Indigenous airline operators are not smiling at all. Reason: Their business is facing extinction, as they are operating under a very difficult environment. The situation is so bad that in the past 25 years, 27 indigenous airlines have gone under. Today, many of them are under receivership while some others have been taken over by the Assets Management Corporation of Nigeria (AMCON) for failure to meet up with their debt obligations. In some other cases, Nigerian owned or leased aircraft have been seized in foreign lands over debts owed suppliers and maintenance companies.
Some of the problems identified for the crisis in the industry include high operational costs, multiple taxation, high cost of aviation fuel and unfair government policies that are skewed to favour their foreign counterparts.
According to the Airline Operators of Nigeria (AON), airlines meet so many costly foreign exchange components on daily basis that account for 70 per cent to 80 per cent of their direct operational cost, such as Jet fuel, spare parts, insurance and simulator training among several others.
Multiplicity of charges, high costs
AON had on many occasions lamented that domestic airlines, on the average, pay about 35 per cent to 40 per cent of a ticket cost as taxes and charges that come under the guise of statutory levies in addition to other charges. These include 5 per cent Ticket Sales Charge, 5 per cent Cargo Sales Charge, 5 per cent Value Added Tax (VAT), Passenger Service Charge, Charter Sales Charge, Aircraft Inspection Fees, Simulator Inspection Fees, Landing Charges, Parking Charges, Terminal Navigational Charge, En-route Charge, fuel surcharge, airport space rent, electricity charges, and apron pass, ramp access charges, ODC and a newly imposed registration fee, all of which are paid to government agencies.
“Many of the taxes and charges said AON amount to double taxation such that any incentive seemingly provided by government to airlines is taken back by the agencies.
It is said that the Nigerian Airspace Management Authority (NAMA) also charges domestic airlines different kinds of navigational charges which they should ordinarily be exempted from in line with global best practice. The implemented charges range from Terminal Navigational charges to en-route navigation charges, over-flight charges, clearance charges, and extension charges. Even foreign airlines, AOL lamented, don’t pay en-route charges or extension charges which the local airlines are forced to pay.
In spite of all these, the organization said, NAMA still gets 23 per cent taken from Nigerian Civil Aviation Authority NCAA 5 per cent Ticket Sales Charge (TSC) Account.
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Most lamentable is that even with these charges, many of the airports in the country do not have runway lights and navigational landing aids. This means such airports are only open between 7am and 6pm daily. Airlines by their nature can’t fully utilise their airplanes for 24-hours operations as no airplane or factory machine can be profitable only from 7am to 6pm daylight operations. Airplanes and factory machines, the operators groan, are supposed to operate for 24-hours. Even at that, they also have to pay arbitrary extension fees or cancel a flight entirely with the attendant burden and inconvenience due to no fault of theirs. These multiple charges, operators said, increase operational costs and make the aviation business unprofitable.
Senate intervention
Recently, the Nigerian Senate after hearing the cries of the airline operators passed a resolution to protect indigenous airlines from going into extinction from one of the many assaults they have to face; multiple designations and multiple frequencies granted foreign airlines in Nigeria. The resolution followed a motion entitled “Unfair Competition and Urgent Need to Protect Nigeria’s Indigenous Airlines from Extinction” sponsored by Senator Ifeanyi Ubah and 20 others.
Presenting the motion at plenary, Ubah decried the licence given to some foreign airlines to operate multiple routes within Nigeria. He said Ethiopia airline now operates in five cities of Enugu, Kano, Kaduna, Abuja and Lagos, while Turkish airline operates in four cities, namely Abuja, Kano, Lagos and Port Harcourt. He said Emirate airline also operates two flights daily into Lagos and one to Abuja.
He described the development as worrisome, stressing that this was not obtainable in other countries. He said the practice would put indigenous airlines out of business explaining that Nigerian airlines such as Arik, Virgin Nigeria, Medview and others had in the past run out of international routes by this trend of unfair advantages provided foreign airlines in Nigeria.
He said the indigenous airlines had the capacity to cover all the domestic routes being operated now by their foreign counterparts and explained that multiple designations and frequencies granted was a monumental disservice to the economy of Nigeria. He said the capital flight out of Nigeria, occasioned by the unwholesome practice was harmful to Nigeria’s economic growth.
“Nigerian jobs are seriously at risk as a result of this dire situation since, it is the indigenous airlines that provide massive job opportunities for our people. Air Peace alone has 3,000 employees and has also created over 8,000 ancillary jobs. So, if this practice is not checked immediately, it will ultimately lead to the collapse of Nigeria’s indigenous airlines,” the Senator said.
Lending his voice to the motion, Sen. Abaribe Enyinnaya said the motion would protect Nigeria’s economy and asked that efforts should be made to support indigenous airlines that have capacity to function effectively. Other Senators, who supported the motion, said the adoption would create jobs for the people and ultimately improve the economy. They said the motion was apt, given the contributions of the aviation industry to the growth of any nation.
