According to news reports, the Management of Emirates airline has announced suspension of flights to/from Nigeria from 29 October 2022, to mitigate against further losses moving forward. This is coming about three weeks after the airline appealed to the Minister of Aviation, Hadi Sirika, to support the repatriation of its revenue said to be US$85 million. The Management of the airline noted that they had continued to actively seek a solution for the repatriation of the remainder of its blocked funds in Nigeria, but the airline has yet to receive an allocation. The Management further noted that without the timely repatriation of the funds and a mechanism in place to ensure that future repatriation of Emirates’ funds, the airline cannot cover its operational costs nor maintain the commercial viability of its operations in Nigeria. Based on news reports, foreign airlines trapped funds in Nigeria had risen to US$700 million.
Since the start of the year, airline operators have been hit by pertinent concerns. First, was the scarcity and rising cost of aviation fuel (which accounts for c.40% of their operational costs), with the attendant impact on the cost of operations and conditions of service. Earlier in May, the House of Representatives alongside the Nigerian National Petroleum Company Limited (NNPC) and the Central Bank of Nigeria (CBN) resolved to allow NNPC to supply Jet A1 to marketers nominated by the embattled airline operators for three months at a fixed price of N480/litre. Beyond the high cost of aviation fuel, the current acute shortage of FX is also a big problem for airline operators. For domestic airlines, carrying out operational activities such as servicing their aircraft has become almost impossible amidst the acute scarcity of forex. The scarcity of FX is also constraining international carriers from repatriating accumulated funds from tickets sold in naira. Trapping airlines’ funds in an economy with an unstable currency is a major risk for foreign operators.
Many airlines have resorted to threatening to stop flight operations to force the CBN to allocate FX to them. Earlier, British Airways (BA), also threatened to suspend fight operations in Nigeria following difficulty to repatriate trapped funds in the country. Looking ahead, we see no respite. The CBN is facing a real shortage of dollars. Demand simply exceeds supply by a wide margin. With the parallel market rate, trending towards N1000/US$, the FX situation is set to worsen. The aviation sector, which just recovered from the pandemic[1]induced recession, is likely to have its interesting prospects punctuated if the FX crisis persists. Given the systemic importance of air travel for the conduct of trade and other economic activities, immediate actions to ensure FX availability for the airlines is imperative.
