The dwindling number of operational aircraft in Nigeria’s domestic airline sector can be attributed, in part, to the substantial capital required for aircraft acquisition and the reluctance of local financiers to provide necessary credit. This situation, as highlighted by industry expert Chinedu Eze, calls for immediate intervention.

The airline business is notoriously capital-intensive, with the cost of acquiring a new medium-sized aircraft being prohibitively high. As a result, airlines often turn to financial institutions for credit facilities. Many countries allow airlines to access long-term loans at single-digit, adjustable interest rates, often sourced from overseas import/export banks.

Arik Air was a trailblazer as the first privately owned commercial airline in Nigeria to secure comprehensive credit facilities for aircraft acquisitions from various international financial institutions. However, such opportunities have become increasingly rare due to the negative perception of the Nigerian financial environment among lenders, lessors, and insurance companies.

When it comes to aircraft costs, acquiring a brand-new Boeing starts at $89 million, with narrowbody 737 family airliners being the cheapest options, while widebody models can exceed $200 million. According to Simple Flying, an Airbus A220-100 costs about $81 million, with the A220-300 priced at $91.5 million. The A319 lists at around $92.3 million, while the newer A319neo can reach $101.5 million. Other aircraft from Embraer and Bombardier have a wide price range—from $21 million to over $53 million—reflecting the staggering sums needed, particularly with the current Naira to dollar exchange rate. Investigations reveal that Nigerian banks are often hesitant to lend to local airlines, despite high-interest rates.

In an exclusive interview earlier this year, Akin Olateru, Chairman and CEO of Omni Blu Aviation (OBA) Limited, emphasized the crucial elements for airline survival: access to cash at single-digit interest rates, effective management, and solid financial planning. He pointed out that currency exchange fluctuation poses significant challenges, making planning nearly impossible for airlines. “An airline should be able to secure loans with single-digit interest rates, but here, the instability of the currency can jeopardize the business,” he stated.

Olateru contrasted the Nigerian situation with that of U.S. and European airlines, which primarily operate in stable currencies, noting that 85% of airline costs are tied to foreign exchange in Nigeria. He explained that while a scheduled airline might sell tickets based on current exchange rates, fluctuations can quickly erode profitability and disrupt operational budgets.

At a media event organized by Airbus in Abuja, aviation experts identified the unstable value of the Naira as a major deterrent for international financiers and credit institutions. Prajyoth Krishna Mirajkar, the former Airbus Africa and Middle East Marketing Manager, highlighted that lessors often face challenges in easily repossessing aircraft, labeling Nigeria as a high-risk jurisdiction. This perception discourages long-term lease agreements and results in inflated leasing costs.

To address these issues, the Minister of Aviation and Aerospace Development has initiated a review of the Cape Town Convention and is working to establish conditions that enable Nigerian airlines to secure long-term leases and access credit facilities more effectively. The Minister’s signing of the Cape Town Convention Practice Direction recently boosted the country’s rating from 49% to 70.5%, and the introduction of the Irrevocable De-Registration and Export Request Authorization (IDERA) aims to facilitate smoother aircraft leasing and repossession.

While progress has been made, the Minister’s efforts hinge on individual airlines capitalizing on these new opportunities, which includes adhering to operational standards, certifications like the IATA Operational Safety Audit (IOSA), and fostering goodwill with lessors.

Captain Ado Sanusi, Managing Director and CEO of Aero Contractors, noted that despite these advancements, skepticism remains among lessors and financiers, who will closely monitor the implementation of new agreements. “Trust is essential in aviation,” he said, stressing the need for Nigerian airlines to demonstrate reliability in their leasing practices to rebuild confidence in the market.

Recently, the Nigerian Civil Aviation Authority (NCAA) hosted a conference on aviation financing, calling on the government, particularly the Central Bank of Nigeria, to address the excessively high interest rates that airlines face on loans. With interest rates currently at 30%, the sustainability of the industry is at stake.

Participants also advocated for establishing a Special Aviation Development Fund aimed at infrastructure development and capacity building, highlighting that high operating costs continue to deter investment, leading to ticket price inflation. For Nigerian airlines to explore financing avenues effectively, they must maintain creditworthiness and meet industry standards.

While the current administration under President Tinubu has expressed support for Nigerian carriers, ongoing advocacy and governmental commitment are vital to unlock the significant potential of a market that boasts the highest number of indigenous travelers in Africa.