Addressing Growth Challenges of Nigerian Airlines

Inadequate aircraft to meet the needs of aviation industry, among other challenges, has been identified by industry stakeholders as a critical factor behind the inability of Nigerian carriers to grow and compete globally, writes Chinedu Eze

Last week top officials of major finance institutions, aircraft operators and managers met to deliberate on key issues affecting air travel in Nigeria.

They met at the Eko Convention Centre during the National Aviation Conference (FNAC 2025), organised by the Federal Airports Authority of Nigeria (FAAN). During the meeting, several issues were discussed, with focus on airline profitability, inadequate operational aircraft and funding.

Airline Profitability

The key issues dwelt on aircraft acquisition, profitability of airlines and ability to access credit facility from local and international financiers. The later has become a rarity and accessing loans from Nigerian banks is fraught with high interest rate that makes it almost impossible for airlines to operate profitably.

The third leg of the problem is about heavy charges and taxes levelled on operators. The Nigerian government sees aviation as a dairy cow that must be milked to boost its revenue because air travel is seen as a luxury in Africa; so, it must be adequately taxed, but in other climes, air travel is seen as movement infrastructure that buoys the economy.

In Nigeria, aviation agencies like FAAN, the Nigerian Airspace Management Agency (NAMA) and the Nigeria Civil Aviation Authority (NCAA), pay heavy remittances to government and the agencies in turn, tax the airlines, while the airlines tax the passengers. But the sore point is that passengers’ disposable income is inelastic; so, when you heap heavy taxes on their fares, the fares go up beyond the ability of many of the passengers to afford traveling by air.

This reduced the number of people that travel by air and this explains why it is said that about one per cent of Nigerians travel by air. Out of about 250 million Nigerians, only about 15 million travel by air. What it means is that if the fares are reduced more Nigerians can afford to fly but the fares cannot be reduced if those taxes are heaped on the tickets.

Credit Facility and Interest Rate

The Chief Executive Officer of Ibom Air, George Uriesi, thawed at the issue on the table and explained why Nigerian carriers do not make profit and the unsaid word, why they have short life span.

He explained that Nigerian airlines earning revenue in naira and all expenses about airline maintenance, training, spares and insurance leaves the airlines in a quandary and tight survival mode because you carry a basket full of naira to collect small food container of dollars. That is the major threat to airline survival in Nigeria.

“The conundrum of the Nigerian airline is doing all of this, earning in naira and paying in dollars. And so, we seem to be in perpetual survival mode.  Aircraft are very expensive. So, you take a new aircraft like some of us are now buying. The cheapest you probably get is $50 million. Most of it is $80 million and above. We operate the same aircraft with our colleagues across the world. But let me take me, my airline, as an example. We operate the Airbus A220. It’s one of the most modern aircraft in the world. We buy them brand new.

“A fellow airline in Europe will secure financing for his aircraft at about three or four per cent interest rate. We will secure financing for ours, around 30 per cent. The guy in Europe will have his financing for 15 years. We will have ours for seven years. So, imagine how much we are paying. I am competing, paying $500 for my aeroplane every month. But thank goodness, we have our bankers, they are able to finance our aeroplanes. So, we are able to benefit to buy new aeroplanes. And recently, a lot of effort has been put in because we went to the Minister. The Minister listened to us and he has done a lot of things to reduce the cost of aircraft acquisition,” Uriesi said.

He explained that because of the peculiar situation of Nigerian carriers, they cannot compete on the global market. Competing on the global market means connect to many international destinations from your hub in Abuja or Lagos. No capacity, no finance and even, no airport infrastructure.

Airline Revenues Losses

Echoing what Uriesi said, the Managing Director of Aero Contractors, Captain Ado Sanusi, emphasised that running a profitable airline business remained very difficult because of the aforementioned factors and others, which include strict safety oversight without considering the economic impact. For example, insisting on C-check after 18 months, which arguably should be one of the shortest period to carry out major checks on aircraft when compared to other nations. Another is going for recurrent training after every six months instead of every year as many other countries do. Sanusi also spoke about how aviation agencies that provide critical services contribute to loss of revenue by airlines.

