AVIATION: SURVIVING AMIDST STRANGULATING DEBTS
For sometimes now, two principal stakeholders in the aviation sector- the airlines and various Federal Government agencies, have been flexing muscles over what is best described as an endless controversy over N10 billion debt.
The agencies believe the N10 billion debt the airlines owe them is incapacitating their operations. In turn, they too owe contractors, suppliers and other clients of theirs.
At the centre of the raging issue is the helpless travelling public who do not know what the product of the controversy will be; or better still, when it will end. Expectedly, the 'war' has badly affected service delivery from both sides and each party blames its woes on the other. Analysts say many peanuts are currently roasting in the nation's aviation fire and unfortunately, there appears to be shortage of hands to bring them out.
Hence, the public is being served burnt nuts which mirrors in poor services either from the airlines or the agencies. As unpalatable as the situation is, both parties (airlines and agencies) say death is imminent as they are suffering from insufficient funds to carry out their operations. Aside being indebted to agencies, the airlines are also indebted to various oil companies, maintenance organizations and financial institutions who are threatening to takeover their operations as they appear to be defaulting in the payment of the loans.
International airlines equally owe the agencies but the difference is that they run a structured payment format and that is why they appear to be the toast of the industry. As the domestic airlines struggle to survive amidst strangulating debts, fears are rife that most of them will begin to cut corners or even pack up if they are forced to pay their creditors. According to aviation experts, airline business is so fragile and capital intensive that accumulating debt is almost inevitable.
They believe that forcing the airlines to pay will raise safety concerns since a poor airline will definitely attempt to cut corners in order to remain afloat. Thus, for a country that has suffered fatal crashes not too long ago, the best option left is an amicable resolution of the perennial issue via a roundtable discussion, and with the government as the arbiter. But from the discussions, analysts say the two parties appear to be united in talks but are immediately divided when it comes to taking actions on payment.
In fact, what welcomed Mrs. Fidelia Njeze upon resumption of duties as Aviation Minister in April 2010 was an impending strike by domestic airlines who alleged that Nigerian Airspace Management Agency (NAMA) had planned to stop them from flying if they did not pay up. The airlines had insisted they were not going to pay if the accounts are not duly reconciled, while NAMA on its part claimed to be on danger list financially speaking and could be strangulated if the airlines failed to pay up.
The agency said it was living on the inadequate revenue the foreign airlines paid, wondering why domestic carriers cannot toe the line of their international counterparts. The domestic operators, before the birth of the new radars across various airports, claimed they flew literarily blind on some routes due to poor and unserviceable navigational aids. As such, they queried why they should still be forced to pay en-route and terminal charges. More so, they clung tenaciously to the court ruling of 2005 which said the status quo be maintained after the airlines dragged NAMA to court over the matter.
NAMA on its part claims it loses N540 million annually due to non payment of the en-route charges by the airlines. As the matter raged, the Minister was forced to douse the tension by ordering NAMA to allow the airlines more time to pay up. Njeze explained that a strong bond should always exist between the airlines and the agencies as one is an integral part of the other. After a series of meetings, she gave a three-year grace for the airlines to pay up their old debts, while ensuring they settle their current bills as they operate.
Since this 'ruling', the landlord of the dynamic sector- the Federal Airports Authority of Nigeria (FAAN) has regularly harassed some of its tenants (the airlines) over long standing debts of about N5 billion accrued from 'enjoying' its services in various airports across the country. Also hounding the airlines are other agencies like NAMA and occasionally, the Nigerian Civil Aviation Authority (NCAA).
From time to time, these agencies wield the big stick and temporarily ground the erring airlines to remind them that paying for services rendered remains good business ethics. Two weeks ago, the operations of Dana, IRS, Air Nigeria, Chanchangi and Aero airlines were disrupted by FAAN officials who stopped them from checking in passengers as a result of the debt. Two weeks earlier, it was the turn of Arik Air, the dominant carrier at the General Aviation Terminal (GAT). Whenever this happens, it leaves scores of passengers stranded at the terminals, including infants and the aged. It also robs the carriers of handsome revenue, while disrupting individual and corporate businesses.
Though the grounding is usually for few hours, it leaves the airlines with no option other than pay something to the hounding agency.
The General Manager, Public Affairs of FAAN, Akin Olukunle, has repeatedly said the authority would do everything legitimate to get its money. The debts spring from passenger processing charge (N350 per passenger) and its paid to FAAN; landing and parking charge which is billed according to aircraft size and takeoff weight. That is also paid to the authority. There is rent and utility bills also paid to FAAN; five per cent ticket sales/cargo charges go to the NCAA; there is the five per cent Value Added Tax paid to the Federal Government.
