Nigeria: Aviation Minister explains why Nigerian airlines fail

Aviation Minister Senator Hadi Sirika identified a poor business plan, high maintenance costs, choice of operating equipment, high interest on loans and poor corporate governance as some of the factors responsible for the failure of Nigerian airlines.

Nigerian airlines have an average lifespan of 10 years, and many of them have gone bankrupt in the past 20 years. Some of them include Triax, Okada, ADC Airlines, Chanchangi, Oriental Airlines, Al Barka, Kabo, Sosoliso, Bellview, and Afrijet, among others.

The minister said that if the cost of the operation is low, the cost of tickets would be lower and more people would travel by plane.

The minister said most Nigerian airlines have a poor business plan and this includes their administrative system, choice of aircraft, choice of routes, choice of staff and financial management.

On the choice of the plane, he said, as the average distance between two cities in Nigeria is about an hour, Nigerian airlines would have to buy small, new and cheaper aircraft to maintain. These types of airlines consume less fuel and are also balanced with a 50% load factor.

He said some bad critical decisions made by the airline management led to their demise because the airlines operate with a very low profit margin, but generate high revenue. Because of this, some owners mistakenly apply the funds and then fail to pay for aircraft maintenance, pay for fuel, pay for overheads and expenses, and then fail to pay workers.

The minister also said that airlines borrow short-term loans at a high interest rate of around 25%, adding that because they operate on a very low profit margin, they find it difficult to meet and repay these loans.

For this reason, the federal government has advanced plans to organize a system whereby airlines can access lines of credit at a long-term single-digit interest rate.

On corporate governance, the minister said that many of the Nigerian carriers operate an individual management system in which the owner of the company calls the shorts without following procedures and processes and without involving professionals who are experienced in the sector to make critical decisions about the operations of the companies. aerial.

Regarding aircraft maintenance, the minister said Nigerian carriers pay a lot to keep their aircraft overseas because there are no large maintenance facilities in Nigeria and those located in Morocco, Ethiopia and Egypt are too busy because they rarely have room for Nigerian carriers; so Nigerian airlines ferry their planes overseas to the United States or Europe where they wait for the slot and continue to pay lodging and parking fees as they wait their turn to catch their plane for maintenance.

According to the minister, it is because of the critical need to have a maintenance facility in Nigeria that the federal government has decided to establish a maintenance, repair and overhaul (MRO) facility, saying that if the cost of operations is low for companies air tickets, the cost of air tickets would also be affordable for average Nigerians to travel by air.

“The lower the fares, the better for the airline business because it will reduce the cost of tickets. But airports need to be managed and managed for profits. For example, Overland Airways has been operating for a long time because it operates planes that are cheaper. to maintain.

“Since becoming Minister I have approved every request made by airlines to import aircraft, but if you look at their business plan you see that they make bad decisions that lead to their failure. For example, Aero Contractors has been operating for almost 60 years but to a certain extent. point they changed their business plan and started having challenges. The Nigerian Civil Aviation Authority (NCAA) could be held accountable to some extent for approving these business plans.

“So airline financing is a problem because of the high interest rate on loans. The 25 percent interest rate is very high. The source of funding is very important and that’s why we have reached an advanced stage. for funding for the aviation industry, “the minister said.

Senator Sirika also said that many Nigerian airlines buy old planes and this equipment is expensive to maintain and because many of the airlines don’t have a good business plan, they lose money.

“Old planes are cheap but expensive to maintain. This is part of the plan I’m talking about.

“Due to poor planning, I know of an airline that lost $ 20 million before it started operations, but I have to say that while turboprop and other smaller planes are cheaper to run, I have to admit that many Nigerians prefer to travel with motor planes but smaller planes are becoming more efficient, “the minister said.

But Overland Airways’ chief executive, Captain Edward Boyo, had said that over 100 domestic airlines have died in the past 20 years due to unfavorable economic conditions and burdens.

Boyo demanded that most of the charges, including corporate interest tax, education tax, Federal Inland Revenue Service Tax, local government expenses, PSC, TSC / CSC which he believed were close to 35 in all, he was abolished as his airline has survived this far due to its business model, adding that if the unfavorable operating environment continues, he may not be sure that his airline will survive.