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Insecurity: Airlines pay 25% more on aircraft lease

By BusinessNews Staff on June 10, 2014

Worsening insecurity, fuelled by Boko Haram insurgency, has made foreign companies to impose 20 to 25 per cent additional charges on aircraft lease rentals paid by Nigerian airline operators, findings by our correspondent have shown.

Airline chief executive officers, who chose to speak under condition of anonymity, said they were paying between 20 and 25 per cent more on aircraft lease rentals than carriers in other parts of the world.

They linked the development to the decision of foreign aircraft leasing companies to include certain risk factors about Nigeria into their lease rentals.

Top on the country-risk issues, they said, included security problems particularly the bombing campaign by the Boko Haram sect which had made some parts of the country more volatile in the last two to three years.

The CEO of a domestic carrier, who also pleaded anonymity because of the sensitive nature of the insurgency explained, “What we (Nigerian airlines) pay as aircraft lease rentals is between 20 and 25 per cent more than what airlines in other parts of the world are paying.

“The reason is that they factor certain risks into their lease rentals. This has been happening for some time now. It started when the issue of bombing here and there became rampant in Nigeria.”

He further said, “For example, Nigerian airlines pay $120,000 as monthly lease rentals on certain categories of Boeing 737 Classic Series planes, depending on their age and other conditions; whereas, operators in other countries pay $90,000 or highest $100,000.

“For other categories like Boeing 737, the dash seven and dash eight New Generation series, Nigerian operators pay $190,000; $220,000 and $240,000, respectively while carriers in other parts of the world are paying $150,000; $170,000 and $190,000 for same. It was discovered that the aircraft lessors looked at the environment they are taking the aircraft to for operations and factored in certain risks.”

Industry experts and analysts agreed that insecurity issues had increased lease rentals, hence the high cost of operations for Nigerian operators.

However, some aviators pointed out that aside the heightening insecurity, the country’s aviation safety records, credit ratings of operators and other pertinent factors were critical issues foreign aircraft lessors considered when signing lease agreement with the airlines.

Some of these factors, they said, might also contribute to increase the amount Nigerian operators would pay as lease rentals.

An industry analyst and former Marketing Director of defunct Santos Air, Mr. Olumide Ohunayo, said the relatively small size of Nigerian airlines did not also help matters.

Ohunayo said, “Safety, security, legislation and finance are some of the factors used in rating a country’s risk level in transacting lease agreements. We are certainly not in the best period to get good deals, which will naturally increase insurance premium too. Our carriers’ cost of operation will shoot up while fares are dropping due to the recent entrance of new domestic operators .

“Our carriers are not in multinational associations or in operational relationship with major carriers which would have leased these aircraft on their behalf thereby bypassing individual risks. We need an urgent regulatory consolidation regime. The two airlines dotting our airspace are simply infantile.”

The Chief Executive Officer, Finum Aviation Services, an aviation consultancy firm, Mr. Sheri Kyari, observed that foreign aviation companies and partners usually took advantage of the country’s challenges to impose unnecessary charges on its operators, a development he said was not good for the growth of the nation’s aviation sector.

He said the country’s airline operators needed to come together to challenge some of the ‘unjust treatment’ meted out to them as a result of some challenges peculiar to the country.

The Federal Government, he said, need to be carried along to address these issues.

He added, “The fact is that Nigerian airlines need to hire experts that know how to negotiate some of these aircraft lease agreements and some other related agreements. When they don’t hire internationally reputable firms that know how to do this and other related agreements, they end up signing some unfavourable deals. London-based African Aviation Services owned by Nick Fadugba is an example of firms that can do some of these things for the operators.”

For an industry analyst and CEO of ED Aviation, an aircraft consulting firm, Mr. Young Edward, the high cost of operations being borne by airline operators is caused by such high charges.

This, he said, explained the reason most of the nation’s carriers were running at a loss, with many folding up within an average of 10 years.

He added, “Most of our airlines are not making profits, and yet they are incurring higher costs in many cost centres, including aircraft lease. It is still difficult to raise airfares. You can see why our airlines die prematurely.”

[Punch]

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