25 May 2018

Nigeria: Credit Cuts Threaten Airlines' Operations

Failure to effectively service their debts has prompted Nigerian banks to cut their credit facility to domestic carriers, thus denying them operational funds.

Inside sources disclosed to THISDAY that some airlines could not source funds to pay for the maintenance of their aircraft overseas and could also not ferry the ones due for major maintenance out of the country due to lack of funds.

Without bank funding, airlines cannot have operational funds for the payment of aviation fuel, aircraft maintenance and acquisition of spares.

The airlines depend on short-term loan facilities from banks for their daily operations but now that some banks have withdrawn these services for the airlines, the serviceable aircraft in operation has shrank from 46 to 32, informed source told THISDAY.

Some of the debts owed to banks by airlines are presently under litigation while some of the airlines that owed the debts have gone under.

An industry operator told THISDAY on Tuesday that some banks have unsaid policy that they won't lend money to airlines anymore.

The Managing Director of Medview Airline, Alhaji Muneer Bankole said the major challenge investors who are determined to invest in aviation face is the unwillingness of banks to give credit facility to airlines, noting that his company faced the same challenge until it developed good relationship with some banks that now support its business.

Recently, the Managing Director of Asset Management Corporation of Nigeria (AMCON), Mr. Ahmed Kuru explained that banks took the decision because most of the bad debts acquired by banks come from the airlines.

Kuru also said AMCON purchased non-performing loans of about N181 billion from various banks and over 90 per cent of this was in the aviation sector.

"To place the companies in a position to recover and generate adequate cash flow, we gave additional un-lending facilities (in collaboration with CBN and BOI (Bank of Industries) of almost N40 billion on very good terms. Unfortunately, notwithstanding this support, the companies could neither pay the old nor new loans. We have therefore been compelled to appoint Receiver Managers over a lot of the companies, the biggest being Aero and Arik," Kuru said.

But the Chairman of Airline Operators of Nigeria (AON), Captain Nogie Meggison, said that stifling taxes, high cost of aviation fuel, outrageous insurance premium on aircraft and high interest rate of about 26 to 28 per cent, are the factors responsible for the failure of airlines to service their debts and operate profitably.

He said that the pivotal role played by aviation as catalyst to the economy demands that government ought to make separate arrangement for airlines to access funds on long-term, single digit interest rate and to make it easy for airlines to acquire and lease aircraft.

Recently, Afrexim Bank expressed the desire to offer credit facilities to Nigerian airlines and other airlines in West and Central Africa on long term lease or acquisition of aircraft.

Meggison noted that this is the kind of arrangement that should be offered by local banks

"Our problems in Nigeria as carriers are our financial structure and access to markets. You cannot finance an aircraft like this using 26 per cent from the Nigerian banks. With Afrexim Bank coming in now, to lease the aircraft, we will be asked a 10 to 15 per cent deposit of the actual value of the aircraft. The cash flow immediately gets better and we will have disposable income to take shock. So you can afford to pay a six months lease or put a deposit of 10 per cent and still have cash in your pocket," Meggison said.

Industry consultant and CEO of Belujane Kosult Limited, Chris Aligbe, said lending institution should be created by the federal government to offer long term credit facility to airlines and manufacturing concerns and expressed worry that when international financiers offer credit facilities to Nigerian airlines, local banks would also have to guarantee the loans , noting that in guaranteeing the loans, the local banks still give their own conditions, which are usually detrimental to the airlines.

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