Most sectors of the Nigerian economy have been grappling with various challenges in the last few years, leading to a situation where several firms and businesses either closed shops or relocated to other countries.
Since the Russia and Ukraine war started in February, most sectors of the country’s economy have been negatively affected. One of such sectors is the aviation sector.
Recently, the Airline Operators of Nigeria (AON) announced its decision to suspend local flights due to the escalating price of aviation fuel (Jet A1), but shelved the move shortly afterwards.
This followed the intervention of the House of Representatives, Central Bank of Nigeria (CBN) and the Nigeria National Petroleum Corporation (NNPC) after the local airlines got what appeared like a lifeline. This analysis probes if the lifeline for local airlines will provide the final solution to the challenges.
The Nigerian aviation sector and particularly the local airlines have had to grapple with various challenges, which had led to the bankruptcy of some local airlines and firms.
Some of the local airlines that once ruled the country’s air space but have closed shops for various reasons are: Okada Air, ADC Airlines, Midwest Airline, Albarka Airline, Concord Airline and other local operators.
Before the outbreak of the Russia and Ukraine war in February, 2022 the surviving airlines were already contending with several challenges.
However, since the war, which has negatively affected importation of petroleum products into the country and the increasing price of crude oil in the international market, the airline operators have been in disarray.
The current price of aviation fuel, otherwise called Jet A1 has constituted a major challenge the local airline operators to the extent that on May 6, 2022, the airline operators addressed journalists and announced that as from Monday, May 9, 2022, they will suspend their operations, due to the high cost of aviation fuel, which has risen to as much as N700 per litre.
Chairman and Chief Executive Officer of Air Peace, who doubles as Spokesman of AON, Allen Onyema, disclosed that prior to Russia’s invasion of Ukraine, a litre of Jet A1 was sold for N190 per litre, but now sells for N700.
The AON disclosed that the local airlines concluded plans to suspend flights across the country, as it also advised the traveling public, who intend to fly to make alternative arrangements to avoid being stranded at the country’s airports.
“It is with great sense of responsibility and patriotism that the Airline Operators of Nigeria has continued to deploy and subsidise their services to the Nigerian flying public in the last four months despite the steady and astronomical hike in the price of Jet A1 and other operating costs.
“Over time, aviation fuel price has risen from N190 per litre to N700 currently. No airline in the world can absorb this kind of sudden shock from such an astronomical rise over a short period. While aviation fuel is said to cost about 40 per cent of airlines operating cost globally, the present hike has shut up Nigeria’s operating cost to about 95 per cent.
“In the face of this challenge, the airlines have engaged the Federal Government, the National Assembly, Nigerian National Petroleum Corporation (NNPC) and the oil marketers with a view to reducing the cost of Jet A1 without success,” Onyema lamented.
But a few hours into the announcement, Ibom Air, Dana Airlines and Arik Airlines, among others, announced that they were not part of the AON’s decision and would continue to operate despite the challenges.
In spite of the division among members of the AON, Speaker of the House of Representatives, Femi Gbajabiamila, summoned the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, Group Managing Director of NNPC, Mele Kyari and leadership of the AON to a meeting.
Gbajabiamila had announced the resolutions after about four hours of brainstorming that the House of Representatives’ intervention culminated in a decision to mandate the CBN to provide aviation fuel at N480 in what seemed like foreign exchange (Forex) subsidy, pending when the local airlines would be granted licences to import the product.
“In the long-term, you can commence the process of applying for licences to import Jet A1. So that it will remove middlemen or whatever you know will be the landing cost to assist your business” he said.
Gbajabiamila said the House of Representatives and the Federal Government lamented the plight of the local airlines in the past few months, adding that the CBN had been asked to assist the troubled local airlines.
“The CBN Governor will provide six million litres of Jet A1 to the local airlines, as a matter of urgency. You will get an allocation in the next three months through the companies and marketers you have nominated so that you would not say Jet A1 is now certain amount and it is no longer NNPC’s fault. You have nominated the marketers that will sell the fuel to you,” he stated.
He maintained that a long-term solution was for the local airline operators to commence the process of securing licences for the importation of aviation fuel to avoid suspicion over the landing cost of the product and other associated logistics issues.
Despite the House of Representatives intervention to prevent the local airlines from suspending their operations, it is not yet time to rejoice, as one of the critical stakeholders to the survival of the troubled airline sector, the NNPC told the AON some home truth at the meeting.
Kyari told the meeting involving NNPC, CBN and AON at the behest of the Speaker of the House of Representatives that it was impossible to fix the price of aviation fuel due to the fact that the petroleum sector has been deregulated and as such, Jet A1 will remains a deregulated product.
“You cannot hold onto any price and indeed what we have seen is N700 reference point. It depends on the market conditions. It can be higher than N700 depending on the market and as the market shifts. As we speak, it is closely related to the price of crude oil. Given the present circumstances, we cannot fix the price. We cannot ask that the product be sold at N500 or less. We cannot say it must be below N600 or N700,” Kyari stated.
Most airline operators and Nigerians may not like Kyari’s position, but he made a valid point and at the end of the meeting, the NNPC and CBN agreed to provide six million litres of aviation fuel at N480 per litre for the next three months.
That means Jet A1 fuel will sell for N480 per liter between May and July, but the matters and questions arising are: What happened after July? What will happens if the price of crude oil rises further in the international market?
The intention of Forex being promised by the CBN to make available Jet A1 at N480 per litre in what Gbajabiamila described as ‘subsidy’ pending when local airlines will be granted licences to import the product may be genuine.
But it also throws up some challenges. Do local airline operators have the capacity to import aviation fuel? Do they have the logistics and expertise to import Jet A1 in a sustainable manner?
No doubt, these are trying times for the country’s aviation sector, as the Minister of Aviation, Hadi Sirika, admitted recently, while pleading with the leadership of AON not to suspend their operations.
The airline operators had told the Nigerian flying public to prepare to pay as much as N120,000 for a one hour flight. While the rich will not bother to pay N120,000 for an hour’s flight, what about millions of Nigerians, who are less fortunate?
The roads and the railways are no longer safe for travel, which leaves Nigerians with only the safer option of traveling by air for those who can, due to insecurity.
Now that the Russia and Ukraine war has affected the local airlines business, will Gbajabiamila’s intervention through the tripartite arrangement be the magic wand to rescue the local airlines and assure Nigerians of affordable flights?
As the challenges linger, Nigerians are asking: Why have successive administrations failed to fix the country’s refineries in Warri, Port Harcourt and Kaduna over the years?