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By Louis Ibah
Signs that many more years would be needed for the global airline industry to come out of the woods after the Coronavirus shock became obvious at the just concluded Annual General Meeting (AGM) of the International Air Transport Association (IATA) in Geneva, Switzerland, where a “deep industry loss” forecast that would continue into 2021 was announced even as passenger patronage is projected to dip until 2024.
IATA’s Director General/CEO, Alexandre de Juniac, who described the impact of COVID-19 crisis on airlines as “devastating and unrelenting” said so far, airlines have cut costs by 45.8 per cent, although revenues remain down by 60.9 per cent.
According to IATA, a net loss of $118.5billion is expected for airline operators at the close of 2020, while in 2021 it forecast a net loss of $38.7billion for the industry.
This forecast should unsettle those opposed to any form of government support to keep Nigerian airlines afloat.
Already, most of the international airlines are surviving on financial support from their governments with IATA fearing that even after $173 billion of government assistance went into the industry in 2020, the median airline has just 8.5 months of cash to survive.
“The financial damage of this crisis is severe,” lamented de Juniac who declared that the hope of airlines around the world was in governments getting their borders safely re-opened without quarantine so that people would fly again and in the provision of more bailouts for operators.
The Nigerian reality
Sadly, this lifeline has not been extended to much of African airlines as IATA noted that governments in the continent have refused to offer bailouts to their carriers, with Nigerian airlines among the unfortunate lot.
“With losses estimated at about N360billion due to the impact of COVID-19, investors in Nigeria’s domestic airline industry have every cause to seek for a well structured government bailout; the type that provides sufficient funds to keep the airlines afloat as profitable businesses immuned from the shocks induced by the pandemic,” said development economist, Clement Idok.
“The N4billion bailout proposal by the Federal Government, which has been heavily criticised by the majority of industry stakeholders, including the National Assembly, remains grossly insufficient to resolve the myraid of challenges confronting the Nigerian airlines post COVID-19. Much more is required, including tax rebates and temporary exemptions from some of the current airports and regulatory charges,” he added.
Why bailout
Indeed, at the peak of COVID-19, most Nigerian airlines had cut down on staff numbers, but there is still the possibility of more job losses in the industry as exemplified by Arik Air’s recent redundancy declaration on 300 staff due to declining revenue. In an economy where majority of youths are unemployed, it makes no sense allowing more job cuts in aviation, where with the right fiscal incentives it is possible to even create additional work opportunities.
Aside the job loss challenges from COVID-19, the local operating environment places operators at a serious disadvantage ab initio with low fares which does not reflect economic realities.
There is also the lack of aircraft maintenance facilities in-country, which warrants local airlines spending more than double on aircraft repairs at overseas Maintenance, Repair and Overhaul (MROs) hangers in spite of nil income even as it strives to meet huge staff remuneration, multiple taxes to regulatory and airports agencies, loans at double digit interest rates and exorbitant cost of foreign exchange (forex) for mandatory aircraft repairs and purchase of spares.
When these listed factors are considers alongside the fear that operators could be forced to cut corners and compromise safety if all doesn’t go down well with them financially, one is left with no option that agree with those calling for a significant increase in bailout funds to the airline’s by the Federal Government.
Dissenting voices
Getting government to bailout the local airlines, has however, not been without some resistance within and outside the industry. Opponents of the policy, have cited previous cases where misapplication and outright theft of bailout funds by operators reigned.
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Aviation analyst, John Ojikutu, for instance in opposing a bailout for the industry said it was wrong to utilise public funds for private airlines with a record of previous abuses and failure to pay statutory taxes to government.
“We once had Okada, Kabo, GAS, Triax, etc who made over 2,000 sorties to Liberia and Sierra Leon in the mid 90s; collecting $50,000 on BAC-11; $80,000 on B727; $100,000 on B707 and $120,000 on B747 on a sortie; they were not paying landing and parking both ends and no navigational aid charges, yet they went down on their own not ‘killed’ by government,” Ojikutu said.
But proponents have argued that that some operators abused past bailout privileges, it is not the fault of the entire industry or newcomers, rather of the financial institution and regulators that tolerated sleaze. The regulators should go after debtors and never use that as an excuse of not playing its role to save the local sector.
