AON Seeks Total Reform Of Aviation Industry Funding Structure

The Airline Operators of Nigeria (AON) says there is need for a total reform of the funding structure of Nigeria’s aviation industry.

Speaking for AON at the public hearing held at the House of Representatives yesterday on the issue of the Ticket Sales Charge (TSC), Capt. Roland Iyayi recalled the origin of the 5% TSC, saying it “was introduced when we had the FCAA, the Federal Civil Aviation Authority. The Federal Civil Aviation Authority at the time comprised the elements of today’s NCAA, NAMA, NIMET, and FAAN. At some point, FAAN emerged as NAA, which combined both NAMA and FAAN of today. Every single time an agency was established out of the FCAA, charges were introduced. NAMA introduced charges, NCAA introduced charges, and FAAN introduced charges.

NCAA was the first agency to introduce the passenger service charge. That passenger service charge has since been taken on by FAAN. When NAMA was established in 2006, the European Union went to court to insist that NAMA would not charge over-flight charges. I was then made the Managing Director of NAMA. Rather than fight the matter, we introduced the terminal navigation charge simply to ensure that NAMA was adequately funded.”

He explained that “the 5% service charge has outlived its usefulness. It has become a burden on domestic airlines. We have made a submission on this. We have been proactive. As the AON, we have actually produced a document addressing institutional reform for the entire funding policy of the industry, and we will resolve it.”

“In the NCAA Act of 2022, there are contradictions. It is important to note that we are complaining about not having adequate, yet the NCAA is the fourth-highest contributor to the Consolidated Revenue Fund. In 2023, the NCAA contributed 500 million naira at a 25% deduction rate. By my estimation, the NCAA’s gross revenue at that point was around 2 billion naira. I am not sure any domestic airline was able to earn such an income. So, we need to look at this. The same Act, Part 5, Section 21, addresses the cost-recovery basis for all services provided by the NCAA. By the way, the NCAA charges airlines for every service provided, aside from the 5% charge.

Part 5, Section 21, however, contradicts itself. It also discusses the allocation of two-thirds of operating funds to the Consolidated Revenue Fund. If an agency operates on a cost-recovery basis, it should never have such a system. This means the entire aviation ecosystem is overburdened by surplus charges and any earnings or funds that go unrequited amount to a tax,” explained Iyayi.

He added that “the NCAA Act of 2006, under Section 74 I believe, made provisions regarding operators. In this same committee, then led by Chairman K.G. Nduguogwa, myself, and Dr. Harold Demuren sat and had a disagreement, because the Act was not passed in the form and structure we had proposed. Dr. Nduguogwa promised that our areas of concern would be addressed. But rather than being addressed, those concerns were modified and skewed in favor of the NCAA. I’ll give you an example.

The NCAA collects fees on masts, structures erected in the airspace. The reason a mast’s geo-location is required is so that NAMA can produce low-level navigation charts. As we speak, helicopters in this country cannot conduct what is called low-level flight at night, and most of our airspace, because we lack low-level navigation charts, can scarcely be used. So, the optimization of aircraft assets by domestic airlines is significantly constrained. It’s important to acknowledge that we have operational limitations as the AON.

Aircraft that could be flying 8 to 10 hours a day are used for only about 6 hours, because of inadequate infrastructure. So, as I said, this practice by the NCAA needs to be reversed. In fact, it is understood that over the last 20 years, the NCAA has collected over 10 billion naira from mast application fees and similar charges. That needs to be reversed.

Beyond the 5% charge, the AON recommends a different model. Rather than charging a percentage, we recommend adopting a structure similar to the one FAAN uses for the passenger service charge, because that creates a level playing field. Right now, the 5% is charged on everything an airline earns.

I’ll give an example: since March, we’ve experienced fuel shocks worldwide. The average fuel price increase elsewhere in the world was 60–80%, but in Nigeria it was 270%. Since March, domestic airlines have not been able to pay the 5% to the NCAA. We have managed to remit only because domestic airlines are now taking on charter flights to pick up loads rather than continuing scheduled flights. Essentially, ticket revenue is now going straight into fuel costs. Fuel accounts for 40% of an airline’s operating costs.

So, all these issues need to be looked at holistically, beyond just this one charge. Yes, we support 100% the bill to increase NAMA’s earnings from that source. But we are also saying that aviation-related funds should be removed from the Consolidated Revenue Fund (via the TSA) and placed into a special fund. Call it an Aviation Development Fund, or whatever name is appropriate. Let all these funds accrue in that pool.

Once funds accrue in that pool, a percentage of whatever has accumulated can then be allocated as needed. If the NCAA can afford to pay 500 million naira a year and still remain in business, then the industry can generate a surplus. My belief is that the entire system needs a complete overhaul.”

AON recommended that “there is a need to amend the revenue-sharing formula of the TSA, which is currently skewed in favor of NAMA. There is a need to mandate the immediate transfer of outstanding fees back to NAMA, as withholding them constitutes a breach of contract by the NCAA” and to “mandate the immediate repayment of all outstanding proceeds by the NCAA to NAMA, remove the ad valorem (percentage-based) TSA charge structure and replace it with a unit-charge model” and “mandate the NCAA to properly account for revenues accrued through the TSA.”

Iyayi also said “there is a need to amend Part 5, Section 9 of the NCAA Act. There is also a need to remove, in its entirety, Section 23 of that law, which seeks to criminalize over-flight rights, over-flight rights cannot be criminalized.

Further, there is a need to exempt all aviation agencies from the requirements of the Fiscal Responsibility Act No. 31 of 2007, as applied against the NCAA Act of 2022 under Section 21(4), and to mandate that the two-thirds portion currently withheld be returned to be managed by the agencies themselves.

Indeed, we would welcome the opportunity to provide input into an enforceable policy framework, one in which we believe this Committee and related stakeholders can work together to make the necessary reforms to how this industry is funded.”