Also included is the navigational charges (terminal and en-route) of about N12,000 per flight on the average, paid to NAMA which is operational and not built directly into the ticket, among other 'hidden' charges. All these deductions are made from the N19,000 per ticket sold for a one hour flight.
All the aforementioned aside, the airlines are expected to pay their rent and utility bills. They must also take care of other issues like staff salaries, routine/mandatory maintenance, insurance, training, expensive fuelling, ground handling charges and spares purchase. To remain in business, airlines say debt is completely inevitable. As the debt war rages, the airlines on one hand say the figures put forward by the agencies is completely ridiculous when juxtaposed with the poor airport infrastructure and epileptic services they get from the service providers.
This they say has impaired rather than improved their operations and yet they are heavily billed.
The airlines also claim that low patronage due to general economic downturn; lack of incentives and low airfares are some of the challenges they face daily. Aside seeking tax holidays and slashed charges, the airlines say they want improved airport infrastructure because the forced practice of operating modern jets amidst decayed facilities remains counter-productive.
However, on the other hand, the aviation agencies maintain they are owed billions of naira such that they can hardly meet their primary obligations, let alone improving on them. They readily explain that they were created to survive mainly from the revenue they generate in the course of delivering services to the airlines and other establishments. 'NCAA, FAAN and NAMA do not get any subvention from the government. We rely on the charges we slam the airlines and other bodies as they enjoy our services. Our main partners are the airlines anyway and from them come the bulk of our revenue. However, when they're not paying, we're in a mess.
The debt got to a point the agencies found it hard to pay salaries and yet the airlines were still in operation and even expanding their operations. Up till now, they owe us billions of naira. In fact, the debt has stalled our expansion plans. You can imagine if we get N5 billion into our coffers right now, we'll do a lot with it. With the debt and this Maevis issue, FAAN may go the way Nigeria Airways went', says a top official of FAAN who craved anonymity.
Indeed, the matter has got to a stage where stakeholders insist that a common ground be found in the interest of the flying public and the nation's economy in general. More so, the issue has given birth to two schools of thought. A school of thought is sympathetic to airlines' plight as they demand better services before they can pay; while another is lambasting the operators who they felt should have done their homework well before deciding to come into an industry, whose agencies offer what they perceive as less than satisfactory services.
The second school of thought also feels that rather than grandstanding, the airlines should simply operate within the industry's set rules or quietly quit the scene if not pleased with the system and the standards of services it offers. This has been the seemingly abrasive, rather than adhesive relationship between the airlines and the agencies for years running.
Analysts say a lot of factors are responsible for the piled up debt. From high operational cost which includes fuel, spares and numerous charges to low patronage and 'cheap' fares, the airlines appear to be flying in turbulent weather. For industry watchers with eyes for details, the argument that the debt needs to reconciled is no longer in doubt. But what could certainly be of interest to most observers now might be seeming neglect of the domestic airlines and the frequency of policy somersault that seems to expose them to harshest of operating environments.
FAAN on its own part, gave its aeronautical and non aeronautical revenue collection to a concessionaire called Maevis with the belief that its revenue will increase tremendously since every activity will be captured electronically, but the dream is still a matter of debate. Whenever the debt issue comes up, some questions probe stakeholders' minds: 'How are the airlines billed? Why would airlines collect the money via ticket sales and bluntly refuse to remit it to the appropriate quarters? Is it possible for airlines to be flying in turbulent weather and still have room to expand their businesses? Must airlines be grounded before they realize they should pay?
Why is FAAN in particular having problems with its clients, concessionaires inclusive and why have the authorities on their part allowed the debt to drag for years until the breaking point? Are the services commensurate with the bills slammed the airlines? Where poor or inadequate airport infrastructure has scorched the airlines' operations like in birds strike and attack on an aircraft at the ramp by an intruder, who pays? How long can the airlines owe? Are the airlines charging fares commensurate with their bills? Any mechanism(s) in place to check airlines' excesses?
While the airlines have stylishly hiked fares by N2,000 recently in reaction to slight hike in price of aviation fuel, they still feel that is not enough to cushion the charges slammed on them.
Just last week, Virgin Atlantic Airways Limited, the second-largest long-haul carrier at London's Heathrow Airport, said it will halt payments to the hub's owner, British Airport Authority (BAA) Limited until an inquiry into disruption caused by wintery weather is completed.
Photo: Sun News Publishing
Virgin says it is paying out millions of pounds in refunds after snowfalls on December 18, 2010 prompted Europe's busiest airport to scrap flights for four days in the run up to Christmas, and aims to encourage BAA to expedite an internal probe into the closure.
