By Chris Aligbe
The Federal Airport Authority of Nigeria (FAAN), is one aviation agency that must be in quandary as it strives to prepare the industry, most severely battered by the COVID-19 pandemic, for a restart.
This is because, while the Minister, Hadi Sirika and, indeed, the entire industry stakeholders have been engaged in efforts to convince the Federal Government of the need to provide substantial stimulus funds across the spectrum of the Aviation Sector, the Office of the Accountant-General (AGF) was demanding 25% of all inflows accruing to FAAN effective April 2020 when COVID-19 set in.
In a letter dated 27th April 2020, from the AGF to Systems Spects, Nigeria Limited titled “Pilot Commencement of Automatic Deduction of 25% Operating Surplus”, the Accountant-General listed ten (10) Parastatals and Agencies, including FAAN, from which 25% operating surplus must be automatically deducted. Other Agencies listed are JAMB, NECO, CAC, SEC, NEPZA, NIMASA, NCC, NPA, Department of Petroleum Resources.
This is worrying because, although the policy is approved by the President, the Office of the AGF is under the Ministry of Finance and should be in possession of the financial data of FAAN. If the AGF had looked at it, he would have found that FAAN is in perpetual deficit occasioned by the burden of running 20 financially weak and non-sustaining airports.
One of the major challenges in our policy-making and application is not taking time to evaluate the components of intended areas of coverage. No doubt, FAAN would have been considered, along with others, as a first-class Parastatal on which the 25% financial policy should apply without necessarily studying its financial profile and challenges over the years.
More perturbing is that the policy letter was issued at the ascending point of COVID-19 pandemic whose global impact on the aviation sector has become frightening. As at date, it has been accepted globally that aviation sector, along with the tourism and hospitality sectors, are the worst impacted. Today, the world is involved in stimulating and revitalising airports, airlines and all subsectors of the industry. Huge funds outlay is planned for all facets of the industry whose role on getting economies back on tract is no longer in doubt. It is now a common knowledge even to the untutored that unless aviation is restarted, so many sectors of the global economy will remain comatose.
In all economies, there is no difference being made between the public and private arms of the aviation sector as they all constitute the value chain with each contributing its role in sector sustenance.
In aviation, the most critical service provider is the airport which provides critical infrastructure for airline operations. Airports revenue, aeronautical and non-aeronautical alike, depend solely on airline operations. The higher the volume of operations, the higher the revenue and vice versa.
In many countries, airports have become private entities. But in Nigeria, virtually all airports, with the exception of one, MM2, are government-owned; some by States and mostly by the Federal Government, 22 in all. Some of these include: Lagos (MMIA and GAT), Abuja, Kano, Port Harcourt, Enugu, Jos, Kaduna, Benin, Calabar, Owerri, Akure, Ilorin, Minna, Katsina, Yola, Maiduguri, Ibadan, Sokoto, Makurdi and Osubi.
All these airports are under FAAN’s management. Incidentally, by virtue of government’s policy, FAAN is a commercial entity which means it is not under annual budgetary allocation or subvention. The policy requires it to run on its Internally-Generated Revenue (IGR). Unfortunately, new airports built by State Governments are being added to FAAN’s portfolio without any budgetary allocation and without FAAN’s consent. This is how the airport portfolio of FAAN moved from the original 12 at inception to 22 and is likely to rise to 25 at no distant time.
As with all airports, FAAN’s IGR, aeronautical and non-aeronautical, is solely dependent on the volume of passenger traffic in and out of the airports, what is called “throughput” in aviation parlance.
The 2018 and 2019 analyses of the throughput and revenue of FAAN reveal that Lagos and Abuja account for the 76% of its annual revenue which oscillates between N58billion and N62billion annually. While Lagos accounts for 58%, Abuja rakes in 18%, leaving the other 20 airports with a collective yield of 24%. Of the 22 airports, only Lagos and Abuja can sustain themselves.
Further analyses of FAAN figures reveal that in 2018, of the total passenger throughput of 16,368, 115, Lagos and Abuja airports accounted for 12,169,636 while the remaining 20 airports accounted for 4,198,479 passengers, which is approximately 25%. In same vein, in 2019, Lagos and Abuja airports accounted for a total of 13,005,633 passengers out of the annual total of 17,312,796 while the remaining 20 airports accounted for 4,307,163 passengers which is approximately 23.8%.
On the revenue and expenditure side, in 2018, FAAN expended 32% of its total annual revenue on 20 financially weak airports while in 2019, FAAN spent 42% of its revenue on the same low yield airports. The implication is that at every point in time, FAAN is under financial stress as it battles to meet all other obligations in the areas of training, staff welfare, etc. The criticisms that the Agency faces from the public on poor airport infrastructure and facilities arise from paucity of funds rather than incompetence.
Before the onset of COVID-19, stakeholders were already clamouring for better funding for FAAN, such that its financial burden should be eased. One of the issues was the need to take FAAN out of the various financial policies demanding deductions, charges, etc by Government as well as to look at the peculiarities of FAAN and other Agencies in the sector. This clamour is the drive for the present quest for concessioning. Stakeholders are rather asking for sector-specific policies rather than policies that are based on broad categorisation, the kind that led to the AGF’s letter under reference.
The real question now is, if in the “best of times” in the aviation sector, that is pre-Covid-19, these agitations have been on, why would the Finance Ministry/AGF be asking for 25% from FAAN at the worst of times, that is, Covid-19 and Post-Covid-19 eras?
In the last three months, there have not been any commercial airline operations and the prognosis is that it will take at least 24 months before the industry, both in Nigeria and globally, would pick up. Even then, it is most unlikely that the pre-Covid-19 passenger figures of 17million recorded in 2019 will be achieved until about 30 – 36 months. Since FAAN, NCAA, NAMA and other Agencies are dependent on passenger volume for their revenues, it follows that FAAN, more than others, will be needing much more funding than they ever needed pre-Covid-19. Analysts project that to effectively run 22 airports, FAAN would need about N75-80billion annually which FAAN is not making that today. Its total annual revenue is N18 to 23billion in deficit. This is why it is worrying that instead of focussing on how to meet the requirements, or rather the needs of Airport management with appropriate funding, the Finance Ministry is seeking to deduct 25% which will amount to nothing, dating from April, 2020 when the policy took effect.
Having said these, my humble suggestions are:
- That the Ministry of Finance/AGF should immediately put a hold on the implementation of the 25% deduction as it affects FAAN.
- Carry out an incisive analysis of the financial challenges of FAAN.
- Since the policy is a Government one, seek a dispensation to pull FAAN out of it.
Finally, it is necessary to consider whether there is any rational to take 25% from FAAN and turn around, based on reality, to give FAAN 50% in fund provision. Will it rather not be better and more reasonable to leave it with its 25% and add 25%? It is possible to rob Peter to pay Paul though unjust. But it is unreasonable and meaningless to rob Peter to pay Peter.
Chris Aligbe, Aviation Consultant Belujane Konzult Ltd