The International Air Transport Association (IATA) has issued a warning to the Central Bank of Nigeria (CBN) about the potential withdrawal of foreign airlines from the Nigerian market if urgent action is not taken regarding the $790 million ticket revenue currently trapped in the country.
Kamil Alawadhi, IATA Regional Vice President, Africa & Middle East, conveyed this concern on Thursday during a media presentation at the IATA Global Media Day in Geneva, Switzerland.
Alawadhi stated that Nigeria currently holds the highest amount of airline-trapped funds globally, totaling $792 million. He said there is a need for engagement between relevant parties, including the CBN Governor and the aviation minister, to address the issue.
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Despite the CBN’s intervention in 2022, releasing $265 million to affected airlines, the challenge, which is significantly influenced by Nigeria’s ongoing forex crisis, persists.
Last November, Emirates Airlines suspended its flight operations to Nigeria for the second time due to the failure to repatriate the company’s earnings trapped alongside other foreign airlines’ funds. Emirates’ trapped fund at that time was $85 million.
The IATA VP urged proactive measures to prevent further withdrawals by foreign carriers.
According to him, Nigeria tops the list of countries with the highest amount of airlines’ blocked funds, totaling $792 million. Following closely are Egypt with $348 million, Algeria with $199 million, the AFI zone with $183 million, and Ethiopia with $128 million.
The VP noted that while Ethiopia has devised a plan to settle the debt, Nigeria has not taken any action to address its blocked funds.
“Ethiopia is seeking a way to resolve this issue even though the blocked fund is rising. The first step for us to solve these blocked funds is for both parties to engage. If parties don’t engage, it is very difficult to move forward. I have not been able to engage with Nigeria’s CBN Governor.
“He said he would engage with me when he had a solution. He is not promising but I have engaged with the Aviation Minister who is very understanding, new to the position, or maybe wowed by the situation he inherited will help to resolve the matter,” he said.
The IATA VP expressed concern that airlines in Africa are collectively owed $34 million, which is currently blocked. The delay in releasing these funds has led to depreciation, resulting in a loss of $10 million. This situation is deemed unfair by the airlines, as they have fulfilled all financial obligations to airport operators, including carrying Nigerian officials on their flights. He lamented that despite meeting their dues, the airlines find themselves unable to access the funds rightfully owed to them.
The IATA chief commented on Nigeria’s aviation sector, highlighting significant challenges faced by airlines in the country. He mentioned the burden of a 25 percent interest rate on loans, exorbitant airport taxes, and insurance premiums six times higher than global standards. These factors collectively hinder the profitability of Nigerian airlines.
Al-Awadhi disclosed that any airline operating beyond Nigeria’s borders operates with lower operating costs and offers more competitive prices compared to domestic Nigerian carriers.
Furthermore, he pointed out that despite Lagos and Abuja airports having infrastructure that falls short of optimal standards, they are ranked as the most expensive gateways in the region, exacerbating the difficulties faced by airlines operating within the country.
“… Nigeria has two most expensive airports; their fuel is higher than elsewhere in the world, and insurance is six times more expensive than anywhere else in the world.
“The interest on loans is 25%. It is ridiculous. It is the highest interest I have ever seen. When you set up these airlines, you are already disadvantaged. Any airline in Nigeria operating outside of Nigeria has a cheaper operating cost and better prices than Nigerian airlines. You can see why it is difficult for African airlines to make profit,” he said.
Nevertheless, Al-Awadhi conveyed IATA’s unwavering commitment to pinpointing and mitigating the factors that contribute to the elevated operating costs in Nigeria. The organization aims to work collaboratively to create a more favorable and conducive environment that enables airlines to prosper within the country.
“We are expecting that the operating costs of the African airlines will be lowered and they can become profitable”, he said.