Foreign firms withhold credit lines from Nigerian airlines

Posted by admin Headlines Sunday, March 11th, 2012

March 12, 2012 by OYETUNJI ABIOYE

As a result of their failure to honour financial obligations to foreign firms, Nigerian airlines are currently in dire straits as they are increasingly finding it difficult to get fresh credit facilities, OYETUNJI ABIOYE writes

Nigerian airlines’ credit rating overseas has been in continuous decline, investigation by our correspondent has revealed.

Most aircraft lease companies, spare part suppliers and foreign aircraft maintenance companies are now seriously reluctant to deal with Nigerian operators on credit basis, sources close to airlines said.

The development, the sources said, had been a source of major concern to stakeholders familiar with the situation, who believe the development could hamper the growth of the sector in the country.

Findings by our correspondent revealed that the development was caused by the indigenous airlines’ penchant for not honouring their obligations to the foreign aviation companies.

The obligations include aircraft lease payments, spare part and routine maintenance bills.

A source familiar with the situation said most of the foreign firms were even reluctant to do business with Nigerian airlines and other aviation firms.

Our correspondent gathered that some of the foreign aircraft leasing firms reluctant to grant credit facilities to Nigerian airlines included GECAS, Aldus, International Lease Finance Company and Crabtree.

Industry expert and Chief Executive Officer, Finum Aviation Services, Mr. Sheri Kyari, attributed the development to improper allocation of scarce resources by Nigerian airlines.

He said the development was fuelled by delays in releasing foreign exchange to the airlines by the Central Bank of Nigeria.

Kyari said, “I will not blame the foreign companies for that. It has to do with the delay in the process of acquiring foreign exchange through the CBN. Also, our airlines don’t allocate their scarce resources effectively.

“At times, they misplace their priorities in the area of their expenses, thereby leaving out things that can affect the existence of the airlines. They should be able to project ahead and know how to allocate the scarce resources on competing needs.”

The aviation expert said the Nigerian Civil Aviation Authority needed to raise the bar in its economic regulation of the airline industry, adding that some of the airlines were not paying their local and foreign bills regularly.

According to the Managing Director, Centurion Safety Consult, Group Captain John Ojikutu (retd), Nigerian airlines are weak, and as such, need to merge to survive.

He said the indigenous carriers needed to be forced to adopt international best practices.

Ojikutu said, “We need to find out how they lease aircraft and acquire them. You cannot lease planes somewhere and go and buy spares in another place on credit. If we must run an airline, we must run it according to international standards. I don’t see some of our domestic airlines surviving in the next two to five years.

“All these foreign companies are out to make money and profit. Some of the indigenous airlines refuse to pay for their aircraft lease and run to another company for spare parts. The average life span of a Nigerian airline is about 10 years. Nigerian airlines are weak and they have refused to team up, cooperate or merge.”

The Head, Research and Statistics, Zenith Travels, Mr. Olumide Ohunayo, said the unfortunate development would have negative effects on the airlines’ passengers, as fares might go up, while capacity and quality services would also be negatively affected.

He said, “Obviously, it is a direct hit on airlines’ liquidity, forcing them to mop up cash for critical operational issues. The poor rating will naturally spiral to associated issues with vendors, insurers, agents, investors, partners and so on.

“On the home front, it will reduce flight frequencies and capacity with slight hike in fares, while complementary services will be sacrificed on the altar of price reduction.”

In March 2011, a Dublin-based leasing company, Amentum Capital, impounded Arik Air’s Airbus A330 in Johannesburg, South Africa over a lease dispute.

The NCAA later absolved itself of blame for the seizure, saying there was no way it could have delayed the release of foreign exchange to the airline for the lease payments.

Arik Air’s Managing Director, Mr. Chris Ndulue, however, said, “It was not a case of impounding; there was an issue arising between us and the lessor of the aircraft, it has nothing to do with payment of lease rentals, because payment of lease rentals are up to date.

“But we needed to get approvals from the civil aviation authority for the payment of another fee called the maintenance reserve; the approval did not come until the incident happened.”

Air Nigeria, before its takeover by a business mogul, Mr. Jimoh Ibrahim, had issues with the lease payment on two of its aircraft. GECAS, a foreign leasing company, was to impound the planes.

-Punchwp_posts