Foreign airlines and trapped funds
The The federal government’s release of $265 million of the $646 million owed to foreign airlines operating in the country to settle some of their pending ticket sales is a welcome development. Undoubtedly, this is the first step towards solving the persistent challenges in the aviation sector regarding the inability of foreign airlines to repatriate their ticket sales.
The government should also rush to pay the outstanding balance to avoid being threatened again by the airlines. In the future, it is not good to be threatened by the airlines before paying them the money from the sale of their tickets. A breakdown of the $265 million shows that $230 million is for special foreign exchange (FX) intervention, while $35 million was released through retail SMIS auctions.
The SMIS corresponds to secondary market interventions previously suspended due to the COVID-19 pandemic and dwindling foreign exchange reserves, which at the time stood at less than $34 billion. The SMIS window was created by the Central Bank of Nigeria (CBN) for importers to alleviate the pressures businesses face in the foreign exchange market through the sale of foreign currency to authorized dealers.
Nevertheless, the release of the $265 million is a huge relief for airlines and travelers. To avoid service disruption by foreign airlines, the CBN should develop a transparent plan for the repatriation of funds by foreign airlines, as recommended by aviation experts.
Upon releasing the trapped funds, the CBN’s Director of Corporate Affairs, Mr. Osita Nwanosiobi, said the apex bank was concerned about unsettled ticket sales and the consequences for the aviation sector, travelers and the image of the country. He also explained that the bank was not against an airline’s plan to repatriate its funds from Nigeria.
Previously, there were concerns about the millions of dollars allegedly earned by foreign airlines in the country, which they could not repatriate due to the scarcity of foreign currency. Consequently, some foreign airlines have increased their airfares and reduced their flights to Nigeria.
As the fund was trapped, foreign airlines threatened to blacklist Nigeria. Some of the airlines, such as Emirates and British Airways, have recently decided to suspend flight operations in Nigeria, effective September 1, 2022. British Airways and other airlines have also ordered their agents in Nigeria to stop operating sell their tickets due to difficulties repatriating more than $464 million. tickets are sold in their respective countries of origin.
The International Air Transport Association (IATA) had also expressed disappointment at the federal government’s inability to allow foreign airlines to repatriate their trapped funds. The high cost of aviation fuel is another looming challenge for the sector.
The aviation sector is in distress, literally trying to survive. This is why some of the national airlines have announced their intention to suspend their operations if the situation does not improve soon. Some of the national airlines have downsized to stay afloat.
Recently, domestic airline operators asked the Nigeria Civil Aviation Authority (NCAA) to review the 5% it currently collects as a surcharge and adopt a new surcharge of 25-40% on airfare in its place. aviation fuel consumption. This is probably the only way for them to cope with the rising cost of aviation fuel, estimated at over N800/litre. Until now, it was sold around 250 N/litre.
Let the federal government address the challenges in the aviation sector so that foreign airlines do not consider suspending their operations in Nigeria. National airlines should be helped to stay in business. The inability of airlines to access forex can lead to their collapse.
According to IATA, due to the shortage of foreign exchange in the country, the aviation sector lost around $700 million. About 90,000 jobs in the sectors would be threatened. This will worsen the unemployment rate in the country.
If the government is unable to address the challenges in the sector, it will be difficult to attract foreign direct investment, which will further boost economic growth. Moreover, the plan to unveil a new national carrier will not work if the national airlines are struggling to survive.
Overall, we urge the government to put in place the necessary structures that will make Nigerian airspace safe and attractive to foreign tourists. In addition, good corporate governance is required, which includes putting in place the appropriate policy and regulatory framework at all our local and international airports, in accordance with International Civil Aviation Organization (ICAO) regulations. Now, foreign airlines should not be allowed to suspend operations due to unsettled debts.