Fleet replacement crisis hits local airlines as banks shut credit lines

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Posted on September 29, 2017

An estimated N500 billion owed the Federal Government, local and international lenders by Nigerian airlines may have dashed hopes of new lines of credit needed by the operators to buy new aircraft to replace ageing ones in their fleet.

This was as a top airline operator who confided in Daily Sun the pathetic state of most indigenous carriers, said several commercial banks, which funded the local airlines in the past have vowed never to extend new credits to them in the near future owing to their huge debt overhang.

The operator who does not want his name in prints said the development has created a fleet depletion crisis that has forced many local operators to abandon some routes and cut down on their daily flight frequencies to some airports within and outside the country.

For instance, Arik Air, which is said to be owing local and international creditors an estimated N300 billion, was in February this year pushed into receivership by the Asset Management Corporation of Nigeria (AMCON), due to its heavy exposure to banks and technical partners. Since then, however, the airline, which is also the largest operator in Nigeria and West Africa, has neither been able to source funds to maintain its existing fleet nor added new aircraft to its ageing fleet to service most of its routes.

On the other hand, Aero Contractors Airlines, another local carrier with good safety track record is also struggling with an estimated N37 billion debt, which equally took it to AMCON’s intensive care unit. At present, the airline manages only three aircraft having cut down on the number of its routes as hopes of fleet replenishment look dim.

Only recently, First Nation Airline was downgraded by the Nigerian Civil Aviation Authority (NCAA) to a charter operator from a commercial airline status, due to an inability to grow its fleet to three in line with NCAA regulations.

Other notable operators like Air Nigeria, IRS, Chanchangi, to mention but a few, may have been forced to shut down operations due to banks’ refusal to finance new fleet purchases for them due to huge debts from previous transactions.

“The inability to access long term credits from local banks is threatening several aircraft re-fleeting projects planned by Nigerian carriers. More than before, and I guess because of the recession, banks now want quick returns and can’t issue long term loans to help airlines operators purchase or lease new aircraft,” said the airline official.

“Airline projects like getting new aircraft require long term funding, like 10 – 15 years. But the kind of relationships banks prefer with airlines in recession is to be their collection banks as a lot of cash goes through the airlines from air tickets sales on a daily basis and the implication is that many re-fleeting projects are suffering, leaving operators to continue managing the few aircraft they have,” the official added.

He said the fleet depletion crisis was responsible for some of the rescheduled and cancelled flights being witnessed across airports on daily basis. “Managing aircraft is not good as far as safety is concerned in the industry,” he said.

“And from what is happening right now, it is the passengers that are the victims. They are not just left with fewer flight options, but also have been made to pay far higher fares on routes where they had enjoyed lower fares. The development has forced more travellers to opt for road transportation than flying,” he added.

Meanwhile, Chairman/CEO of Air Peace, Mr. Allen Onyema, told Daily Sun in an interview that the root of the frosty relationship between local banks and airlines is the failure of past airline owners to build the requisite trust and integrity with their creditors.

According to him, some of them even collected money from banks and never repaid. Daily Sun learnt that about N180 billion out of N200 billion aviation intervention fund given by the Central Bank of Nigeria (CBN) was accessed by local airlines that have defaulted in their repayment plans.

Onyema said Air Peace was, however, committed to erasing that bad image by ensuring timely repayment of loans collected from banks.

“I must say that a lot of people are scared lending money to Nigerian airlines; a lot of banks do not want to deal with airlines in Nigeria. It is not just the local banks but even offshore creditors are scared of doing business with Nigerian airlines,” said Onyema.

“Airline business is capital intensive and you need the banks. But our forerunners are to blame because a situation where you take billions of naira from a bank and you don’t pay back is making people to be scared. At present, we have been battling this perception and it is because of this that we have high mortality rate in the airline industry. No one is ready to support us because of the bad debts owed by some people, “he added.

Some stakeholders that spoke to Daily Sun have also decried the crisis of trust between airlines and banks that led to the dwindling fortunes of the local airlines and the depletion of aircraft fleet for most of the operators. They also pointed at the attendant job losses by some pilots and cabin crew as some of the consequences the crisis has wreaked on the industry.

Source: http://sunnewsonline.com/fleet-replacement-crisis-hits-local-airlines-as-banks-shut-credit-lines/

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