• Thursday, February 22, 2024
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Nigerian airlines struggle to replace old fleet

Nigerian airlines struggle to replace old fleet

Local airlines are seeking financing to fund the acquisition of new fleets, however the industry is being squeezed by the weight of debt, corporate governance issues, poor regulation and decrepit infrastructure.

While Nigeria’s more than 10 domestic airlines are bedeviled with myriad of challenges, Ethiopia Airlines, Africa’s largest carrier by revenue, is flourishing.

Tayo Ojuri, chief executive officer, Aglo Limited told BusinessDay that while Ethiopian airline has good track record of being credit worthy and is more experienced, domestic airlines lack these major attributes that could attract big financiers to loan them money at very low interest rates.

Ojuri also mentioned that liquidity rate and interest rates are determined by the Central Bank of Nigeria, (CBN), and airlines may be unable to access loans at a single digit interest rate.
“In the United States and Canada, the interest rates for airlines are as low as two to four percent but in Nigeria, the interest rates are 21percent and above. This rate is influenced by the Central bank. For instance, the commercial banks borrow money from the Central bank at double digits and by the time Commercial banks add their own interest rates, it amounts to 21 to 26 percent.

READ ALSO: Airline operators say only 25% of fleet are currently in use two months after resumption

“Interest rates are determined by inflation, liquidity of the economy, and the Gross Domestic Product, among others,” he added.

Ojikutu recalled that the N300 billion CBN power and airline intervention fund disbursed to airlines in 2012 was mismanaged by most of the airlines that benefited from it.

The country’s leading carrier, Air-peace recently signed an agreement with Boeing for the acquisition of 10 new 737 aircraft, at the cost of $113 million per plane, with a view to reducing cost of operations and magnifying revenue.

The deal will be partly financed by Fidelity Bank Plc, details of the transaction are not public.
Although Ethiopian is fully owed by government, it is run by experts. Also, government never collects dividends; instead it allows the profit to plunge back into the business for future expansion.

It has excellent corporate governance as government does not meddle with day to day operation of the business while frugality such as aggressive cost control is increasingly intensified.

Ethiopia Airline’s dominance can be seen in Addis Ababa overtaking Dubai as the conduit for long haul passengers to Africa, according to Travel Consultancy Forwardkeys (TCF).
TCF added that Addis Ababa airport had increased number of international transfer passengers to Sub Saharan Africa for five years in a row and in 2018 surpassed Dubai one of the world’s busiest airport, as the transfer hub for long haul travel to the region.

According to IATA, African carriers are expected to report a $300 million net loss in 2019 (slightly improved from $400 million net loss in 2018).

The expected net loss per passenger is $3.51 (-2.1% net margin), but the Association said the exception to the story is Ethiopia Airlines whose net income in the 2017/2018 financial year rose almost 2 percent to $233 million.

Domestic airlines operating in Nigeria have continued to struggle to get funding to replace old, depleting fleet as a result of high interest rate emanating from weak working capital position, currency volatility, and airline’s poor track records.

Aero Contractors had 10 aircraft on its fleet, but the number has reduced to two aircraft.  Medview airlines which had about four aircraft, currently has about two.

Also AirPeace, the largest domestic airline in Nigeria recently reviewed its flight schedule downward on account of five of its aircraft it pulled out of service and sent abroad for C-checks.

Medview Airline Plc, the only airline on the floor of the Nigerian Stock Exchange (NSE) is grappling with deteriorating financial performance as evidence in its third quarter financial results.

The company’s revenue dropped by 75.77 percent to N7.84 billion in September 2018 from N28.77 billion the previous year; it recorded a loss after tax of N1.53 billion in the period under review.

Medview has more debt that will become due in the next 12 months than it has in liquid assets as its current assets of N4.30 billion in the period under review are less than current liabilities of N16.84 billion; also, its accounts payable- that is money owed to suppliers- of N16.24 billion are 3.3 times total equity.