'We have written to BAA this weekend to advise them that we are withholding our fees,' Virgin said in a statement last night. 'We are keen that BAA also feels a strong sense of accountability to the consumer and that minds are focused on delivering a fully independent and robust inquiry', the airline said. What baffled aviation watchers in Nigeria is Virgin Atlantic's effrontery to withhold BAA's revenue over circumstances not caused by the hub owner.
Unlike in developed world where airlines demand and fight for their rights, the domestic operators allege that FAAN still demands landing and parking fees from them even after one of their airplanes is grounded on the tarmac after suffering a bird strike. According to the Executive Chairman of Arik Air, leading West African carrier, Sir Joseph Akinola Arumemi-Ikhide, the domestic operators are endangered species, soon to become extinct.
He said the brouhaha over the airline's debt is more of blackmail than reality, explaining that the figures need to be properly scrutinized. He said a taxi driver on March 31, 2010, rammed his car into one of its B737-700NG airplane parked on the tarmac at the Margaret Ekpo International Airport, Calabar. The shocking incident damaged the underbelly of the airplane and the Chairman of the company said it gulped about N1.932 billion to fix it overseas.
He said neither FAAN nor the security agencies has asked how it was fixed, let alone picking up part or the whole bill. He also said the airline suffered 42 bird strike incidents in 2010 alone and that cost billions of naira to fix as well. He also said the quality of service in Europe is far better than what obtains here, wondering why agencies insist on charging the same rate with the developed nations when the service levels are worlds apart.
'I don't subscribe to the charges a 100 per cent. But let me go further to stress that even the charges are not scientifically done. We had a meeting the other day, with the honourable minister, and we asked this same question after the NAMA incident. And we found that, to us in Arik for bringing in new planes, we are being punished for it by the method of their calculations. Whereas in other parts of the world if you bring in new aircraft you get some credit. But then those people didn't do it deliberately, I must say that.
I will say it is a carry over of the military thing. In other parts of the world both the airlines and the agencies will sit down and talk and look at issues and the same time they come to a compromise. We are not saying government should carry all the bills the airline must pay, but what we're saying that the charges are high, but the mechanism of even arriving at those charges are ridiculous. Somehow, some body can say they are charging this, we are charging that, but the question is that are you giving the same services like those people?
I will like to tell you one thing and you can quote me on this one, for a tyre in Europe, you could do 100 landings in its entire life cycle but in Nigeria, you will be lucky if you do 45. So you can't say they are charging you this in Europe and you want to charge that in Nigeria. One, you don't manufacture your tyres here and the tyres used in Nigeria wears faster than in Europe because our airport, our runways are not properly maintained. So obviously, you have disadvantage but even in that, the foreign countries that we are trying to copy have a lot of incentives for their airlines', he said.
The Arik Air boss also canvassed for incentives for the domestic carriers as a way of encouraging them.
He cited the example of New York and Houston Airports in the United States of America.
'New York is giving us some incentives. Even the airport in Houston has asked us to come promising to give us good incentives to encourage us. In fact, they are giving us discounts. We have a letter from Houston Airport we can show you. They said that when we come in, they are going to give money for advertisement, they are going to give us office free, we are going to land free for two years. And then the third year, we will pay 50 per cent of the charges. What they want to do is that you are a new entrant, they want to support you to grow.
They don't want to drive you away. They know when you start, you are not going to make money and so they want to reduce your cost so that you don't have it as a burden. It is like helping you to grow until you mature, you stabilize and then you can be paying them. So they met us and let us in to these incentives. Even in Gabon here in Africa, they said when we come to Libreville, they'll do the same thing for us. But FAAN doesn't have that. FAAN just said come, we are charging this, and we are charging that. South Africa gave us some discount for one year when we went to Johannesburg but FAAN does not do that' Arumemi-Ikhide lamented.
According to the Chairman, Airline Operators of Nigeria (AON), Dr Steve Mahonwu, the government must address the issue of airport infrastructure rot as the decay is heavily adding to the operational headaches of the operators. Also commenting on the issue of airline's debt, Sam Akerele, former Port Harcourt International Airport Manager said the issue of debt should be carefully looked into.
'The issue of airlines' debt is about five years old. You must pay for services rendered and that is what the airlines must understand. However, we have to look at the charges very well. The Federal Government said various aviation agencies should run on the revenue they generate from the charges they slam the airlines and other users of their services. The government only comes in when there are capital projects. So, if the airlines don't pay, the agencies will collapse because the day to day running of the agencies is from the monies they collect for services rendered. Worse still, government is not seeing the importance of aviation.
