AM EDITORIAL: Balancing Nigeria’s Aviation Industry Financing Models

There are various players in the aviation industry that require financing in the interest of the country’s overall economic growth and without appropriate models, the entire system remains in circumlocution without progress.

First, the International Civil Aviation Organization (ICAO) asserts that revenue and charges generated from aviation should be fully reinvested back into the aviation sector to ensure safety, security, and sustainable development of infrastructure.

While government, which has the big picture, views aviation as one of the numerous economic sectors for revenue generation, operators in a capital intensive sector like aviation, require adequate funding to sustain operations, with profitability as a second consideration, especially in the current economic times.

The air traveller who in these times, is seriously challenged with an increasingly weakening purchasing power, needs encouragement with affordable ticket prices to patronize air travel.

If aviation service providers and government agencies go all out for taxes, charges and revenues from operators in the industry, in compliance with government’s general revenue drive policy across sectors of the economy, government agencies will end up declaring significant profits while local domestic airlines struggle for survival and possibly collapse. Government agencies ought to exist to enable the private sector operators rather than milk them out of survival.

Such system is therefore, a misalignment of the country’s revenue generation drive approach and requires an urgent review to protect the overall economy and the nation’s gateway. A peculiar and properly articulated revenue generation model that favours both the government and the industry, as well as the air travel affordability for the air traveler, is paramount to address misalignment.

There has to be a complete review of the aviation revenue policies, agency funding models, aeronautical and non-aeronautical revenue structures, airport concession frameworks, among other revenue related issues. Government needs to reassess the entire structure of aviation taxation, regulatory charges, and revenue collection.

For instance, there should not be an increment in a particular fee or charge by a government agency just because it has not been increased for a long time. That is a very illogical and unreasonable reason for increment.

Again, extracting revenue from airlines that are themselves, struggling, should not be the only source of survival for government agencies. Besides, there is need for proper accountability of revenues generated. This is where we commend the current leadership of the industry on automation processes that can enable segments of accountability.

However, the publication of annual reports of certain operators and all government agencies will be necessary to build more stakeholder confidence and attract necessary rational stakeholder input in building an industry.

Without proper structuring of industry financing models that comply with global best practices on revenue generation, the industry will remain trapped in a cycle of recurring challenges rather than sustainable growth.

Another commendation goes to the current administration for efforts in easing access to aircraft loans but to boost efforts towards attracting airline financiers, airlines themselves need to review their ownership structures to reflect good corporate governance structures, attract long-term equity investors and minimize over-dependence on expensive debt financing. Multiplicity of taxes and charges from government has a way of making private investment less attractive to financial institutions or new investors in the system and arguably keeps the industry stagnant.

Also, government needs to oversee and ensure removal of middlemen in airlines’ access to jet fuel to reduce jet A1 cost for the operators and curtail hikes in ticket pricing.

A comprehensive review of the existing financing model in Nigeria’s aviation industry is required to balance the model and reposition the sector for a more geometric growth.AM