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By Chinelo Obogo
The Managing Director of Aero Contractors, Ado Sanusi, has listed hurdles stacked against domestic airlines as they attempt to get new aircraft from lessors. He listed factors like inability of foreign airlines to repatriate their funds, instability of the naira, bureaucratic bottlenecks and the rule of law.
He said if aircraft sellers, after agreeing for payment in installment, see that foreign airlines are finding it difficult to get their funds out of Nigeria, it stifles the chances of a domestic airline to acquire an aircraft.
“IATA is crying that foreign airlines cannot repatriate their funds from Nigeria and lessors are hearing this. The aircraft sellers who want to sell aircraft and have agreed that you can pay in installment are hearing this cry and so it makes it difficult. Also, when you have a very strong regulator very little or no political interference and a lessor wants to repossess his aircraft, based on Cape Town Convention; if our regulator is not strong, any judge in any court can grant a stay for his assets to be in country rotting away. Such things also put the country in high risk and Nigeria has been suffering from this for a while.
“There is the issue of safety oversight. When an associate of yours says, okay, I want to bring my airplane and I want to deregister it and put it under Nigeria registry, how is the safety oversight? How do you maintain continuous airworthiness of that aircraft? What is the re-sale value when I get my aircraft back? What is the respect international community give to our Nigerian civil aviation authority? When they say that this is a Nigerian registered airplane, what is its market value? Or when you register a European or an American, Australian airplane to Nigeria, does it lose its value just by that act of registering it in Nigeria? If it does, why? The reason is because they don’t have respect or they feel that our regulators are not living up to the standards that they should live up to. So those are the factors that contribute to Nigerian airlines not getting a very good deal in aircraft acquisition either through lease purchase or aircraft financing.
“There is also the continuous depreciation and instability of the naira, which means you can’t make plans. If we can have stability in the naira to dollar exchange rate, no matter the rate, but it is stable, you can make plans. But if the naira today is or there is fluctuation, it’s very difficult to make plans. Even to go and lease aircraft is very difficult because you would have made your projection on this is how I am going to sell my tickets, this is how much I am going to make and this is how much I will use to convert the money to Naira, two dollars to pay the lessor and if the fluctuation goes on, all those your assumptions are thrown out of the window and then you are back to the drawing board,” he said.
Proffering solutions, Sanusi said the best way to do it was to stabilise the economy and that in the interim, the government should create a buffer for the aviation industry through the Bank of Industry or other financial institutions that it controls to see that there is a buffer between the Nigerian airlines and the lessors of the aircraft manufacturers or the aircraft finances. This means they will stand in between to see that the high foreign exchange risk is mitigated by this financial institution, which is being backed by the federal government.
“It’s going to be expensive for the federal government, but it’s a short-term solution for us, the airline operators. But in the long term, of course, it is to stabilise the economy and also to encourage Bank of Industry and other banks, other financial institutions of the federal government to go into leasing. Now do they need to own aircraft leasing companies? No, they just need to partner with an existing lessor and say look we are going to give you like a sovereign guarantee, come and give lease to our companies. But they must meet A, B and C criteria and of course use the local banks, not to guarantee it but also just to make sure that the local banks are collecting agents for their money. It’s a good arrangement if it is been well orchestrated.
“Where the Bank of Industry or any other financial institution that is backed by the Federal Government to enter into partnership with big leasing companies or even manufacturing companies, aircraft manufacturing companies that have leasing arms or financial arms and then say, look, why don’t you come and sell the aircraft to us? That’s what’s happening in Ethiopia, Senegal and in most of the African countries,” he said.
