Aviation Sector: Flying at a Low Altitude

Proshare

Thursday, April 07, 2016 8:53AM /FBNQuest Research

Described sometimes as the “real world wide web”, the aviation sector caters to 3.5 billion passengers globally and could be said to facilitate as much as 25% of world trade annually. Given the global macro challenges, industry sources estimate that its sales in the major African cities have declined by US$1 per passenger since the slide in the oil price.

Despite the economic downturn, the International Air Transport Association (IATA) still sees huge potential for air transportation in Nigeria on the back of the country’s estimated population size of 170 million. The Federal Airports Authority of Nigeria (FAAN) has to make domestic airports fully functional if this potential is to be realized.

The latest national accounts from the National Bureau of Statistics show that air transport grew by 3.7% y/y in 2015 and contributed 0.1% to total GDP, the equivalent of N63bn (US$317m).

Typically, a drop in oil prices bodes well for the aviation sector. However, this is not the case in Nigeria due to the scarcity of fuel in the country.

We gather that oil marketers have been directed to give priority to the discharge of petrol at the ports over aviation fuel (Jet A1) because of the chronic petrol shortage. This has led to a series of delays and flight cancellations by domestic air operators.

A growing challenge for international airlines operating is the repatriation of funds. Given Nigeria’s acute fx shortage, airlines have struggled to repatriate their sale proceeds to their home countries.


According to IATA, earnings which cannot be repatriated over a period of two months are termed as blocked funds. We attended a briefing on air transportation yesterday in Lagos and learnt that as at the beginning of this month, the amount in blocked funds stood at a little below US$600m.


According to the keynote speaker at the briefing, a weekly clearance plan for the blocked funds was put in place by the authorities. This has had very limited impact on the backlog.


The aviation sector facilitates FDI inflows, which amount to about US$4.7bn annually. It employs 45,000 jobs directly and indirectly.


The industry in Nigeria is far from the money spinner that some might imagine. Once available resources have been pumped into safety, operators have limited funds for other purposes.


The FGN has gone quiet on the view that a country the size of Nigeria should have its own national carrier.

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