August 26, 2022

$1.36bn under threat as local, foreign airlines battle over BASA equity

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Air Canada has been recognized as the 2019 Airline of the Year by Global Traveler, the leading magazine for luxury business and leisure travellers. (CNW Group/Air Canada)


•Funds not trapped, they should source FX from parallel markets — AON

•Nigeria records 94% shortfalls in BASA reciprocation Lagos airport

•Air Peace, United Airlines, have more capacity than Emirates — Obiora

•Forcing Int’l community to black market is absurd — Dre aviation

By Prince Okafor

There is another twist to the demand of foreign airlines operating in Nigeria for their $600 million trapped in the country’s foreign exchange sourcing difficulties.

The foreign airlines collect Naira for their tickets from customers and exchange same for foreign currencies for their operations. But recently they said the they have been unable to get the exchange executed through the official foreign exchange market due to scarcity of foreign exchange resources.

However, the Airline Operators of Nigeria, AON, is now saying that the money is not trapped, advising the foreign airlines to go to the parallel market to exchange their Naira revenue.

AON maintained that the foreign airlines’ demand is not legitimate, adding that the Central Bank of Nigeria, CBN, should not be dragged into their plight, adding that there is also the option of Investors and Exchange Foreign Exchange, I&E FX window where they can access forex.

The AON noted that local airlines have the capacity and the aircraft to fly passengers from Nigeria to other countries but are being denied the opportunity by other countries.

But stakeholders also argued that 80 per cent of commercial aviation earnings come from foreign airline operations and that domestic airlines need to move their operations to international territories where they can earn huge income.

Also, an African aviation management consultancy and operational service provider based in London, Dre aviation, lamented that it is absurd forcing any member of the international aviation community to the parallel market (also known as black market) to source forex for repatriation of their profits.

BASA challenges

Meanwhile, finding by Vanguard Aviation World indicates that with the over 95 Bi-Lateral Air Service Agreements, BASAs, with countries around the world, the country is only able to reciprocate six per cent since inception, whereas, 27 countries fly into Nigeria.

BASA is a bilateral aviation safety agreement that facilitates the technical assessment process of two signatory countries.

According to the Principal Managing Partner, Avaero, Sindy Foster, “Nigeria has signed over 95 Bilateral BASAs with countries around the world. Currently, 27 airlines fly in Nigeria. However, only Air Peace flies internationally to eight countries, with two new routes coming soon.

“For the first two years of operation the national carrier will be competing with the domestic airlines, so will not be doing anything towards implementation of BASA agreements.”

Violation of BASA

Reacting to the foreign airlines’ demand, the Chairman of United Nigeria Airlines, Obiora Okonkwo, noted that the Nigerian government has not in any way violated its BASA with the airlines.

He noted that the CBN does not regulate how much airlines sell their tickets, adding that, “They have also given a public notice that there is a scarcity of forex, and companies can go source their funds from the parallel market.

“There are many parallel markets, we do source from I& E windows, the only difference is when you have to buy from CBN, it could be coming at about N450 to $1 and in I&A window, you can negotiate and it could be sold at N650 to $1.

“If we the local operators can do that, what has anybody done to offend the BASA agreement when you are asked to go source from other places? Their money is not confiscated, nobody says they should not repatriate, but it is just simply going to other places. Why are these airlines not doing this?

“I am happy they are calling for meetings, but I hope the agenda would include how much they are selling their tickets because their ticket prices are in foreign currencies and converted to Naira.

“As long as their ticket for instance is $5,000 and the value Nigerians are paying for it is N2.5 million, which is about N450 to $1, then I have a legitimate case to say we are bound by this rate. But since they are free to fix their ticket price at a rate that would enable their business to move on, you cannot sell at the rate of N700 or N800 and come back to say you want to transmit your money at N450.

“When we talk about this, it looks like they have not been getting their money, last two weeks, there was a huge chunk of money that was made available for Emirates airlines in particular, We the AON kicked against it because we have a lot of invoices lined up in different banks.

