Terror threat, porous airports and high accident ratio have made Nigeria a volatile country and upped the premium for aircraft insurance, which is estimated to cost operating airlines over N20 billion annually.
The consequence of this is that lessors are reluctant to lease aircraft to Nigerian airlines, aircraft maintenance costs more, and loans from international financiers are obtained at higher interest rates.
Locally the high cost of insurance, high cost of aviation fuel and high charges by aviation agencies are passed to passengers and this explains why fares are high, whereby a one-hour flight, which cost about $80 (N13,000) costs as much as $200 (N32,000) on average in domestic travels.
A senior executive of a Nigerian airline said what increases insurance premium in Nigeria is mainly the operating environment, poor infrastructure, equipment on ground, operating procedures and the frequency of air accidents in the country.
A major airline disclosed that it pays more than 70 per cent higher insurance premium than what another airline operating in another country, especially in Europe or the US, pays for the same aircraft type manufactured in the same year and by the same company.
"Insurance graduates its risk assessment of the countries as high risk, medium risk and low risk and what we pay on insurance is higher than what is paid in other parts of the world and once you bring an aircraft into Nigeria its second hand value drops immediately because they believe that the aircraft is flying in the jungle where there is no maintenance facility," the official said.
A renowned aviation lawyer told THISDAY that he was aware of two aircraft manufactured at the same tame with very close serial numbers and sold to the same airline.
"When the airline later sold the two aircraft, one was sold in Europe while the other was sold to a Nigerian airline. The insurance of the aircraft sold to the Nigerian airline was 10 times more than the aircraft that was sold to a European airline. The reason is because Nigeria is termed a high risk country and the recent incident of stowaway and rate of accident keep on increasing the premium for Nigerian airlines."
Industry analyst and former head of communication of Virgin Nigeria, Francis Ayigbe, said when an airline has higher number of aircraft the insurance tends to be low, noting that when Virgin Nigeria was under Virgin Atlantic the cost of insurance of the six aircraft in its fleet was $300,000 but this rose to $1.5 million when the airline ceased to be a subsidiary of Virgin Atlantic.
He also identified the factors responsible for high cost of insurance for Nigeria airlines which include aggregate number of accidents in the country in 10 years; conflicting government policies; weak or non-existence of the legal system in the country (jurisdiction); managerial and operational competence of the airline; security challenges and operational environment of the airports.
It is believed that improved security at the airports, consistent regulation, less terror threat and infrequent rate of accidents would reduce aircraft insurance premium in Nigeria.