‘Why Aviation Industry is Facing Funding Challenges’

Nigerian airlines are finding it increasingly difficult to access funds to acquire new airplanes and carry out other activities to boost their businesses.

Aviation finance consultant, Ali Magaji in a recent presentation at a workshop in Lagos said there are significant challenges for the industry as a whole to find finance for the new deliveries. He noted that all the major players in the industry, including manufacturers, financiers, airlines and lessors would need to work harder to attract new investors to the industry.

He observed that Nigeria has been renovating its airports, with all 22 to be remodelled by 2015, but still finds it difficult to attract private investors, despite the existence of a privatisation commission.

“Today, most of the airlines owe Asset Management Corporation of Nigeria (AMCON) substantial amounts of moneys, for many, beyond the capacities of their balance sheets, which reveals that it is getting increasingly difficult for investors to source financing options,” he said.

Magaji identified obstacles to funding of the aviation industry in Nigeria and said there is very high interest rate regime from local commercial banks, poor credit rating to access foreign funding, over-regulated financial system impeding simple and genuine foreign currency transactions.

He also identified over regulation and expensive procedures by the Nigerian Civil Aviation Authority (NCAA) impeding start-ups, poor and hostile business environment characterised by Nigerians position in the “Ease of Doing Business” in Nigeria and exploitation by NCAA through multiple inspections of aircraft, training facilities, maintenance facilities

Magaji also identified financing model for Nigeria in the aviation sector and these include targeted and effective subsidy from government, Intervention Guarantee Fund with very low interest rate and longer tenure, reduction of multiple taxation that impedes airlines’ revenue, lighting of the airports and keeping them operational till midnight to improve asset turnover and baseline revenue; easier access to foreign exchange from the Central Bank of Nigeria (CBN), reduced Customs and Excise tariff for local airlines and reduced landing, parking and navigational charges for local airlines

Magaji noted government recent initiative to make funds available to airlines which include Bank of Industry (BOI) Aviation Intervention Fund to fast track the development of the aviation sector, remodeling of the Nigerian airports – all major airports in Nigeria, Total Radar Coverage of Nigeria (TRACON, ATC Pilot Digital Data Messaging, erotropolis development in major airports and the National Carrier debate.

He said this government’s initiative failed because BOI intervention funds did not help the airlines, but the banks because of poor monitoring of the process; the airport remodeling projects are still not completed; misplaced navigational priorities, “rather than Cat III ILS, we are doing digital messaging”, and poor application of the Chinese loan, buying cars instead of applying it to airports

Magaji said Nigeria and the entire Africa remains hindered by a set of circumstances which do not encourage external investment.

“Some of these factors include: inadequate infrastructure, described recently by the Secretary General of the African Airlines Association as ‘deficient, dilapidated and not coping with the growing airline industry’, who added that there is a need to develop and expand airports, runways and air navigation service facilities, and for airports to open 24 hours a day,” he said.