Nigerian bail out of African airlines to reduce unjust EU competition

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Nigerian commercial banks have offered to finance African airlines, whose cash needs for fleet modernization and route expansion is currently estimated at US$60 billion, if the global financial crisis persists.

Some of Nigeria’s major financial institutions, including Skye Bank, UBA and the First Bank of Nigeria, said at the end of an African aviation finance conference that they had the funds to bail out the airlines.

The Aviation Finance Conference, which ended here Thursday, also saw major financial institutions pledging to continue financing African airlines in their capital needs, although experts predicted external funding for these initiatives would prove expensive.

“The Nigerian banks are coming to the aviation finance market but there are risks which we are concerned about,” said Nick Fadugba, the Chief Executive, Africa Aviation Services, the London-based firm which convened the aviation talks here this week.

African airlines are expected to return major losses, estimated at US$700 million this year, as a result of the historic increases in oil prices mid this year and the prevailing global financial crisis, which is leading to a steep increase in the cost of external finance.

“This kind of business is risky and we have warned them (Nigerian banks) that they have to be careful about the risks,” said Fadugba, whose firm publishes the respected African Aviation Journal, which measures aviation standards in Africa.

He said that the aviation conference came at a critical time for the African airlines, with the global financial turmoil threatening to reverse the profitability of most airlines.

“The African airlines need finance for fleet modernization, yet international banks are reducing funding. The money that is available is much more expensive,” Fadugba noted.

American aircraft manufacturer Boeing predicts that Africa, with the world’s second oldest fleet after Russian and Central Asia, will need to replace almost 75% of its fleet by 2027, which means funding of about US$60 billion is required within that period.

Unjust competition from Europe

To add to the crisis facing the African airlines, the European Union (EU) has consolidated its airspace, allowing for the creation of a single airspace much to the disadvantage of African airlines, which face restrictions flying into Europe.

African Airlines Association (AFRAA) Director for Industry Regulation Tewodros Tamrat said the African airlines were facing unfair competition from the European carriers, which are now allowed to fly from anywhere into Africa.

These regulations, Tamrat noted, allows an airline like Lufthansa to fly from any European capital into the African airspace, while African airlines flying into Europe must launch their flights from the capital of the designated airline.

Aviation experts believe that despite the high hopes that the airline industry in Africa would continue to get the attention of a select number of banks operating mainly in Britain and the United States, the management crisis facing the airlines must also be sorted out.

“We are telling the African airlines to have sound business plans, strong management teams and good capital base with strong shareholders,” Fadugba said.

He said the aviation conference saw the African banks come to show support for African airlines for the first time in the 15 years that the annual aviation conference has been holding in the African continent.

“We have seen the conference create a climate for joint cooperation between African airlines and the international finance institutions like the Standard Chartered (agreeing) to work together with the African airlines,” he said.

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