How African airlines, airports, ground handlers can access funds from Afreximbank, AfDB

By Chinelo Obogo, talktonelo@yahoo.com

The July 2024 edition of the African Airlines Association (AFRAA) SkyConnect Leadership Dialogues included a virtual session with representatives from African Export Import Bank (Afreximbank) and the African Development Bank (AfDB) on how African airlines, airports, ground handling companies and other entities within the aviation sector can access financial support from the regional financial institutions.

Both banks revealed that they offer valuable financial resources for established aviation businesses in Africa but emphasise strong project planning, financial health, and a positive impact on the continent’s development. They explained that for the public sector, there has to be a feasibility study, which is a thorough analysis of the project’s viability, detailed plans for the project’s execution, an evaluation of the project’s impact on the environment and the ability to manage finances independently. For the private sector, airlines have to prove that their project is commercially viable with a clear path to profitability. They also have to show ability to repay the low interest loan, present a solid business plan and good balance sheet and demonstrate a clear strategy and financial health.

For Afreximbank, airlines must have at least three years of operation history, a minimum $10 million in annual revenue and a minimum of $2 million balance sheet. Startups are generally not eligible for direct funding, though AfDB says it may consider financing aircraft acquisition through a Special Purpose Vehicle (SPV).

Conditions to access funding

On conditions to get funding, key considerations for both banks are a realistic, well-defined and achievable business plan, an experienced management team with a proven track record in the aviation industry, a supportive regulatory environment, operating in a country with favorable aviation regulations and risk management strategy to mitigate potential risks like high operational costs or weak passenger traffic.

The Chief Aviation Officer for AFDB, Romain Ekoto, said: “Over the years, the bank has provided resources for aircraft acquisition. Airlines, airports, ground handlers and other aviation companies can receive funding from us. For the public sector, what we need for a project to be considered by the bank is a proper feasibility study to have been undertaken, we need technical designs, and most importantly, the environmental and social impact assessment. This is a critical element for any project to be considered by the bank. In most cases, countries can finance these studies, but when they are not able to do so, we also have some financing alternatives to help them in project preparation. We have different trust funds that can be assessed for project preparation because this is really key for a project to be considered for financing by the bank.

“When it comes to the private sector, all entities can actually access the private sector resources of the bank provided they have financial autonomy and provided they can demonstrate commercial and financial viability of the project they want to finance. Again, we have a range of instruments to finance the private sector but what is really critical for the bank is to know the development outcomes, we have to be able to demonstrate that we are impacting job creation and economic growth. We also consider the insolvency of the borrower because we want to ensure that the borrower can sustain its commitment to debt servicing over the time. Most importantly, environmental and impact assessment is key for consideration.”

The Acting Director, Trade Facilitation and Investment Promotion for Afrexim Bank, Gainmore Zanamwe, said a strong aviation industry is crucial for successful intra-African trade under AfCFTA and revealed that the bank offers various financing options for African aviation, including equity through its development fund and infrastructure project support. He acknowledged that some players may require assistance in developing bankable projects and revealed that the bank offers support in this area but that a well-defined business plan and a solid balance sheet are essential for securing funding.

“Afrexim supports both the public and private sector and overtime, we have done N2bn financing of the airline industry. There are a number of initiatives that the bank has put in place to support the AfTCA to facilitate intra African trade which can only work if we fix the issue of transport and logistics and the aviation sector requires a lot of attention. We have various products for Africa’s aviation. We can provide equity through our fund for development in Africa, we can also come in in terms of infrastructure related projects.

“Some of the players may be having good ideas but they need to be held by the hand to be able to develop good projects until they are bankable. However, what is very critical is that it is important to ensure that when the private or public sector comes for financing, they should clearly understand the prerequisites that are required and one of them is a good and realistic business plan and a solid balance sheet are very important, which is the starting point,” Zanamwe said.

Funding for startups

When asked if a startup can access funding or would it have to be an already existing airline, Ekoto said AfDB does not consider start-ups but that however, there are certain cases where a Special Purpose Vehicle (SPV) is created for the acquisition of an aircraft. He said this can be financed but otherwise, start-ups cannot be financed by the bank.

For Afrexim, Zanamwe said: “The most important thing that we usually focus on before a private entity can access funding is a really good business plan that is realistic that covers all the issues as well as the environmental impact assessment. One of the key issues we also consider is the experience of the management team which is very important because at the end of the day, you really want airlines that would provide very good quality services especially how to deal with the operational costs. We know what is happening in our continent and the number of airlines that are making losses, that is why this is very important. Our requirements are similar to that of AfDB but for Afrexim bank, to qualify for financing, we look at three years of your operations records, a minimum tenure of about $10 million and you need a balance sheet of at least $2 million. So, it basically suggests that it would be very difficult to actually support a startup.

“We don’t focus much on grants but when there is a convincing and compelling arguments where the benefits are so clear and the project is clearly aligned with some of the initiatives that we are trying to implement, we can also take it into account.”

Why airlines don’t get funding

Zanamwe and Ekoto dived into the key reasons airlines in Africa struggle to secure funding from Afrexim Bank and AFDB. Some of the challenges identified are unpredictable regulations which can lead to licensing delays or unexpected hurdles, jeopardising project timelines and financial viability, high operational costs compared to Europe. They said travel costs in Africa are significantly higher, impacting airline profitability. They also mentioned low passenger traffic in Africa which makes it difficult for airlines to generate sufficient revenue, complex visa policies across African countries which discourages air travel, hindering passenger growth, deficient infrastructure and safety issues.

“One of the key risks is the regulatory environment where the players are operating from. You need a supportive regulatory environment because we don’t want a situation where you would start operating and then have problems with licensing or getting some of the approvals. You really need to have these issues addressed as part of your business plan. In Africa, there have been instances where there are policy changes and it can be risky. At Afrexim, we have a good relationship with the 55 African countries and we normally try to come in and do so some advocacy.

“The other issue that we normally see in most proposals is the high cost of travel in Africa compared to Europe. This is an issue that needs to be addressed because it tends to eat into your profitability. There is also the issue of weak passenger load factor in Africa and there is the barrier of visa policies of different countries which frustrates those who want to travel by air. Also, more needs to be done in terms of infrastructure and safety related issues,” Zanamwe said.

While Ekoto said: “For us at AfDB, risk management strategy is key. It is very critical for the airlines to put in place risk mamangement strategies that would mitigate the risks that have been identified. The strategy should include the diversification of revenue generating sources. We saw during covid how some airlines quickly developed their cargo section which enabled them to generate revenue to management the situation.”