Business

Bailout: Airlines’ suspense amid uncertain future

 

 

Nigerian airlines are in endless wait for bailout many months after government made a promise to them. They needed it in the thick of COVID-19 but it never came. They need it now more than ever to save their companies, WOLE SHADARE writes

 

The wait

They have waited for so long but no help seems to be coming their way. They have weathered the storm posed by COVID-19.

 

They have gradually left the pity party stage to do it themselves but for how long will they continue without government’s support for bailout or palliative? This narrative sums up Nigerian airlines’ precarious situation. They are not alone in this.

 

Many bigger airlines have gotten their country’s backing by releasing huge amount of money to keep the carriers in operations and to save millions of jobs that are threatened by the pandemic that grounded economic life for more than five months.

 

Chaos

 

The coronavirus pandemic had thrown Nigeria’s aviation industry into genuine chaos. Planes are flying with only a handful of passengers. Terminal halls are desolate most times. But most Nigerians don’t even fly once a year, meaning a struggling aviation industry can seem like a problem strictly for business travelers and select vacationers.

 

Yet aviation is not a luxury industry. Vast segments of the economy are built on the expectation that tourists can fly to their destinations, businesses can host faceto- face meetings, and shippers    can deliver the latest smartphones and fresh flowers to stores.

 

Whether you board a commercial plane this year or not, aviation touches your daily life.

That’s why there is the need to worry about the shocking decline in aviation demand. In the immediate term, a specific set of large metropolitan areas could feel serious workforce impacts as airports, airlines, and freight companies struggle with severe liquidity crises. In the months to come, even after the virus is under control, a broken aviation industry could still make it impossible to return to economic normalcy.

 

Right strategy

 

The aviation industry, the Federal Government will likely settle on some form of financial support—a bailout— for this essential industry. But will they focus on the right tactics? Less travel keeps us all safer in the midst of a pandemic, but it has a real financial cost for airlines and airports.

 

Passengers provide most airline operating revenue, primarily in fares plus ancillaries like those pesky baggage fees. While some revenues can continue—including income from frequent flyer programs— there’s no antidote for losing what could be hundreds of millions of passengers in just a few weeks.

 

Airports primarily make money through landing fees from airlines, terminal store rents, and parking. All those revenue sources will also be decimated without travelers.

 

Hope rises

 

There, however, seems to be a ray of hope for Nigerian carriers as it appears government has not forgotten them. The promise is long in coming as some many not actually need the funds if help comes too late.

 

It is far better to save a dying business with the injection of funds than to wait for when the situation can no longer be salvaged. Just last week, the Director-General of Nigerian Civil Aviation Authority (NCAA), Capt. Musa Nuhu, rekindled the operators’ hope with a caveat that beneficiaries of proposed N27 billion would be those with valid Air Operator Certificates (AOC).

 

He unfolded government’s decision to grant operators, palliatives to cushion the effect of COVID-19 on their operations, but maintained that airlines without valid AOC would not benefit from it. Federal Government had approved the sum of N27 billion as a palliative for the entire aviation industry in Nigeria, while reports claimed that N10 billion out of the sum was earmarked for indigenous airline operators.

 

Nuhu reiterated that defunct airlines were not entitled to the fund when it was eventually released for the airlines. Presently, scheduled airlines with valid AOC are Overland, Air Peace, Med-View, Aero Contractors, Max Air, Azman Air, Arik Air and Dana Air.

 

Sympathy

 

 

Airlines probably seem like sympathetic targets for massive government help — especially in light of more morally repugnant taxpayer rescues from recent history. But the current mood in the industry is not one of optimism. A huge gloom pervades the entire industry with more of confusion than hope of a rescue.

 

Expert laments

 

A Chief Operating Officer (COO) of one of the airlines said it was “insincere and shoddy” to tell the airlines to get ready when the government is not eager to prep the industry for the new normal. “Look around the world at countries that are reopening the aviation sectors.

 

You will see that it is a joint effort of all stakeholders, with the government taking the lead. Here, what do you have? “The government has withheld the bailout they promised, forgetting that the aim was to help the airlines defray  some costs of operations, recall workers, put necessary things and new safety procedures in place ahead of resumption.

 

Nobody knows what has happened to the bailout and you are telling the airlines to resume if they are ready.” Stakeholders said it was up to the aviation regulatory body to give the go ahead after the airlines have opened their books, shown what they have, and complied with safety guidelines.

 

Saving the industry

 

Any type of government assistance to a business is going to help its stockholders and creditors. But the issue is the extent of that benefit and its cost to the taxpayer. The aid to air carriers is particularly good for investors and costly to taxpayers because most of it – 70 per cent to be exact – doesn’t have to be repaid. Although all of it must be used for employee compensation, most of it is neither debt nor an equity investment; it is simply a grant.

 

If customers don’t buy tickets and businesses don’t buy goods, then planes don’t fly. And if planes don’t fly, then the entire industry will look to cut costs wherever possible.

 

That places over 12, 000 workers, pilots, flight attendants, baggage handlers, at risk, and many others could feel the economic effects of coronavirus disruptions and lack of support to help the carriers weather the storm.

 

Last line

Almost every challenge in aviation requires team effort to solve.

Today, the sector faces the biggest challenge in commercial aviation’s history.

 

Restarting an industry that largely has ceased to operate across borders is a herculean task.

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