Airline operators grumble
Airline Operators of Nigeria (AON) said the fiscal policies which includes taxes paid to regulatory and airport managers is “a system that is continuously manipulating, feasting and pushing the financial envelope of airlines by inflicting multiple taxes, charges and levies to the extent that airlines are now groaning under the pressure and some are going bankrupt.”
Over the years AON has been complaining about the same issues that have culminated in sending many airlines out of business. A case in point was the takeover of Arik Air and Aero Contractors by the Asset Management Corporation of Nigeria (AMCON) in the face of huge financial burdens that have shown themselves as fallout of the multiple and sometimes unfair charges, levies and taxes airlines are forced to grapple with on a daily basis. According to Captain Nogie Meggison, Chairman of Airline Operators of Nigeria (AON) in a previous interview, aside from all the multiple charges, levies and fees, airlines still have to pay mandatory statutory corporate taxes to relevant agencies.
“Ordinarily, airlines meet so many costly foreign exchange components on daily basis that accounts for 70 per cent to 80 per cent of their direct operational cost. Meggison lamented that domestic airlines have become unfortunately a cheap target for the agencies that are putting additional pains and burden on operators through multiple taxes, charges and levies which they demand with impunity.
What Civil Aviation Act say
The Civil Aviation Act of 2006 (Part 18.12.3) requires that the NCAA regulates civil aviation and the charges imposed by civil aviation authorities and/or agencies. These charges, in consultation with stakeholders are to be approved and reviewed periodically by both parties. On the contrary however, airlines are said to be saddled with charges without any form of consultation whatsoever.
For instance, operators are lamenting that the open ended 5% Ticket sales charge, TSC is ambiguous, unfriendly and open to debate and manipulations. They said ticket prices differ from one airline to the other, hence it precludes that different airlines are charged varying amounts for the same service. It also implies that an airline is being charged different amounts at different times for the same service since prices are not static. Rather than a flat 5 per cent of ticket cost, operators are of the view that the TSC should be a fixed charge of N1000, which is the standard global practice cost per ticket.
According to the country’s existing Value Added Tax (VAT) Law, all forms of commercial transportation are exempted from VAT but Nigerian air carriers are subject to pay VAT. Air transportation in Nigeria is subjected to 5 per cent VAT contrary to the law. Road, Maritime and Rail transportation don’t pay VAT. Even foreign airlines operating in Nigeria don’t pay VAT.
An Information Circular by the Federal Inland Revenue Service (Information No.: 9701; Circular Dated 1st Jan. 1997) shows clearly under Part G, Heading No 86.05 – 89.01 (With particular reference to Nos. 88.02 – 88.03) with Harmonised System (HS) Code 8605.0000 – 8902.0000 (With particular reference to Codes 8802.2000 – 8803.2000) that aeroplanes and other aircraft, of an unladen weight not exceeding 2,000kg to a maximum of aeroplanes and other aircraft, of an unladen weight exceeding 15,000kg as well as their spare parts are exempted from VAT. Also, under Part L (EXEMPTED DIPLOMATIC GOODS (Based on Federal Government Duty Free Concessions), Sub Section (b) No. 8; Overseas air transportation is among the list of Services Exempted from VAT.
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However, operators are lamenting that the law is not being fully applied by the relevant agency to commercial air transportation which is a critical service to drive the economy.
AON has therefore called on the Federal Inland Revenue Service (FIRS) to also consider extending to the domestic airlines as it does for foreign airlines, saying that while foreign airlines don’t pay VAT on ticket sales, domestic airlines are compelled to pay VAT on ticket sales.
“In the light of the above, we therefore appeal to the Federal Government to assist the airlines by taking a critical look into this issue of multiple charges and come to the aid of airlines by having a single window, removing VAT from air transportation and reducing the heavy burden they currently face,” Meggison said.
Said the AON president, “Airlines provide a critical socio-economic services and should not be treated as a cash cow and strangled out of existence by multiple taxes, levies and charges that are sometimes forced on the airlines without due consultations. We pray that government needs to reappraise the way it sees air transportation and accord it the support it truly deserves as done in other climes.”
Government support
According to industry analysts, there are many ways government could support Nigerian airlines.
Executive Director of Zenith Travels, Olu Ohunayo, said that one of such ways was to introduce Fly Nigeria Act in which anyone travelling on government expense must use Nigerian airline or its code-share partner. This policy when introduced and implemented would force foreign carriers to partner with Nigerian airlines and the local carrier would benefit financially and technically from such partnership.
Government should also make it compulsory for officials to use Nigerian owned carriers as done in other clime. For instance, it is a policy of the United States government that government officials cannot fly a non-American airline, unless no American airline or its partners operate from that destination.
Government intervention
However, the Director General of the Nigerian Civil Aviation Authority (NCAA), Captain Muhtar Usman, said that under his management the agency has intervened many times when some countries wanted to stop Nigerian airlines.
One example was when South African authority was delaying the approval of Air Peace to fly to that country. The Director General said he intervened and immediately Air Peace was given approval.
Usman, said NCAA has done that many times to protect Nigerian airlines, noting that such intervention has helped their regional and international operations.
