With the suspension of operations by Aero Contractors and First Nation, the doom in the aviation industry has been labeled inevitable unless drastic measures are put in place to quickly arrest the calamity.
Apart from thousands of staffers thrown into the labour market, over 600 pilots are said to be unemployed after years of rigorous and expensive training. And the airlines still managing to remain in business are hugely indebted to banks and failing to pay salaries on time.
The volatile and highly mortal business has been recording very dangerous trends in the last few years, with many airlines collapsing and leaving huge debts.
Some stakeholders are again asking the Federal Government to provide intervention funds to save the industry from imminent collapse.
With Nigerian airlines having a lifespan of ten years on the average, the highly capital intensive business with return on investment of below 10 percent are bedeviled by myriad of problems.
And here are some of the challenges airlines are facing in Nigeria:
- Aviation business is denominated in foreign currencies, and forex’s unpredictability and constant rise against the Naira further impoverishes airlines.
From the acquisition of the aircraft to service and maintenance, and constant retraining of pilots every six months, to fees paid at airports to several agencies, they are all denominated in forex. And with the escalating exchange rate, the cost of servicing these items are humongous, eroding into profit margins and sometimes leading to unprofitability.
- Aviation fuel’s high cost, scarcity and unavailability.
From N120 per litre to N240, getting aviation fuel constantly is impossible, leading to flight delays and cancellations, and eventually jeopardizing profit.
- Lack of support by the government and its agencies, and exorbitant fees.
The government treats airlines like any other business without acknowledging its core role as a platform for investment and tourism, with identified multiplier effects. Impracticable regulations and stifling rules are lined on the path of airlines with high fees from all angles.
- High interest rates charged by banks.
With interest rates at over 20 percent by banks, and return on investment in the highly capital intensive industry put at less than 10 percent, from the onset, sustaining the business is difficult.
And with the troubled and unfriendly operating environment, running an airline at a profit is almost impossible.
That’s why there is a huge debt portfolio by airlines in banks, with some of them going bad and being taken over by Asset Management Corporation of Nigeria.
- Lack of a Maintenance, Repair and Overhaul Station in Nigeria.
The fact that there is no station in Nigeria for maintenance, repair and overhaul of aircraft adds to the high cost of running airlines. And with the cost of setting up such a station put at $50 million, that kind of investment is difficult to bankroll, unless the business environment becomes friendlier and more predictable.