“I think we have all agreed that running an airline in this space and being profitable is extremely difficult. We have all established the fact. And I think what we should discuss more is why is it extremely difficult? Why can’t we decide and make it easy and then we can have a sustainable aviation industry? What I believe is, we all contribute to airlines being non-profitable or being extremely non-profitable, be it FAAN, be it NCAA, be it NAMA, be it NIMET, there is all the contribution that makes the airline operation not to be profitable.

“I would like to dive a little bit into each of them. Let me start with the regulators. Apart from safety oversight, they have economic regulation. And unfortunately, if you do a lot of safety oversight, you tend to forget about the economic regulations. And when you do a lot more, and the airlines pay for it, then you would be eating into some of the profit that the airlines would have made,” he further explained.

Aviation Agencies

On airport infrastructure, he stated that if FAAN has an infrastructural deficit that caused flight delays every morning and the delays snowball to subsequent flights and this leads to loss of revenue by airlines. Subsequently it may lead to flight cancellation or inadequate utilization of the equipment. But despite the delays caused by the airport system, NCAA will still insist that airlines compensate airlines.

According to Sanusi, “My appeal is, apart from the five-point agenda the ministry has, I believe we should have a genuine reform of the aviation sector based on sustainability. We have had reforms, but I don’t think they were genuine. We have had roadmaps. I don’t think they have led us to anywhere near where we are supposed to be. Now we are having five-point agenda or agenda points. I don’t think that is enough. I believe we should have a genuine reform for the aviation sector to provide us with sustainable aviation growth in the next 20, 30 years. If not, we are going to have the same problems reoccurring again. That is my appeal.”

Finance and Single Digit Interest Rate

The challenge over the years is how airlines can access credit facility at low interest rate. Managing Director of Fidelity Bank Plc, Dr. Nneka Onyeali-Ikpe, said that if government could facilitate the establishment of aviation bank, then it would be able to offer airlines single digit interest loans.

She declared that only a dedicated aviation bank can provide the single-digit financing required for Nigerian airlines to survive and grow, explaining that commercial banks are structurally unable to offer the kind of low-interest, long-tenure financing the sector demands.

Onyeali-Ikpe observed that the prevailing lending environment makes single-digit loans impossible for commercial banks, with the Monetary Policy Rate standing at 27 per cent and depositors demanding interest rates of up to 20 per cent. She stated that airlines, which require enormous capital outlay for aircraft and infrastructure, cannot thrive under such conditions, as they need 10 to 15 years or more to repay major loans.

The Fidelity Bank boss described the proposed aviation bank as “a dream come true” for the sector, noting that while commercial lenders would not profit as much from such an arrangement, it remains essential for national development and for the long-term stability of the airline industry. She added that even if established, the aviation bank would still rely on commercial banks to provide guarantees, similar to the existing model used by the Bank of Industry.

She recalled that Fidelity Bank “did the heavy lifting” years ago by financing airlines at a time when the sector was considered too risky, putting in place structures that later encouraged other banks to return to aviation financing. She said the bank’s support to airlines such as Air Peace and Ibom Air has yielded strong results without the setbacks that characterized earlier eras of high default rates.

Dry Lease of Aircraft

On structured financing for Nigerian carriers, she said dry leasing remained the most effective option currently available to Nigerian airlines, adding that dry leasing has become a game changer for operators seeking to expand their fleets without the heavy financial burden of outright aircraft acquisition.

Onyali-Ikpe commended the Ministry of Aviation for defending Nigeria’s position during negotiations with international lessors, noting that the ministry insisted the challenges confronting Nigerian operators were global rather than peculiar to the country.

With what the Fidelity Bank boss said, it is still a long work for Nigerian airlines to have single digit interest rate, but they can push for it in order to establish aviation bank. In that way, the long sought after single digit interest rate will move from wishes to reality.