Aviation sector buckles amidst forex scarcity

United Airlines to quit flying into Nigeria over low patronage, stuck funds

United Airlines to quit flying into Nigeria over low patronage, stuck funds

As realities of the current economy bite harder in the air travel business, with some 2,000 jobs already on the line, concerned stakeholders have called for a lasting solution beyond a foreign exchange bailout plan. WOLE OYEBADE reports.

United Airlines last week shocked many people with the plan to stop flying into Nigeria effective July 2016. But for many industry watchers, it was an announcement that was long in coming given the outlook of the aviation sector.

The United States’ carrier, with several years of operations and at least one frequency per day, is quitting for reasons not unconnected with low patronage and millions of dollars trapped in Nigeria.

Citing reason for the exit, United Airlines’ spokesman, Jonathan Guerin, told Bloomberg: “Repatriation has been a significant issue, as has been the downturn in the energy sector.”

The announcement, contained in a note to employees came barely three weeks after Spanish national carrier, Iberia Plc, stopped flights to Nigeria, citing dwindling passenger traffic as the reason.

Such exit comes at a cost for the workforce. The National Union of Air Transport Employees (NUATE) recently estimated that no fewer than 2,000 Nigerian aviation workers may be sacked by foreign airlines.

Popular opinion is that except the Federal Government grant the sector a quick bailout, more airlines are due to follow Iberia and United Airlines. British Airways earlier in the week denied any plan to exit the Nigerian airspace, though had lately withdrawn about 10 categories of fares to triggered fare hike regime, far higher than rates in neighbouring countries.

It would be recalled that the current administration, in the wake of global slump in oil prices and attendant plunder on foreign reserves last year, unveiled a fiscal policy through the Central Bank of Nigeria (CBN) restricting access to foreign exchange and funds transfer out of the country. And since then, revenue made from ticket sales by foreign airlines has been difficult to repatriate. An estimate put the sum of trapped fund at about $600m.

Reports have it that both Delta and United Airlines have an estimated sum of $180 million hanging in the Nigerian economy. Those of Air France-KLM are estimated to be over $150 million.

British Airways has a total of $100 million as at March 2016, while Iberia, which has left, had $5 million of its funds trapped.Apparently disturbed by the development, coupled with pressure from international aviation agencies, Minister of State for Aviation, Hadi Sirika, recently said that the ministry was working with the Central Bank of Nigeria (CBN), Ministry of Budget and National Planning and Ministry of Finance to include airlines in priority list of foreign exchange allocation.

Sirika, at a meeting held with airline operators, aviation agencies and experts, observed that the sector heavily relies on foreign exchange, as he assured that a sigh of relief was imminent.

Meanwhile, an industry watcher and an operator in the aviation sector, Captain Roland Iyayi, has said that the complexion of the aviation sector mirrors the general state of the Nigerian economy, which is “a price we are paying for not doing the right things years back.”

Iyayi, a former Managing Director of Nigerian Airspace Management Agency (NAMA), said that a forex bailout might not be the solution in the current clime.

According to him, “When you create anything that gives a waiver in government, it is often subject to abuse. So, when you say give aviation a special dispensation, I can see very quickly non-aviators trying to take advantage of such window. There has to be some sort of structure put in place to authenticate those really in need of such,” he said.

Assuming the economy was fully diversified today, he added, foreign earning from other sectors would be accruing to the government and of course, we may not have the need to go through this. “That is not the case at this time and it makes the whole situation very difficult.”

Continuing, Iyayi said: “My view is that this is a temporary situation and it is not going to last for too long, particularly if the government now deregulate certain areas of the aviation sector; like airports concessioning. It will increase Foreign Direct Investment (FDI) and the reliance on forex for operations will reduce. We encourage government to concession key areas of the industry so that it can encourage FDI.”

He said while the aviation industry would not have much to lose with the pull out of the likes of Iberia and United Airlines, concerned authorities must, however, properly estimate their contributions to the sector.

His words: “The regulator first of all needs to understand the dynamics of the market. For instance with United leaving the market, they should be able to do their estimates to be able to say this is United’s earning in the last seven years of being in the market and this is what the Nigerian Civil Aviation Authority (NCAA) and other agencies earned from their being around. So, they can now project the loss to the market from their exit. I think the regulator need to do a bit more to determine the impart of their exit from the market, otherwise we would only be projecting and assuming the market loss,” Iyayi said.



4 Comments
  • Ifiok

    The regulators are waiting for instructions from the Sheriff

  • rotex44

    These foreign multinational companies needs to face reality now. The era of corruption at the highest level is gradually coming to an end. They sow little in order to reap highest without giving back. They should learn how to invest where they are making these money. They can also be competitive and follow the simple law of economics: demand and supply. If they want more patronage, reduction of ticket fare will surely give them that. No more freebees for them again.

    • Rexmond

      rotex44, I don’t think you understand the subject matter. Read this article again!!!

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