Airline Operators Urge FG to Strengthen Policies for Long-Term Financing

Airline operators in Nigeria have called on the federal government to institute policies and strengthen regulations that would make the aviation industry attractive to long-term, single-digit loans from financial institutions.

The operators also urged the government to create a special portfolio arrangement that would enable airlines seeking to finance aircraft acquisition to secure long-term loans with low interest rates from the Bank of Industry (BOI).

Speaking on behalf of the Airline Operators of Nigeria (AON), a trustee member, Captain Roland Iyayi, told THISDAY that although Nigerian banks are showing renewed interest in the aviation sector, they remain reluctant to engage in long-term project financing or investments requiring extended amortisation.

“I feel that Nigerian banks have an appetite to finance retail rather than long-term investment,” Iyayi said. “Nigerian banks like short-term funding structures better than long-term arrangements of five to ten years. The government is building confidence in the system, but we cannot applaud them yet.”

The operators noted that the airline business remains capital-intensive and that in many countries, governments provide various funding incentives to encourage banks to extend long-term, single-digit interest loans to airlines.

The administration of President Bola Tinubu has taken steps and enacted laws to enhance aircraft leasing by Nigerian carriers, which previously insisted only on wet leases. This is expected to encourage Nigerian banks to show greater commitment to the aviation industry.

However, the Managing Director and CEO of Aero Contractors, Captain Ado Sanusi, told THISDAY that while the government’s efforts to expedite lessor confidence are commendable, lessors may worry that a future administration might not honour the commitments of the current government.

“Government should pay more attention to policies and regulations that will strengthen the industry,” Sanusi said. “If the institutions are right, lessors will be more comfortable that there will be a strong system in place for the long term to recover their equipment if a disagreement arises. In doing so, you organically grow trust instead of expediting it.”

He added that a strong regulatory system would also encourage banks to play a more active role in the industry. He frowned upon the current situation where banks lend to airlines at interest rates of 23 to 30 per cent, stating that such terms make it difficult for Nigerian carriers to survive. He also noted that even when airlines secure credit from international financiers, servicing dollar-denominated loans with naira revenues poses a significant challenge.

“Government can have another policy that will give airlines access to long-term loans with lean interest from the Bank of Industry, especially for aircraft financing,” Sanusi said. “This is what many other countries are doing to support their airlines, knowing the critical role air transport plays in enhancing any nation’s economy.”

Meanwhile, the Executive Director of Fidelity Bank, Stanley Amuchie, said banks have picked up renewed interest in the sector. He disclosed that Fidelity Bank has signed a strategic partnership with Frankfurt-based Aircraft Finance Germany (AFG) to streamline aircraft leasing and acquisition.

“We are just trying to improve aviation financing and leasing,” Amuchie said. “AFG is very big in financing aircraft, sourcing aircraft, and leasing aircraft. We decided to enter into a partnership. We are already doing a lot in Nigeria today, financing most of the big airlines. This arrangement is to bring finance and expertise together. The aviation industry requires technical know-how, and we are bringing AFG’s expertise to our ability to finance.”