When NAMA introduced the terminal and en-route charges some years ago, Virgin Nigeria (now Air Nigeria) and Arik Air were not there. The charges could be new to them. Other domestic airlines over the years somehow have been paying without complaining. It's a universal rule that airport users must pay and sustain the system. It also what the International Civil Aviation Organization (ICAO) says. However, issues of birds strikes are serious. It has done too many damages to the airlines and robbed them lots of funds. To avoid these ugly developments, FAAN can insure the airports so that the insurers can also pick up part of the bills.
The Federal Government should look into it. More so, there are several ways of controlling birds strikes. There should be no farms around the airport. Wastes from the airport should be disposed immediately and not allowed to pile up. Another thing is that grass cutting should be done in the night because during the day, it attracts birds that come to pick up insects and other rodents. FAAN's department of Environment is not doing enough to check the menace of birds and other environmental incursions.
The Arik's Calabar Airport incident very bad. Both FAAN and the Air Force are liable. They provide the security around the airports. FAAN and NCAA should look into it. Low fare airlines should also be encouraged. With that, you can get more passengers. For me, there are too many domestic airlines in the country. Three or four are okay. The Federal Government should enforce mergers so that these weak airlines can merge with stronger ones. Policy change on aviation to take us to year 2020 should be out by now. The standards should be higher than it is now' Akelere explained.
Another industry analyst, Olumide Ohunayo is of the opinion that the airlines have no genuine reason to make debt a rule rather than the exception. Ohunayo told Daily Sun that rules of the business as it concerns charges and taxes is clear to both the operators and the agencies. Hear him: 'On all tickets paper or paperless, it is clearly stated that this taxes or charges are owned by the different agencies, though collected on their behalf as obtained in other climes.
The only difference is while in other climes the taxes and charges are remitted regularly or on agreed terms, in Nigeria, the reverse is the case. The airlines enjoy playing with other people's money, thereafter they will run to the Aviation Ministry, Presidency, etc for protection and intervention when its time to pay up. The presidency should realise their intervention is clear case of robbing Peter to pay Paul', he stated.
The aviation analyst advised FAAN and related organisations to work out modalities of getting these charges as quickly as possible or establish a mechanism that ensures what is due to them is extracted direct from source perhaps using full information and communications technology tools.
'In fact before the aircraft departs, the agencies should ensure it money is intact to avoid the issue embarrassing backlog.
The action will inadvertently aid the efficient management of our airlines as they will be saddled with the responsibility using revenue generated from sales, loans while also working assiduously towards improving revenue form other ancillary options', he added.
While knocking the airlines, Ohunayo also urged the government and aviation stakeholders to understand the dynamics of airline business as bulk of their funds are sourced from loans.
'We should also understand that the airline industry is usually funded and dependent on loans to meet immediate and future operational targets while revenue generated are used to service these loans, run operational expenses and also act as necessary liquidity in an adverse period. If taxes and charges are to be used at all it is temporal with clear understanding of other parties. The airlines should pay for their services and should equally demand for compensations when the service providers actions or in-actions affect or slows down their operations.
The BAA chief executive Colin Matthews instigated an inquiry into the airport shutdown last month. He also agreed to forgo his annual bonus during the public outcry that culminated in flight delays and Virgin Atlantic was even bold enough to announce that it will hold BAA charges in his possession until a form of compensation was worked out. It is a lesson for us all to be bold enough to accept responsibility and listen to public outcry. The agencies should also consider giving a certain percentage of these charges or taxes to the airlines for their efforts in collecting the money, just as they have done with concessionaires, EFCC and other debt retrieving organisations partners', he stated.
Stakeholders have accused the airline owners of living lavish lifestyles at the expense of their creditors' health. Some people are of the opinion that the airlines should consider mergers as a survival strategy, calling on the government to come up with a policy that would make weak carriers get acquired or merge with stronger ones. To halt the further accumulation of debt, NAMA recently introduced the pay-as-you-go regime, which the airlines are reluctantly abiding by.
The few who tried to resist it were immediately denied clearance by the agency's Air Traffic Controllers. Unpalatable as it may be, it has helped NAMA generate some revenue in recent times.
Late last year, the government planned to introduce an electronic payment platform for the airlines to ensure all agencies get their entitlements right from source and not through the airlines.
Some are even of the opinion that government should be involved in the management of the airlines to ensure that they are not only operating safely, but also profitably. It is also believed that the bar should be raised further to weed out weak airlines who might be tempted to go off course.