February 16, (THEWILL) – For domestic airlines to do well in their operations, there is need for establishment of aircraft leasing companies that will be well capitalised and supported by both external and internal investors, to act on behalf of operators to lease aircraft.
Financing the purchase, or leasing of an aircraft and related assets are some of the major challenges facing most domestic operators in Nigeria. It can take several forms including, but not limited to, a loan from a bank or other financial institution, secured by a mortgage over the aircraft purchased; the lease of the aircraft involving either an operating lease or a finance lease; and, a capital markets transaction through the issuing of bonds or notes secured by a mortgage on the aircraft.
Chief Operating Officer (COO), United Nigeria Airlines, Mazi Osita Okonkwo, who made the observation during a recent interview with newsmen in Lagos, said that if the leasing company happens to be a Nigeria-based institution, then it will be a lot easier for them to enter into contract with manufacturers, which would lease aircraft and give to operators and then retrieve them whenever there is a default.
Explaining further, the COO, who informed that United Nigeria Airlines has carried close to 800,000 passengers since they started operations last two years, pointed out that there is another form of specialised financing, saying, “You can call it a bank, but by name it should be an aircraft leasing company. The banks are sufficiently capitalised to be able to fund transactions. The only problem they have are maybe the tenor and the expertise. If you get allocation from CBN and lease in naira, and you want to replenish, are you able to get at the right rate and so forth.
He advised that it is also for airlines to be strong enough to be quoted in the stock exchange or to be able to issue their own corporate bonds.
“By so doing, they would be able to go directly to those with money and raise that kind of money. It is something we are dreaming of. It something we want to do, getting to a level where we can place our receivables and be able to raise money directly from the investors through pension funds. Once the bond is properly rated, any pension fund can be invested. Once we get to that stage, it will be a lot easier to deal with funding.”
Mazi Okonkwo kicked against the idea of Aviation Bank, stressing that all over the world, there is no place there is bank for aviation, adding that “if you look at our infrastructure, agric, industry, they failed completely. They are struggling and money is being pumped in them every now and then. What is needed is for the banks to develop specialists in the aviation and have desks in their different banks. It is usually a stage of development.”
According to Mazi Okonkwo, United Nigeria Airlines is still operating their four CRJ. owned by the airline, just as they supplement it with leasing from time to time, particularly during the peak period.
“We have plans to expand our fleet. It is being slowed down because of current situation of forex. We had contract with manufacturers and lessors but it has not been fully operationalised because of lack of access to forex. This year we are going to increase the tempo a little bit and make sure that by the end of second quarter, we will bring in the new fleet we have already committed”, he added.
Speaking on their journey so far, Okonkwo said that the airline has faced lots of challenges since 12th of February 2021 when they did their inaugural flight from Lagos to Enugu, which happened few days after the airline procured its Air Operator’s Certificate (AOC).
“That happened just a few days after we obtained our AOC. That period was towards the COVID-19 period. The aviation industry had just been opened for business. It was like, will it happen or will it not happen, but we did that on that day. Looking back two years after is like what a journey”, he recounted.
Despite the huddles which had to do with forex, aviation fuel, spare parts, ground operations and facilities, ability of lessors and manufacturers and sellers to do business with Nigeria, the COO maintained that huge lessons have been learnt and what the airline has done is to build in some of these lessons into our plans for the future.
“When we started, fuel was N200 plus to N300. As at December 2021, we were buying fuel at N350. Suddenly, it rose to N500, that was when AON started shouting. Then, it is around N790 and N800 now. The same with forex. You know that 99 percent of input into an aircraft is forex. There is nothing we produce in this country as far aircraft is concerned. So you need to get your forex. We suffered double jeopardy, one of access to forex, second is availability and cost. It moved from about N400 plus till a time we bought at N900 if you are not lucky to get from CBN. Currently CBN meets about 20 to 30 percent of the needs and that takes time. You have to queue. Meanwhile, you have an AOG that you have to get the spare parts. It has really been difficult. What we have seen is escalating cost of operation. It is escalating at a very rapid rate. There was a reaction on the fare side on the fare side from N23,000, N30,000 it moved to N50,000, N70,000. Now what we are seeing is that because of the economic situation in the country nobody is flying at N70,000. So airlines have reacted irrespective of what people say that they were colluding to fix prices. This is market force driven and survival driven. Now you can see that you you get tickets of N40,000, but I can assure you that people are underwriting those costs.
“There is nobody who can fly at N40,000. It is not possible even if you filled the aircraft. Like us doing CRJ you sell at N40,000. NCAA Takes 5 percent, BASL takes N4,250, that is already 10 percent of the fare you have collected. Then you talk of fuel. One hour flights will take you about 1300 litres of fuel. So there is no way anybody who flies at N40,000 will not do anything.
“Actually, the major problem that Nigerian operators have survived the fuel crisis is again a testament to the promoters and Investors who continue to pump in their own capital to keep the airline flying, not that there is any magic thing about the fares”, he said.
On Spring Alliance, he said, “Spring Alliance has been very helpful. It is not like everybody chooses that but if it happens, that you don’t have enough time to reorganise your flight or to inform passengers, you can call our partner airlines to help you. There is an agreement, they will carry you and the settlement will be done later. We have not issues and from that point of view, I think the numbers are not really important but the spirit and the impact it is having is very very important. We have such agreement with all the people in the alliance.
On the future of the airline, Mazi Okonkwo also disclosed that United Nigeria Airlines is planning to start their regional operations, using Enugu as a departure point.
“We are planning to fix that and gradually move into Enugu and we believe that out of Enugu will give us some advantages. These we are studying. Meanwhile We are using our subbase more than Enugu. But we fly into Enugu on daily basis, but most of our flights are not originating from there. In terms of state government, they have promised to give us some facilitations. We are still pursuing them. We hope to take it up again.”
He equally canvassed for government interventions in the system, insisting that “there is need for intervention especially when an event happens that is militating against the industry. The other element is foreign exchange. There is nothing wrong in allocating forex to airlines. There is need for that kind of allocation and the operators are asking for it which I think is legitimate.”
Anthony Awunor, is a business correspondent who holds a Bachelor of Arts Degree in Linguistics (UNILAG). He is also an alumnus of the Nigerian College of Aviation Technology (NCAT), Zaria Kaduna State. He lives in Lagos.
