollar at a high rate,” Demuren said.