BEVERLY HILLS, May 16, (THEWILL) – Experts and stakeholders in the aviation industry have explained Nigeria’s exclusion from the benefits of the Cape Town Convention, a treaty that offers tremendous operational and financial benefits to member operators. They advise that the anomaly be corrected to boost Nigeria’s wobbly aviation sector.
It was noted that almost 15 years after adoption, airline operators in Nigeria’s aviation industry are yet to benefit from the Cape Town Convention signed on November 16, 2001, which later became effective on March 1, 2006.
Since it was concluded in Cape Town, the primary aim of the Convention and the protocol is to resolve the problem of obtaining certain and opposable rights to high-value aviation assets, namely airframes, aircraft engines and helicopters which, by their nature, have no fixed location.
Among other benefits, the Convention was designed to reduce some of the risks associated with aircraft finance and leasing transactions, as well as potentially broaden credit options available to borrowers and reduce interest rates.
Advantages to aircraft financiers/lessors
For a financier or lessor (each one a creditor), the virtues of the 2001 Cape Town Convention bring speed, certainty and cost savings to repossession, deregistration and export of aircraft, helicopters and aircraft engines (aircraft objects). This should be on insolvency or other default where the aircraft object is in a country whose laws would otherwise not be creditor-friendly.
The convention also protects creditors’ interests in aircraft objects by providing for the registration of “international interests” in those aircraft objects at a single, web-based, “International Registry” that is open 24/7; subjecting those interests to a simple priority regime.
For airlines and other aircraft operators, Cape Town’s virtues are that improved creditors’ rights can translate into better pricing. For example, airlines in states that have implemented Cape Town’s Alternative A insolvency regime – with a “waiting period” of 60 days – have achieved impressive pricing on their capital markets financings of aircraft.
Confirming that Nigeria had not benefited from the agreement, Director General of Nigerian Civil Aviation Authority, Capt Musa Nuhu, said it was due to the fact that most airline operators in Nigeria were not complying with the requirements. He said the issue of aircraft lease had remained one of the major challenges to airlines in the country.
Nuhu said, “Nigeria is not benefiting very well because we have cases where people go and lease aircraft and come to Nigeria. They don’t pay and they don’t want to release the aircraft. So it creates a bad reputation for the Nigerian market.
“That is why I tell you, when you do such things it is not about one person; you are damaging the reputation of the country. So when you want to lease aircraft, they will tell you to return it when it is due. When you go and bring one court injunction, you damage the reputation of the whole country. It is damaging. Since I came, I have successfully dealt with three cases with Cape Town Convention.”
Narrating his experience in the past one year as NCAA DG, Capt Nuhu said there was an airline that took some engines and never wanted to return them. He also cited another case in which a helicopter was seized and he had to fight for its release.
He said, “There was a helicopter that was seized, we fought for it and they released it. There was an aircraft that we let go. If we don’t do that people don’t feel safe allowing their equipment into your country. Even if you are doing it, you pay excess and you pay a premium on the ongoing market rate and whatever profit you think you are going to make is wiped off”.
To bridge the gap and for local airlines to survive and keep afloat in their flight operations as it concerns aircraft leases, experts have suggested a situation whereby the Federal Government sets up aircraft leasing company, up to the tune of N500 billion, which will eventually solve the problem of aircraft lease in the country.
In his reaction, Capt. Ibrahim Mshelia, the Chairman of West Link Airlines, noted that a situation whereby airlines would be looking for dollars to pay for their lease was not desirable. He added that since local airlines operate in naira, they should also pay in naira.
Mshelia said “We recommended that N500 billion should be set aside by the Federal Government in 2013, as a leasing company for local operators to access and bring their planes in.
“The lessor is supposed to be Nigerian leasing company. So we will be paying here. All the income will be domiciled here and it will help to strengthen our naira. It will be only parts and training that we may be worrying about. If we intensify our things properly, we can even have our trainings reduced to Nigeria as we have all the airplanes simulators here”, the pilot emphasised.
Explaining further, Capt Mshelia lamented that some African countries were able to set up such facilities simply because Nigeria did not put its house in order. He noted that such facilities, which are now domiciled in one of the East African countries, should have been set up here in the country because Nigeria is where the market is.
Meanwhile, agreements between aircraft lessees and lessors had always had difficulties with airline operators in Nigeria. The bone of contention is usually the issue of maintenance. With about N25 billion spent annually on aircraft maintenance by local carriers, one of the major challenges is the financial capacity of the operators to service the equipment as at when due.
Over the years, airline operators have been groaning due to high cost of aircraft maintenance. For instance, to carry out comprehensive C-check on an aircraft, it ranges between $1m and $2m (N470m to N940m), depending on the scope of work.
Investigations have revealed that about 70 aircraft are flown by eight scheduled operators in the country at the moment, just as the Nigeria Civil Aviation Authority has imposed a calendar limit for a C- Check at every 18 months. With this kid of situation in mind, aviation experts have continuously called for an MRO facility in Nigeria.
The Chairman, Ex-workers of Nigeria Airways, Engr Lookman Animashaun, lamented that Nigeria lacked an MRO because the country had not been serious about having it.
The aviation expert said, “Honestly, I must tell you that we are playing to the gallery. If truly we are serious as a nation, we should be having an MRO by now. We should have built on what we had in Nigeria Airways then, rather than liquidate it.”
Animashaun stressed that without a sustainable MRO in the country, the industry would continue to experience capital flight. He stated that in most cases when aircraft is due for heavy maintenance, it would be taken out, whereas there is no foreign exchange to carry out the maintenance.
“The aircraft will remain there and the next we are going to hear about it is that it can’t be sent to Nigeria. That is one of the reasons we are having low capacity in the industry as of today,” he said.
On the way forward, he urged the Federal Government to build MRO facilities now. “If this is done, nobody will regret it because there is work for them throughout the year,” he added.
About the Author
Anthony Awunor, is a business correspondent who holds a Bachelor of Arts Degree in Linguistics (UNILAG). He is also an alumnus of the Nigerian College of Aviation Technology (NCAT), Zaria Kaduna State. He lives in Lagos.
