Is It The End Of Nigeria’s Aviation Sector?

 By Dele Sobowale

 “All things do help an unhappy man to fall.” 

— William Shakespeare, 1564-1616, Vanguard Book of Quotations, VBQ, P.257

Regular readers of this page know that I am one of the few Nigerians still passionate about Nigeria Air – the national airline. For me, it is simply an acid test of our ability as a nation to manage any complex enterprise. The success of Ethiopian Airlines should be sufficient for us to try once again. The lure of foreign exchange revenue should constitute an extra dividend. But, as time is running out on the Buhari administration, what was an uphill task is now becoming a mission impossible.

Worst Disaster

“Aviation crisis: We’re currently engaging CBN, others on blocked $600m funds – Lai Mohammed. Report, August 23, 2022.

Two things I learnt from personal experience, at the university and former jobs are pertinent here. To persuade  foreign airlines threatening to leave Nigeria, we need credible communications. From a course on communications in Business School, it was drummed into my head that the messenger is as important as the message. The message itself must be credible. When the messenger and the message lack credibility, the crisis is made worse.

With $600m funds belonging to foreign airlines, the worst government spokesman to address the issue is Lai Mohammed. One of my friends in an embassy was the first to let me know that they monitor activities on our social media platforms 24/7. They are aware that Lai Mohammed lacks credibility among Nigerians. He is also not well regarded in diplomatic circles. The announcement by Lai Mohammed, contrary to what the Federal Government expects, will most probably be dismissed as false by all airlines affected. In fact, it would have been better to say nothing than to send a messenger regarded as untruthful.

Unbelievable Message

The message itself is totally unbelievable. Apart from the CBN, which was specifically named, all the others remain mysterious. Those whose funds are trapped are not interested in hide and seek games. They want their money now or a clear answer to the question: when will the funds be available? Vague statements such as “we are engaging the authorities” are not only annoying; they negatively affect the global credit rating of the entity holding the funds.

Unlike the Nigerian Government which does not plan properly; and fails regularly to execute its plans, foreign airlines, like most multinationals, work on budgets – monthly, quarterly and annual expected revenue being the top priority – failure to achieve stated targets creates problems in every area of the business. In this case, the revenue was actually earned; and Nigeria is sitting on it. I know what will most probably happen.

No Throwing Good Money After Bad

“Credit is better than money; money is finite; good credit is limitless.”

I remember a lecture on Financial Management: Cost of Capital attended in New York in 1969. Like most young and naïve students, I thought that being given a big bundle of money was all that one needs to be successful in business – until that lecture. The lecturer was a successful businessman who had built a multi-million dollar business by borrowing. In twenty-five years, he had increased his debt burden, but, he always paid each creditor – as and when due. He was also a lender. From him I learnt that it makes no sense to throw money in hand (good money) after doubtful debts overdue for collection. Invariably, after 90 days, the money has started to be discounted by inflation. The higher the rate of inflation, the more you lose when your funds are blocked.

Consequences of Blocking

“One of the lessons of history is that human beings never learn from history.” Most of us know that. But, even the people who should try to consult precedents, especially African leaders, never do. What is happening to foreign airlines in Nigeria today has happened before. There are blocked funds waiting to be repatriated in several countries, notably Russia, Sri Lanka and Lebanon right now. The same thing happened in Nigeria in 1984-5 when Buhari was Military Head of State. We have a rough idea what would follow.

At first, the companies buy what they can locally with some of the funds. But, if the amount outstanding is very large, they start black market operations. Airlines insist on payment with foreign currency; a lot of tickets originate from outside the country. They gradually wind down their business; when, at last, they manage to withdraw most of the funds. This was what happened to us in the 1980s before we experienced some economic recovery and we worked our way out of debt under Obasanjo. Several companies left – never to return. It is only airlines which are caught in this trap.

The fear now is that this problem is coming at the wrong time for Nigeria. We are still shopping for foreign investors in Nigeria Air. Wet-leasing also appears as the option we have selected to acquire planes with which we want to start operations. We need foreign exchange from outside Nigeria. Nobody will be eager to supply the funds until they are sure of getting the money back. Where is the guarantee? As it is now, we are at risk of losing many airlines operating on wet-lease and Nigeria Air is looking increasingly like a pipe dream. The entire aviation sector is in jeopardy.

The experience is not different from what we had in 1984-5. Companies, whose funds were trapped, tried all they could to get the money out – without success. They left out of deep frustration.

Unfortunately for us, we are seriously handicapped regarding options. First, the CBN is in no position to do anything to help. The bank has its own problems; all of which are traceable to the FG’s lack of sound fiscal policy. Given what we have in the Medium Term Expenditure Framework/Fiscal Strategy, MTEF/FS provides no comfort. On the contrary, the Minister of Finance has made it clear that it will be business as usual by the Buhari government. That means, there will be no fresh funds to help the airlines; and, perhaps to ensure the take-off of Nigeria Air as well.

“FG’s oil export fell 17% to 14.39mbbls in May.” Report, August 23 2022.

All the indices are bad. Oil production keeps declining. Every officer responsible for generating revenue can spot disaster a mile away when the major source of your revenue is performing at 17% less than budget. So, where will the CBN find $600m to release the trapped funds? Debt servicing, in dollars, will rise again next year – with little prospect of increased production. Again, where will the funds come from to help pay the airlines? The Anchor Borrowers Programme, ABP, is in peril – now that terrorists have seized control of farms and harvests. Food scarcity will certainly get worse; more imported food will be required. The pressure on the exchange rate will soon resume – after a temporary reversal. Where are the dollars? FG has no money to pay ASUU. That is clear.

There is no need to list all the woes of Nigeria; some need more urgent attention than finding dollars for airlines. This is the final tragedy. Nigeria might not be able to save the aviation sector while Buhari is in charge.

*Sobowale is a syndicated columnist