Aviation sector squeezed over stuttering naira
The aviation industry has continued to be the worst hit by the sharp depreciation in the naira. While airlines sell tickets in naira, they pay for insurance, spares, aircraft, fleet maintenance and buy fuel in dollars.
While the naira has continually weakened against the dollar every year, the 2023 has been particularly painful after the 40 percent devaluation in June following the FX reforms kick-started by new president Bola Tinubu.
Last year, airlines were able to access dollars at an exchange rate of between N400 to N450 to a dollar in the I & E window but with the current exchange rate of N785, airlines have had to pay almost double for operating costs, making it difficult for them to carry out their aircraft maintenance and pay for insurance.
BusinessDay’s investigation shows that it costs an airline an average of $500thousand to $1million to carry C-check (heavy maintenance) on an aircraft depending on the age of the aircraft, which is done in 18 months.
When naira to dollar exchange rate was N400 to a dollar, airlines paid about N200 million to N400 million to carry out C-check but with the current exchange rate of N785 to a dollar in the I and E window, airlines have to pay between N393 million to N785 million to carry out C check on a single aircraft.
Airlines which were already paying so much for insurance premiums as a result of the country’s perception as a high risk operating environment and the alleged high insurance premium demanded by local insurance firms in Nigeria are again faced with more troubles of paying higher premiums over increased dollar rate.
BusinessDay’s investigations show that while Nigerian airlines pay eight to 10 percent of the value of an aircraft to insure the aircraft, airlines that operate in Ghana, South Africa and other African countries pay two to three percent.
Also, airlines operating in Europe and the United States pay 0.5 to one percent to insure the same aircraft.
For instance, airlines operating in Nigeria pay an average of one million dollars annually to insure a B737-300 aircraft while airlines in Ghana or the US pay between $200,000 to $300,000 to insure the same aircraft type.
With the current exchange rate, airlines which paid N400 million to insure a B737-300 aircraft when dollar exchange rate was N400 to a dollar will now have to pay N785 million to insure the same aircraft now.
George Uriesi, the Chief Operating Officer (COO) of Ibom Air during his presentation at the 2023 AviaCargo Chinet Conference in 2023 held in Lagos last week, he stated current exchange rate has led to high insurance premiums for the airline and wondered how some of the airlines were coping with the situation.
Uriesi stated that this was a major challenge to operators as aircraft and other equipment must be appropriately insured by the airlines before being deployed to service.
According to Uriesi, the perilous situation needed urgent government attention and warned that the present condition may lead to the collapse of some of the carriers.
Travellers are also having a fair share of the impact of the high exchange rate.
In recent times, Nigerians have had to suspend their travel plans to the United States and Europe as a result of the increase in fares which has tripled as a result of the high exchange rate for ticket pricing.
BusinessDay’s investigations show that an economy class ticket from Lagos to London and Lagos to France and most European countries which cost around N1.5 million a month ago, now cost an average of N1.9million to N2.2million depending on the airline.
Also an economy class ticket from Lagos to the United States which cost about N1.7million a month ago is currently pricing between N2.2million and N2. 6million.
Cost of air fares from Nigeria to various destinations have seen a sharp rise since exchange rate for ticket pricing hit over N760/$,
The development came a few days after the Central Bank of Nigeria floated the naira and directed commercial banks to sell foreign exchange at market-determined rates.
The CBN said all forex windows should be collapsed into the Investors & Exporters Window.
Days after the decision, the exchange rate has since fluctuated on the International Air Transport Association (IATA) platform from 663.04/$ to now N850/$.
Nigerian travellers have quickly had to respond to the increase by suspending their travel plans to Europe and the United States.
Since last year, foreign airlines operating in Nigeria blocked low ticket inventories (cheap tickets), leaving high inventories (costly tickets) to be sold in naira only, while the low ticket inventories on most airlines’ websites could only be bought with dollar cards only.
This was in a bid to cushion the effect of their trapped funds in Nigeria which kept rising.
The International Air Transport Association (IATA) has said the foreign airlines trapped funds in Nigeria is $783 million.
While airlines gradually opened up low ticket inventories which they had blocked, as the Central Bank of Nigeria released their trapped funds in trickles, BusinessDay’s investigations show that high ticket inventories were still more on the websites, making ticket prices high.
Susan Akporiaye, the President of the National Association of Travel Agents of Nigeria, (NANTA) told BusinessDay that the reduction in summer travels has been there since the restriction of inventories on the airlines’ website.
Akporiaye however noted that the new dollar rate policy has worsened the situation because ticket prices are so high that even corporate travels are now affected.
She said the new exchange rate policy has further reduced ticket sales.(BusinessDay)