…As economist asks for more powers to NCAA to dissolve boards of airlines
…Makes case for single digit loans
A finance expert in the aviation industry, Paul Ludick, a director for Africa at Architect-Engineer Contract Administration Support (ACASS), has warned Nigerian airline operators eager for foreign funds to not rush for lease or loans.
Ludick, described as a distinguished aviation professional with over 26 years of expertise in the African aviation industry, stated this as a guest speaker at the ‘International Civil Aviation Conference on Capital Adequacy and International Competitiveness’ held in Port Harcourt, Rivers State, on Thursday, December 5, 2024.
He said those taking loans to finance purchase of airplanes and those going into leases must not fall to those telling them what they wanted to hear.
He said the operators must seek evidence of the sweet carrots offered to them by foreign lenders and some lease deals.
He said it is not true that newer planes were more air worthy than old one, saying some newer planes can be in worse condition than older ones. He said there were many reasons why such is so.
He also the critical issue in the aviation industry in Nigeria is not that foreign registered planes are operating in the local aviation market.
He advised the local operators to seek to acquire Dollar (USD) assets which they hold as an operator, saying the less an operator holds USD asset, the higher the risk mitigation because risk assessors are also the lenders and lessors.
Paul Laje, said to be an established accountant, financial expert, and policy consultant, in his presentation on ‘Adopting Global Capital Structure and Adequacy Model in Enhancing the Nigerian Civil Aviation Industry’s Competitiveness’, referred airline operators to the lesson from the jungle.
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He said the lion is guaranteed to kill for food but that other smart animals still find ways to get some meat from lion or from the jungle, an indication that smart airline operators would fin ways to obtain capital in the aviation financial jungle.
He observed that airlines do not increase fares for fun but due to many reasons one of which is high inflation and steady rise in foreign exchange. He said the crisis comes for the aviation industry when they take loans in dollar and earn income in naira in a highly volatile forex market.
Alaje made some policy recommendations including more autonomy for the Nigerian Civil Aviation Authority (NCAA), the ability of the NCAA to enforce fund guarantees in the industry, and a call for the aviation operators to have functional boards which he said could be dissolved or sanctioned by the NCAA if they failed to act according to law and regulation.
He said the NCAA must encourage collaboration such that no one single person should own more than 49%, saying such reforms saved the banking industry.
The expert said fares may not come down because all forecasts show that the Dollar is still rising and may get over N2000 on a worst case scenario. He called for increase in equity chest of airlines from minimum of N500m to N3bn.
“Try to get others to invest in your airline. Its better to own 1% of N1trn than 100% of N100m. International investors are comfortable with integrity of manager of the airline, and other shareholders. They need mgt different from board.”
To business people who hate when unfavourable forecasts are made, he said: “Do not fight numbers. Work with numbers. Its possible to have N1,100 per dollar but the policies to get there are very tough.”
He said cheering news is that foreign reserve will be up to $48Bn next year. If we want to take the aviation to the next level, we must find the funds. Aviation industry is expensive but is good.”
He mentioned some funds available such as equity financing; debt financing, etc, saying the recent rate adjustments by the Central Bank of Nigeria would drive up interest rates up to 60%.
He thus called for a law pegging lending rate to single digit, by maybe creating special lending fund for aviation. He said crowds at airports is all about money.
“We do not want planes to be falling from the sky. NCAA has done well to keep planes in the air with policies but that alone will not keep for long.
“Borrowing from outside is risky because our aviation industry operates in Naira. So, how do you pay back in dollar. Those keeping domiciliary accounts are saying communicating the impression that they don’t trust in our currency.
“There is need for protection in aviation sector, and Nigeria is not the first to do it. NCAA and other hold a discussion with the CBN so that forex can go to aviation which runs 85% of expenses in forex. Key sector such as aviation needs consideration.”
Speaking, Oludare Akande, the CEO Belagio Airline, advised operators to build relationships, saying everything rises and falls on relationship. “Be honest to your bank, state everything, etc.”
On things to consider when going into partnership, he said one should be bankable with structures and boards, not having wife and kids on board and hope that a serious bank would give you $10m loan.
He called for a National Aviation Finance Summit to look at unlocking Sustainable Financing for Nigeria Aviation Growth. “Let the Minister talk to the President to bring the big boys to come into the sector and help Nigeria get into global aviation business.
He said Government guarantees matter a lot in expanding the aviation sector. He said investing in another man’s land needs caution because of many issues.
Setting the tone of the conference, Festus Keyamo SAN, the Minister of Aviation & Aerospace Development, who was represented by Director-General of the NCAA, Chris Onah Nojoma, stressed the need to enhance Nigeria’s capacity in air travels and to lead the sector in Africa.
He urged the technical experts to focus on capital adequacy which he said is backbone of international competitiveness, assuring the strong will and support of the President Ahmed Tinubu administration in the airspace sector.
He said the Ministry is keen on training people because the aviation sector is as good as its people, and that all hands must be on deck to build a sustainable ecosystem.
In their goodwill message, the National Assembly represented by Buhari Abdulfatai (Chairman, Senate Committee on Aviation) and Idris Garba, house Committee on Aviation, assured the NCAA of support to turn the aviation industry around.
Ends/
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