The recent takeover of Nigeria’s largest carrier, Arik Air, by the Asset Management Corporation of Nigeria (AMCON) aimed at preventing the airline from total collapse is eliciting reactions from stakeholders on the frequent collapse of airlines, consequences of the takeover, the harsh operating environment of airlines in Nigeria and the dangers of the short lifespan of domestic carriers.
The Airline Operators of Nigeria, (AON) attributed the poor performance of domestic airlines to multiple taxes by various agencies in the aviation sector.
AON Chairman, Nogie Meggisson, while reacting to the takeover, lamented that the system had failed to recognise the pivotal role airlines could play in bringing the nation’s economy out of challenging times.
He said the system is continuously manipulating, feasting on and pushing the financial envelope of airlines by inflicting multiple taxes and levies to the extent that airlines are now groaning under the pressure and some are going bankrupt.
“AON has been screaming and complaining about the same issue over the years that have culminated in sending over 27 airlines under in the past 25 years.
“A case in point is the recent takeover of Arik Air and Aero Contractors by AMCON in the face of huge financial burdens that have shown themselves as fallout of the multiple and sometimes unfair charges and taxes airlines are forced to grapple with on a daily basis.
“This is without recourse to the fact that aside from all the multiple charges, levies and fees, airlines still have to pay mandatory statutory corporate taxes to relevant agencies,” he said.
According to the airline operator, airlines meet so many costly foreign exchange components on daily basis that account for 70 to 80 per cent of their direct operational cost. These include jet fuel, spare parts, insurance and simulator training.
He added that in spite of the numerous challenges, the agencies continue to over-burden the airlines with multiple taxes and levies, which further puts strain on their operations and finances.
At the recent House of Representatives Committee hearing on how to rescue domestic airlines from imminent collapse, operators underlined harsh operating environment as the key factor that led to the collapse of over 47 airlines in Nigeria in the last three decades.
Managing Director of Skypower Express Airways Nigeria Limited, also the Secretary General, AON, Capt. Mohammed Joji, who spoke on behalf of his colleagues, attributed the development to “policy formulation, policy deviation and policy contradictions on the part of the executive arm of government.”
Joji said the Federal Government had tried to address the situation in 2006 through the Presidential Task Force set up by former President Olusegun Obasanjo, noting that there had been no remarkable change in the way government agencies in the aviation sector churned out policies because the report of the task force was not implemented.
The operators also complained that foreign airlines were enjoying certain incentives that were denied local carriers, one of which is the approval of multiple destinations to foreign airlines, which they said had adversely affected their own operations.
“The Nigerian Civil Aviation Authority policy of levying operators flying on scheduled flights out of Nigeria is a punitive measure devoid of any economic sense to the airlines.
“The Federal Airports Authority of Nigeria charges the most expensive land rate in the world at N60,000 per square metre. That is more expensive than choice land in Victoria Island, Lagos, and Asokoro in Abuja,” he declared.
Managing Director, Medview Airline, Olanrewaju Lukman, told the committee that Joji’s presentation adequately captured the feelings of the operators, stressing that “while the government’s plan to concede four major airports to private operators might sound appealing, it could be distorted if the process was not made transparent”.
Chairperson of the Committee, Mrs. Nkiruka Onyejeocha, said the target of the meeting was to return safety and operational efficiency in the sector before things get out of control.
In taking over Arik, AMCON, in a statement explained that but for its prompt takeover of the airline, it would have stopped operation because of its huge debt burden. It promised to revive the airline; pay the debts it owed, bring back the aircraft that were ferried overseas for maintenance and pay the salary arrears owed the airline’s workers.
Industry experts and operators however explained that taking over of Arik Air might not be the solution to airlines going under in Nigeria. They posited that to ensure airlines operate profitable, government must change some policies and show more commitment to facilitating profitable operation of Nigerian carriers.
President Aviation Round Table (ART), Gbenga Olowo, said Nigerian airlines face a lot of challenges and noted that treating the Arik Air case as isolated would be trivializing the magnitude of the problems Nigerian airlines face.
