Chaotic scenes in Nigeria’s air transport sector reached their feverish pitch last week when cash-strapped foreign airlines threatened to pull out over the inability to repatriate accumulated funds from tickets sold in naira.
It was bad enough that Nigeria’s business partners had to threaten withdrawal to jolt the Central Bank of Nigeria (CBN) to statutory response to cash calls.
Worst is the ripple effects on air travelers and battery on the smeared image of the country – showing Nigeria as one wobbling in keeping commercial agreements and managing economic woes. Indeed, in times like this, adept economic and aviation managers should think less of excuses but strategic fixes and win-win reforms.
There is no denying the fact that the global economy is riding a seesaw and the humming aviation community is no exception to shocks. While still healing from the devastating bouts of the COVID-19 pandemic disruptions, an outbreak of the Russia-Ukrainian war and attendant economic sanctions have lured the global economy into a mess. Even in wealthy nations, the effect varies in degrees, not in kind.
The air transport sector which is the main anchor of the free movement of persons and freights, and the mainstay of economies, face uphill tasks. On one hand is the high cost of energy, operations and personnel shortages.
On the other is debt hangover from the pandemic disruptions amid slow market recovery. Put together, the sector and their parent economies cannot stomach blockages to critical cash flow.
Meeting at its yearly general meeting in June, the International Air Transport Association (IATA), which is the clearing house for over 280 airlines globally, raised the alarm on a steady rise in the number of unrepatriated funds in Nigeria and other countries.
Nigeria was estimated to have trapped about 25 per cent ($ 465 million as of July) of the total stock funds globally. Nigeria was on the same precipice in 2016 when the stuck fund reached $ 600 million and the airlines lost monies when the naira was devalued.
IATA warned that keeping airlines’ funds longer in a volatile economy that has its naira on a free fall would only agitate operators to raise airfares, withdraw services in extreme cases and hurt both the air travelers and the local economy more. Apparently unyielding to warming bells, all the predictions have come to pass in the international segment of Nigerian aviation.
On the flip side, the arguments of the CBN that has delayed the release of dollar equivalent to tickets sold in naira, are also compelling.
The country has been in a protracted foreign exchange liquidity crisis, with too many critical cash calls from the manufacturing sectors, and airlines (local and foreign operators) among others pending at the banks.
The dilemma is: shall we give priority to local or foreign partners, where both are critical to the economy? The alternative is for operators to buy from the obnoxious parallel market that almost doubles the official rate – which is not sustainable.
The quandary notwithstanding, Nigeria has an obligation to its creditors who are the foreign airlines that had sold tickets in the local currency.
By the Bilateral Air Service Agreements (BASAs) bond, “each designated airline shall have the right to convert and remit to its country on demand, local revenues in excess of sums locally disbursed.
Conversion and remittance shall be permitted without delay in accordance with the prevailing foreign exchange regulations. ” And until those agreements are revoked, the country should tow the path of honor to pay its debts or engage creditors more with words of assurances.
It is a welcome development that the Apex Bank has released for remittance $ 265 million out of the $ 464 million stuck in Nigeria. Yet the embarrassing situation of being harangued by creditors deserves better attention and new strategies.
It is inexcusable that the aviation sector which generates $ 1.7 billion in 2020, and about half in foreign currencies paid for taxes and charges in Nigeria, still has difficulties paying dollar equivalence for tickets sold in naira.
The question is: what is happening to our forex earnings on commercial aviation, particularly those earned by the aviation services providers in the form of Passenger Service Charge (PSC) of $ 100 / passenger, aircraft landing, parking and over-flight charges? What about the forex earnings by ground handling service companies and fuel marketers? Credible management of these remittances in a revolving system should considerably reduce the foreign airlines’ trapped funds within the aviation cash flow.
Similarly, civil servants in the Ministry of Aviation should be compelled to make BASAs work more in the interest of the local economy than foreign airlines.
Bilateral agreements are naturally premised on the logic of reciprocity. It is only in Nigerian aviation that the likes of British Airways, Virgin Atlantic, Delta, Air France-KLM, United Airlines, Ethiopian Airlines and so on would each fly over 14 frequencies weekly without a Nigerian carrier flying in opposite directions.
Foreign airlines flying multiple destinations in Nigeria indeed bring in revenue. But such is a poor alternative to having Nigerian flag carriers reciprocate into those countries or mandating foreign airlines to have interlining arrangements with local carriers to redistribute international travelers beyond the port of entry and pay for those services in foreign currencies.
Above all, Nigeria needs a major foothold in managing its aviation potential and in defense of its consumers. Fallouts of this trapped fund scenario have again shown how little the foreign airlines think of Nigerian travelers or care about their customers.
Apparently, to push back on the trapped funds, there were accounts of airlines withdrawing all affordable airfare layers from the Nigerian market, therefore selling at a premium and at parallel market rates that pushed six-hour economy flight tickets above N2 million! Such a 200 to 300 per cent rise in airfares is obnoxious and should draw the ire of regulatory authorities.
Indeed, aviation is the business of freedom and is directly proportional to economic growth. Yet, the service should neither be at cut-throat prices nor have the Nigerian economy at its mercy.
Definitely, the prospect for the air transport sector is huge but it has to be managed strategically.
With a population of over 200 million, the industry has the potential to grow by 174 per cent in the next 20 years, earning approximately $ 4.7 billion with almost 555,700 jobs yearly. That is a potential mainstay of Nigeria’s oil-dependent economy. Therefore, it deserves a lot more from the current managers. Nigeria should honor its agreements as and when due, rework the operating system for a better balance of trade and get more consumer-centric in its relations with partners.