Voices supporting bailout
The contribution of the country’s airline sector to the economy cannot be overstated.
Aside connecting major cities at a much faster pace for ease of movements of persons, goods and services, the likes of Air Peace, Aero Contractors, Arik Air, Medview and Dana Air have also made their mark in regional and international operations at various times.
Of note is the fact that Nigerian airlines a contribute to the country’sGDP, creating anxiliary jobs in catering, taxis/cabs, hotels and other non-aeronautics businesses scattered around various airports in the country. In doing this, the industry has contributed in no mean ways to the ongoing quest to diversify the economy from over dependence on Petroleum.
The decision to therefore allocate a paltry N4 billion as bailout for the sector was bound to irk many, like the industry think-tank, Aviation Round Table (ART), whose chairman, Gabriel Olowo, condemned the amount as insufficient saying “government should just leave us to die, then we will know Nigeria has no aviation industry. N4billion palliative for the aviation industry is very insensitive. I condemn it totally.”
Also, Chairman, Senate Committee on Aviation, Smart Adeyemi flayed the Federal Government’s earmark of N4 billion bailout for the airlines, warning that paucity of funds could push operators to cut corners.
“There’s danger in flying in Nigeria today. We must support the airlines operating in Nigeria. The airline operators in Nigeria are just managing. Other countries are giving bailouts to airlines. There’s need to review the N4 billion bailout to the airlines,” Adeyemi said.
Comparing the $74 million and $150 million earmarked by Senegal and Rwanda as bailouts for the countries’ airlines, Adeyemi lamented the poor funding for Nigeria’s aviation sector.
The lawmaker therefore proposed N50 billion bailout for the airlines instead.
“This increase in bailout is imperative if we are to keep our economy running, guarantee job security and mitigate retrenchment,” he said.
Adeyemi has the support of the House of Representatives Committee on Aviation who also proposed a bailout of N50billion to the airlines.
Its Chairman, Nnolim Nnaji said the amount would avert a total shut down of the airlines industry, which could have dire consequences on the economy.
If
developed countries could give bailouts in billions of dollars to their airlines to cushion the impact of Coronavirus, with all the incentives at their disposal, Nigeria airlines,
Nnaji said deserved something better than the N4billion promise which was yet to be released.
Way out
What most industry observers would want to see is a stakeholders meeting midwived by the Nigerian Civil Aviation Authority (NCAA) and Central Bank of Nigeria (CBN) specifically to discuss a workable bailout plan with airline owners. At present, some of the airlines need funds for aircraft refleet, others for aircraft fleet repairs and maintenance, while other for staff remuneration. Some would appreciate tax rebates and exemptions from multiple charges to airports and regulatory agencies.
It is those who wear the shoes that know where it pinches. The airlines should be allowed to state how much they need and which specific areas they would want to deploy bailout funds to and the repayment plans.
Such plan must also be in line with the recommendation of the International Civil Aviation Organization, (ICAO) for continued financial and regulatory support, particularly financial relief that does not increase debt levels through direct cash injection, credit or loans and discounts on user charges that supports airlines over the post COVID-19 restart and recovery period.
The government should look at the recent feats by Air Peace during the pandemic where it conducted emergency operations into Isreal, UK, India, China as basis to support the local airline industry stabilise financially. The other local airlines are also making huge financial sacrifices to actively engage in domestic operations that is assisting trade, commerce and government businesses to thrive. One should remember the exorbitant cost of forex to airlines business and the need for government to place local airlines on its topmost priority list in access to forex for maintenance and spares purchase.
“N50billion is not too much to sacrifice for the industry to survive. What we should insist is in using the bailout on items that will enable the players actually come out better organisations that compares to their counterparts globally,” said Lead Consultant to ETIMFRI Group, Amos Akpan.
“It is our responsibility to support our domestic airlines to grow. It is Nigerian operators that will grow Nigerian aviation industry. Governments that have done so see the essence to support the recovery of their aviation industry,” he added.
Indeed, in a time of recession, which the beleaguered airline industry has been for years now, there is need for more cash flow to avert the collapse of the local airlines as the economy would be in dire straits should they be allowed to go down. After all, they employ thousands of Nigerians directly and indirectly, creating revenue for service providers, services to the travelling public and boosting the country’s GDP growth.