“Treating the Arik case in isolation will be to trivialize the magnitude of the problem. Going back to almost 40 years, government owned airline, Nigeria Airways failed, while pioneer private airlines Okada, Kabo, among others also failed. This is ditto for third generation airlines, ADC, Bellview, Chachangi, Sosoliso. Equally fourth generation airlines, Richard Branson Virgin Nigeria, which later became Air Nigeria, Afrijet and Discovery Air failed. Believe me, given the same Nigeria operating environment the national carrier yet to be born will fail.”
Olowo said the major problem of Nigerian airlines is essentially a Nigerian business environmental factor.
“Business and government are permanently at variance. Cost is permanently higher than income. Tax overburden and infrastructural deficit erodes revenue steadily. Gazetted policies that will enhance performance are not implemented. Credit is not in the Nigeria business dictionary. Yet aviation is prone to the most minute situation in the economy, ranging from weather to politics, reckless holidays, etc,” Olowo said.
He attributed the cause of these problems to lack of will by government and the airlines to do the right things.
According to Meggisson, it is unfortunate that domestic airlines have become a cheap target for the agencies that are putting additional pains and burden on operators through multiple taxes, charges and levies which they demand from airlines with impunity.
“The Civil Aviation Act of 2006 (Part 18.12.3) requires that the NCAA regulates civil aviation and the charges imposed by civil aviation authorities and/or agencies. These charges, in consultation with stakeholders are to be approved and reviewed periodically by both parties. On the contrary however, airlines are saddled with charges without any form of consultation whatsoever.
“Domestic airlines, on the average, pay about 35 percent to 40 percent of ticket cost as taxes and charges that come under the guise of statutory levies in addition to other charges. These include five percent ticket sales charge, five percent cargo sales charge, five percent Value Added Tax (VAT), Passenger Service Charge, charter sales charge, aircraft inspection fees, simulator inspection fees, Landing charges, parking charges, terminal navigational charge, enroute charge, fuel surcharge, airport space rent, electricity charges, and apron pass, ramp access charges, On Duty Card (ODC) and a newly imposed registration fee all of which are paid to government agencies,” Meggison said.
He noted that many of these taxes and charges amount to double taxation such that any incentive seemingly provided by government to airlines is taken back by the agencies.
According to him, the Nigerian Airspace Management Agency (NAMA) charges domestic airlines different kinds of navigational charges which they should ordinarily be exempted from in line with global best practices, except Nigeria. The implemented charges range from terminal navigational charges to enroute navigation charges, Over-flight charges, clearance charges, and extension charges, noting that even foreign airlines don’t pay enroute charges or extension charges which the local airlines are forced to pay.
Airline operators and other industry stakeholders said that as long as these multiple taxes are levied on the airlines; as long as there is infrastructural limitations, which forestall maximum use of aircraft; as long as major aircraft maintenance is done overseas; as long as aviation fuel is scarce and costly and as long as government does not have incentive policies for airline operation in Nigeria, it would be difficult to have successful airlines that are profitable with long term existence.
In a recent discussion even before the takeover of Arik, Olowo had observed that the huge investment in the aviation sector by private investors usually collapse after a short time, an indication that government must exercise due diligence in its plan to re-establish a national carrier.
“Airline operators in Nigeria are crying about the problems they are facing in the sector. You will see that the mortality rate of Nigerian airlines is very high. Some die after five years, 10 years, maximum 15 years. Some, as the airline is born, it’s gone. It is not the same outside Nigeria. So, the question to us is, what is the objective of the government for aviation?” he queried.
He said government should make a definitive statement on how much it wants aviation to contribute to the GDP and activate plans to achieve it, instead of pursuing a national carrier that may not live long again.
“Government should make a pronouncement on what the government wants. Do they want five per cent or 10 per cent contribution from Aviation, and how is that going to happen?
He noted that “Government’s proposal for a national carrier is commendable.” He however, suggested that it should be well midwifed to make it sustainable.
