With a 30 per cent interest rate and a badly devalued naira, the dollar based aviation industry especially the domestic airlines are confronted with deep financial straits which stymie their capacity to expand and provide affordable air transportation services to Nigerians.
Aviation is regarded as a business of freedom according to the International Air Transport Association (IATA) but that freedom has been badly limited by the skyrocketing ticket prices in Nigeria, virtually making air transportation an exclusive travel mode for the rich and the high net-worth individuals (HNIs). A one-way Lagos-Abuja flight which used to cost less than N50,000 is now over N150,000. A passenger can pay double depending on the travel date.
Coupled with the multiple taxes, airlines were left with no option than to jack up the ticket prices to reflect the rising cost of operations amidst the tight financial standing.
Recently the 29th conference of the League of Airports and Aviation Correspondents (LAAC) held in Lagos examined the theme of "Financing Aviation in Nigeria: Risks, Opportunities and Prospects," with reference to the finance challenges confronting airlines.
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Foremost economist, Bismark Rewane who delivered the keynote address did not mince words about the underperformance of the aviation sector even as it coincided with the release of the rebased Gross Domestic Product (GDP) report, indicating the aviation sector contracted and one of the three sectors that performed poorly in the report.
Rewane aptly captures the trend in his presentation. He said, "Air transport sector contracted by 0.81% in Q1'25, the 6th consecutive quarterly decline. Nigeria has 32 airports, only 20 were considered viable in 2024, and 92-96% of traffic flows through just 4.
He said, "Nigeria has 23 active domestic airlines, however 5 airlines control 75% of traffic. The industry is fragmented. Domestic passenger traffic declined for the 2nd straight year to 11.5mn in 2024."
Rewane however called for consolidation by airlines, adding, "We need very strong and effective regulation for safety; concessions and PPPs should be prioritized for airport upgrades to aid national fiscal sustainability and avoid inefficient operations. There should be investment in local maintenance, repair & overhaul hubs.
"Government should focus on policy and regulation, not running airlines or building airports directly and policy consistency is crucial for rebuilding trust with global investors and attracting global aviation capital," he recommended.
Mary Olowo- Sokeye, Chief Financial Officer - InterGuide Group (including Sabre Central & West Africa) who stood in for Dr. Gabriel Olowo, former President of Aviation Roundtable, stated that airlines require money to operate, remain compliant in a highly regulated environment, stay competitive while prioritizing safety.
She said, "With Nigerian airlines averaging 48 percent success rate compared to 81 percent global standards while there are growth in aircraft numbers and passenger numbers, challenges persist in meeting global standards."
Olowo-Sokeye highlighted the financing methods to include aircraft loans, leasing, capital and equity markets, asset-backed financing and export credit-backed financing.
But the question remains whether the airlines are financially healthy and credit worthy to access the loans. This is what an average lender would access before giving out loans.
She stated that in the face of weak finances of the airlines, they must consider diversification to stay afloat.
"There's not one way to skin a cow or to cook a fish. You have to diversify. And I think it's very important to have great oversight. Let me talk about diversification for a second. A lot of times I think we financial people do our jobs well, but we don't look at other ways to grow the money we already have. So to the extent you're profitable for a few years, it's important for you to diversify that money that's coming in and put those funds into other avenues that will yield income for you," she said.
Vice-President of Airline Operators of Nigeria (AON), Mr. Allen Onyema said consolidation in the airline industry can only happen when there is availability of funding. According to him, consolidation is practically impossible in an industry where the operators borrow at 35 per cent.
He said, "The only way airlines can do that is to get funding, they have to liberalize the kind of funding they give to airlines in Nigeria; a situation where you borrow money at 35%. It is like you are dead on arrival, so we need funding like it is done everywhere in the world.
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"Where aviation is treated a little bit separately from others because it is a very critical sector, capital intensive, the return on investment is very low, not only in Nigeria but worldwide. So you don't treat aviation the way you treat other sectors. There is a lot to it. So we deserve and demand to have very liberal, very affordable rates for funding. It is given that if the airlines in Nigeria, considering what we are doing at this moment, if we are given that succor to borrow money at single digit interest rates, no airline will fail in this country.
"Of course, airlines will be willing to have the federal government support them by ways of guaranteeing our loans, locally or internationally. That would be good, but at the same time, like I said earlier, the airlines themselves, first of all, must do what is called self-introspection. You ask yourself questions. It is not when you even push the government to guarantee and then you disappoint in repayment."
