Foreign airlines’ blocked funds may hit $300m in Q2
…operators approach black market
Daily Courier – If urgent steps are not taken to work out a mechanism to clear the existing backlog of foreign airlines’ funds trapped in Nigeria and prevent a subsequent build-up, there are indications that such funds will hit $300 million in the second quarter of 2022. Trapped funds are unremitted foreign airlines ticket sale proceeds held up in Nigeria and meant to be repatriated through foreign exchange.
The funds are stuck in the country because tickets are sold in Nigeria’s local currency, the naira. In getting the funds, these foreign airlines need to access the proceeds in dollar at the prevailing exchange rates. Exchange rate fluctuations and paucity of forex have, however, made it difficult in repatriating these airlines’ funds stuck in Nigeria. About 25 foreign airlines operating into Nigeria are involved in this challenge of fund repatriation.
Some of the major carriers affected by the crisis are British Airways, Etihad, Emirates, Lufthansa, Air France/KLM, Delta Air Lines, Virgin Atlantic, United Airlines, RwandAir and Ethiopian Airlines. With the increasing build up of foreign airlines’ trapped funds, Daily Courier gathered that it is now difficult for some of the carriers to access funds through their banks at the official rate, hence they have resorted to the black market to source forex at N580 and N585 to a dollar as against N418-N419 to a dollar.
According to an industry source, who lamented over the shortage of foreign exchange in the country as the main cause of their inability to repatriate the blocked funds, the situation has led airline operators to seek alternative means of raising funds. While the government through the Central Bank of Nigeria (CBN) refers operators to their banks for forex, their financial institutions in turn keep sending them back to the CBN, claiming paucity of forex.
Meanwhile, the National Association of Nigeria Travel Agencies (NANTA) has warned that the failure of the foreign airlines to repatriate their ticket sales was in flagrant contradiction to the Bilateral Air Service Agreement (BASA) arrangements the Federal Government reached with foreign countries.
In line with BASA’s deal with countries, tickets are sold in naira, while the airlines repatriate the funds in Dollars through the country’s central bank. The federal government had in 2018 cleared $600m of blocked funds but the amount continued to rise.
Confirming the case of blocked funds of foreign airlines in Nigeria, the Minister of Aviation, Senator Hadi Sirika, put the new figure at $283m when he spoke in Lagos a few weeks ago during the commissioning of the Murtala Muhammed International Airport (MMIA) new terminal.
He said, “Mr President, the aviation business suffers from issues of access to foreign exchange by local and foreign airlines and the ability to repatriate blocked funds. Nigeria currently holds $283m of foreign airlines funds blocked in the country. I would like to humbly request the support of the Central Bank of Nigeria, through the directive of Mr President, to prioritise access to forex for all carriers both local and foreign and to work out a mechanism to clear the existing backlog urgently and prevent subsequent build up.”
Also commenting on the development, Mr Kingsley Nwokoma, President, Association of Foreign Airlines and Representatives in Nigeria (AFARN), expressed worry that the matter had been a recurring issue in recent years.
Nwokoma in a chat, lamented that the difficulty experienced by the foreign airlines in repatriating their ticket sales was affecting their performance, especially aircraft maintenance; noting however, that it is a global phenomenon.
He, all the same, debunked the claim that the operators were planning to start selling air tickets in dollars in Nigeria, stressing that it negated the existing Federal Government law. The AFRAN President appealed to the Federal Government to intervene in the situation before it deteriorated further.
He said: “This issue has been prevalent, unfortunately, the government has not been able to address it. The airlines need to repatriate money to their home countries because they operate from their home countries.
“Imagine if other countries, like Nigeria, did not allow foreign airlines to repatriate their money, it would lead to a total collapse of the airlines. So, it is something that the government has to look into and get it sorted out once and for all. It won’t be nice to sell tickets in dollars. We can sort it out. It is a government thing and the government and its agencies should look into it.”
In the same vein, Mrs. Susan Akporiaye, NANTA President, dismissed the report that the airlines were planning to sell tickets in dollars.
The NANTA President pointed out that the foreign carriers were still selling tickets in naira, stressing that the earlier report, which allegedly emanated from the Aircraft Performance Group (APG) that tickets were being sold in dollar, was false. She, however, explained that in order to remain in business and profitable, the airlines have begun to sell higher class tickets to the travelling public. According to her, the lower class fares by airlines are no longer available, reiterating that the foreign carriers approach the parallel markets to source dollars.
Akporiaye also stated that selling tickets in foreign currencies in Nigeria is in contravention of the country’s law. “The only thing the airlines are doing right now to mitigate this situation is to sell higher classes. They have stopped inventory for the lower ones. They only sell higher classes. As you are aware, every cabin has the lowest and the highest fare. So, they are selling from the middle to the highest.
“They claim they source for forex in the black market, which is almost N200 higher than the actual amount of the tickets. To break even and not operate at a loss, they are selling higher seats. For instance, all these cheapest fares of N300,000 to London are not available for sale. Those available for sale are from N400,000 to N500,000. So, that is what they do, but they don’t sell in dollars.
“Tickets are priced in dollars and they are now sold in local currencies of each country. For instance, if a ticket is sold at $1,000, using the approved rate, it is just about N400,000 or so. So, we sell it at N420,000 and the airlines go to buy at N580 per dollar or more. They have stopped the $1,000 tickets and they now sell $2,000 to $2,500 tickets which, using the rate in the system, is over N800,000. So, by the time they now go and buy at N580 to a dollar, they are able to breakeven and make interest.”
Akporiaye challenged the government to open up on the current situation in the airline sub-sector, maintaining that the problem of blocked funds is solely the responsibility of the government.
Comrade Abdulrasaq Saidu, Secretary General of the Association of Nigerian Aviation Professional (ANAP) attributed the inability for the airlines to repatriate their funds to corruption. According to him, if things are done rightly, the airlines would be able to repatriate their funds without much ado because it is very vital since aviation business is done in dollars.
Saidu said, “It is very unfortunate that the airlines are experiencing the issue of trapped funds. The CBN, which is an institution of government, should ensure that the issue is treated with urgency. I urge the federal government to ensure that the trapped funds are repatriated”.
“I am appealing for a solution because it negates the Bilateral Air Service Agreement (BASA). Beyond that, it will affect us when all these airlines decide to boycott their major flight services in the country. They can devise a means whereby they only come to Nigeria and pick up their passengers. When such happens, the neighbouring countries will be the main beneficiaries. The Federal Government should tackle it head on”, the union leader advised.