“This forex issue is affecting everybody. Today, manufacturers go to the bank to put in an invoice of $1 million and at the end of the day they might be lucky to get $50,000.

“In a situation like this, these airlines could have a more creative way of spending their money, if there are bills they are paying in foreign currency they could negotiate with the Nigerian Civil Aviation Authority, NCAA, or other authority to give them a waiver so that they can use Naira to pay for these bills.

“If they want $400 million as at today, they can talk to about two or three banks in their country who will get them an I & E window of N700 and this will be over, if we the local operators can do that, why can’t they?

“We are watching, if CBN can give them the said amount, we will be happy because we know the money is there. We will also put up our bills which are also landing. They should also give us local operators as foreign airlines cannot be given preferential rates.”

BASA skewed

Also, the Managing Director, Flights and Logistics Solution, Amos Akpan, in a chat with Arise TV, stated that, “Clearly, there is need for fairness and equity, the BASA as it is operated now is skewed to favour the foreign airline operators more than AON. You have a system where Emirates is operating 21 flights in Nigeria, and it took a lot of rancor for Air Peace to be given three slots in Dubai a week.

“Same thing, BA is flying from Lagos, Abuja all-round the year, and Air Peace, Azman Air are ready to fly to Heathrow, London, and they are having difficulties accessing that traffic, clearly there is inequality in equity distribution with the way our government is ensuring that we exploit the agreement.

“We also have a situation where our government is designating these airlines to fly beyond major entry airports like Abuja, Lagos, into Port Harcourt, Kaduna, Enugu and Kano, these are points that our domestic airlines should take over from these foreign carriers.

“Air France, BA, should terminate operation in Lagos and then United Airlines, Azman, Air Peace should continue to other airports within Nigeria, this is what should happen and if not resolved it would continue to create tension in the system.

“I agree that there is scarcity of forex for all the demand that is needed, but it is not enshrined in the BASA but inside the protocol of operation. IATA issued rates for international flights, and Turkish Airlines, Emirates, and others will not go beyond that rate.

“If I am buying ticket for say N450 as the exchange rate of that prevailing day and all the sales on same day have same exchange rates, and it time to repatriate, I am asked to go and buy in I &A E window at N700 or N800, that is a lot of money to lose, which create problem for the international airlines.

“The domestic and commercial airlines play critical roles in the success of the aviation industry, as at today, 70 percent commercial aviation earnings comes from the foreign airlines operation and the domestic airlines needs to step up to be able to earn by designating them to international territories that have patronage. This forex we are sourcing can be earned if for instance, seven flights a week are operated by Nigerian carriers to Heathrow, Houston, Dubai, others.

We’ve forecast foreign carriers pulling out from Nigerian market

Meanwhile, while commenting on the development, Dre aviation noted that it has been monitoring the USD repatriation issue from Nigeria closely over the last 18 months.

“We have on many occasions forecasted that this will eventually result in foreign carriers pulling out from the Nigerian market, the spectre of higher fares for the travelling public, increased isolation from the world economy and an increase in unemployment in the aviation sector. Sadly, these observations and advisories are now beginning to manifest themselves.

“We are particularly concerned at the rhetoric that has been aired in local media over the last few days especially from the AON representative who has openly claimed that there is nothing wrong with foreign carriers purchasing hard currency on the black (parallel) market. We are wholly against these comments and believe they are misguided.

“In no shape or form should any member of the international aviation community be forced to the black market to buy genuine funds to repatriate their home countries. This is ethically wrong and goes against everything that the BASA stands for. Not only is the action illegal, this practice will lead to many pricing complications in the local market for foreign carriers which could see international airfares increase by 50 to 60 per cent with immediate effect.

“Sadly, this is another example of ill informed opinions that make it to the mainstream media and manifest themselves as “facts”.

“We are sure that the Government and CBN will take urgent action now that they appreciate the magnitude of the issue. We urge all market participants to remain factual and understand the modalities of international aviation.”