News – Nigerian Airlines Face Insurance Premiums
The Nigerian airline industry is grappling with notable difficulties as a result of the exorbitant interest rates imposed on loans obtained from financial institutions and the weighty insurance premiums they are burdened with.
Air Peace revealed that it allocated a minimum of N60 billion solely for aircraft maintenance expenses in the year 2022.
During the fourth day of the National Aviation Conference (FNAC) organized by the Federal Airports Authority of Nigeria (FAAN), focused on the sustainability of the aviation industry in Nigeria, the Airline Operators of Nigeria (AON) raised concerns about the adverse impact of high-interest rates on local operators. In their presentation, they highlighted how these rates were severely impeding competition within the industry.
According to Mr. Allen Onyema, the Vice Chairman of AON, Nigerian airlines are burdened with interest rates of at least 26 percent on loans obtained, while their counterparts in other countries secure the same loans at much lower single-digit rates of 2 percent.
Onyema contended that due to this discrepancy, indigenous airlines in Nigeria face insurmountable challenges in competing with their counterparts in Europe and America. He cautioned that such conditions could potentially lead to the demise of Nigerian airlines.
Furthermore, Onyema elucidated that Nigerian airlines face triple the insurance premiums compared to their counterparts in Europe and America.
As an illustration, he stressed that Nigerian airlines bear the brunt of significantly higher premiums for their aircraft, adversely impacting their operations.
He stated, “Nigerian operators borrow money from our banks at interest rates in the double digits, reaching 26 per cent, while foreign airlines we compete with acquire loans at a mere 2 per cent. Additionally, the challenges posed by equipment leasing companies further compound our difficulties in this industry. It is essential to empathize not only with the airlines but also with everyone involved in this sector.”
“The insurance premiums paid by Nigerian airlines to cover a single Boeing 737 aircraft are sufficient to cover the insurance for three similar aircraft in any of the legacy airlines. This stark comparison highlights the considerable disparity. We still have a significant journey ahead of us in this industry.”
Onyema also expressed his concern about the insufficient availability of Maintenance, Repair, and Overhaul (MRO) facilities for local airlines. As an example, he cited that Air Peace alone spent approximately N60 billion on maintaining its fleet in 2022.
He firmly maintained that none of the legacy carriers would be able to sustain themselves under the same conditions as Nigerian airlines.
Furthermore, Engr. David Balami, the CEO of 7Star Hangar, expressed his dismay over the fact that Nigerian airlines, including non-scheduled operators and the Nigeria Air Force, collectively spend approximately $1 billion each year on aircraft maintenance outside the country.
He elaborated that if provided with a conducive environment, Nigerian engineers have the potential to outperform their foreign counterparts. He emphasized the need for increased financial support from the government to facilitate the expansion of the industry.