African Airlines In Trouble

THE global economic crisis may be abating, but airlines globally are yet to find safe harbor, the Chief Finance Officer of Nigerian Eagle Airline, Dennis Eboreime stated at the 18th African Aviation Finance Conference last week in Abuja.

Mr. Eboreime revealed that the global impact on economies had continued unabated in spite of concerted efforts to stabilize airlines, adding that weak demands, low yields and fuel were critical factors that led to a decline in passenger and freight volume.

He noted that the International Air Transport Association (IATA), which is the clearing house for global airlines, initially predicted operating losses of $9 billion at the end of 2009.

The situation is now worsened by new projection of $11 billion just as the carriers are also $2 billion down the road of recovery.

Mr. Eboreime lamented that African airlines remained weak overall with loss margins above $600 million as at September.

According to him, a large chunk of African airlines cannot break even as cost of operation is above 20 percent with margin of less than 10 percent on capital returns, stressing that most African airlines are not making much progress as a result of legacy debts profile in spite of new business model.

“Most African airlines have had their financials altered by debilitating lease agreement. Most of the continent' leases are not supported by realistic business plans.

“African airlines currently lack expertise in lease issues. The syndrome of greedy is rampant in Africa, giving rise to artificially inflated charges.

It has resulted in several airlines running out of cash,” he stated.

He reiterated that the provision of guarantees by banks was the only outlet for accessing foreign capital and aircraft leases in the face of relatively weak balance sheet.

In a related development, Aviation Consultant and the Convenor of the Conference, Nick Fadugba confirmed that African airlines must adopt a sound business plan and strong partners to survive, stressing that African governments on their part need to create an enabling environment in order to attract the financial resources and investment that are urgently required to fund the development of the African aviation industry.

According to him, the positive trend of fleet modernization in Africa is set to continue relative to Airbus and Boeing market forecasts.

Airbus, the European aircraft manufacturer, has predicted a demand of 641 new jetliners worth $60 billion until 2023 to accommodate air traffic growth and the replacement of older, less efficient aircraft in Africa.

Boeing, the U.S aircraft manufacturer, predicted deliveries of 620 new jet aircraft to Africa between 2009 and 2028, totaling about $70 billion.

He however noted that funding the requirement would not be easy as the IATA predicted that African airlines would lose a total of $500 million this year.

“Traditional sources of funding for African airlines include commercial loans, equity, cash flow, sale and lease-backs, export credit agency funding and increasing operating leases,” he added.

The recent introduction and ratification of the Cape Town Convention has provided greater comfort to aircraft lenders and aircraft leasing companies in Africa who hitherto had dreaded the twin perils of contractual default and aircraft repossession.

Source: Guardian, Nigeria