25% Interest rate, high insurance premium killing Nigerian airlines – NCAA
The Director-General of Civil Aviation (DGCA), Capt. Musa Nuhu highlighted the formidable challenges facing Nigerian airlines in a strained economic environment.
He emphasized the significant burdens posed by the 25% interest rate on loans and exorbitant insurance premiums for aircraft.
Speaking with NewsTimes in Lagos, Nuhu underscored the impact of these high operational costs, making it difficult for the country’s airlines to compete with counterparts in regions like Europe and America, where loans feature single-digit interest rates and aircraft insurance premiums are considerably lower.
He, however, said that the airline could not operate in isolation of the economy.
Nuhu also emphasised that the aviation agencies would try all within their power to reduce the burdens on the airlines by ensuring flexibility in their operations.
He explained that in a bid to ease the burden on the operating airlines, the apex aviation agency gave the airlines a leeway of quarterly insurance premiums on aircraft, but said it ensured the insurance cover was adequate for the risk.
- “Like the issue of insurance, the insurance is from Lloyds of London, which is from another country, while it requires a huge amount of foreign exchange. Normally, insurance they say is for one year, but we know an airline that has 20, or 30 aircraft like Air Peace for it to pay insurance is a huge task, that is why we say to pay quarterly, at least to reduce the financial burden, especially on the requirement of getting foreign exchange at a time.
- He said: “Nigerian airlines are operating in a very difficult environment. An airline cannot operate in isolation of the economy it is operating in and the Nigerian economy is in very difficult times. The cost of financing is 25 per cent. That is killing to start with. You take a loan, and you pay 25 per cent of whatever you make to the bank.
- “You are not talking of your expenses, your cost, your current and long-term liabilities. Quite a few of them are in financial strait and some are okay. So, that is the way it is. It is a very difficult environment for the airlines, and we also do sincerely sympathise with them, we will try and see where we have flexibility to make life easy for them.
- “Like the issue of insurance, the insurance is from Lloyds of London, which is from another country, while it requires a huge amount of foreign exchange. Normally, insurance they say is for one year, but we know an airline that has 20 to 30 aircraft like Air Peace for it to pay insurance is a huge task. That is why we say pay quarterly, at least to reduce the financial burden, especially on the requirement of getting foreign exchange at a time.”
According to him, the NCAA also signed a Memorandum of Understanding (MoU) with some of the debtor airlines on how they could repay their outstanding debts with ease without crippling their operations.
He explained that some of these attempts by the NCAA had gone a long way to keep the airlines in business, while also boosting the nation’s Gross Domestic Product (GDP).
Nuhu further emphasised that for the Single African Air Transport Market (SAATM) to have the desired impact, the African countries needed to take a cue from the European Union Aviation Safety Agency (EASA) by harmonising their regulations.
He insisted that without harmonisation, the effort of the African Civil Aviation Commission (AFCAC) would not yield the expected result.
- “To me, one or two of the main issues we have with SAATM is that we compare ourselves with Europe, but Europe has one regulatory body, EASA. In Africa, we have 24 different regulatory bodies with 24 different regulations. So, this makes it difficult. Until we Africans learn to be one and have a single regulatory body like EASA then, SAATM will not succeed.
- “And in Europe, they have one political organisation; the European Commission. They make their policies, and it applies to all. But here everybody makes his policies and goes their way. Honestly, unless we find a way to resolve these issues, even if SAATM is implemented, it is not going to achieve its potential.”
