Nigerian Airlines Turn to Bank Loans Amid Rising Fuel Costs
The aviation industry in Nigeria is under increasing strain due to soaring fuel prices, prompting airlines to lean heavily on commercial bank loans to maintain their daily operations. This trend comes as major industry figures raise concerns over the sustainability of current practices.
Challenges Faced by Airline Executives
Allen Onyema, Chief Executive Officer of Air Peace and Vice President of the Airlines of Nigeria (AON), expressed these concerns during an interview on Arise TV. He highlighted the grim reality that operators are struggling to stay afloat in a landscape defined by escalating fuel costs and increasing borrowing expenses. Recently, the price of aviation fuel, known as Jet A1, surged by over 250%, rising from approximately N900 to N3,300 per liter. This dramatic increase has compelled many airlines to rely heavily on loans just to purchase fuel.
Impact of Fuel Costs on Operations
Onyema noted the stark rise in operational costs, revealing that the expense of operating a single flight has quadrupled—from about N3 million to between N12 million and N13 million. Such inflation in overheads has not only raised borrowing demands but has also forced airlines to reevaluate their flight frequencies in an effort to mitigate losses.
High Interest Rates Compound Financial Strain
Additionally, the situation is exacerbated by the high interest rates, currently between 29% and 33%, making loans increasingly burdensome for airlines. This financial stress coupled with rising operational costs presents a formidable challenge for Nigerian airlines, many of which are being compelled to cut back on their services.
Supply Chain Inefficiencies Contribute to Rising Costs
Onyema further explained that inefficiencies in the aviation fuel supply chain are adding to the cost burden. The presence of multiple intermediaries inflates prices before the fuel reaches the airlines. He pointed out that while securing fuel through a coordinated arrangement with the Dangote refinery and MRS remains the most economical choice, the distribution dynamics still influence the final price significantly.
Policy Changes Needed to Save Airlines
The CEO warned that without urgent intervention from policymakers, many airlines might not withstand the financial pressures facing them. He cited that over 70 airlines have previously shuttered operations, which positions Nigeria as one of the most vulnerable aviation markets globally. Onyema also criticized the 5% ticket sales fee levied by the Nigerian Civil Aviation Authority (NCAA), emphasizing that this fee adds another layer of burden to already struggling airlines.
Government Efforts and Industry Stability
While acknowledging the Federal Government’s initiatives to enhance aircraft leasing under the Cape Town Convention, Onyema called for a comprehensive review of aviation-related taxes and fees that are negatively impacting the sector. Previously, the NCAA had placed 11 domestic airlines on a “no service” sanctions list for unpaid obligations. However, the enforcement of these sanctions was halted amid concerns regarding the rising operating costs and overall stability of the airline industry in Nigeria.
