Airlines borrow N60bn for fuel as operating costs rise

Nigerian airlines are facing a severe financial crisis, with accumulated debts exceeding 60 billion naira (approximately $38 million) in loans from local banks solely for aviation fuel purchases. The Airline Operators of Nigeria (AON) revealed this dire situation, highlighting the immense pressure high Jet A1 fuel costs are placing on their revenues and operational sustainability.

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There are some airlines that are owing over N60bn from local banks just to be able to procure fuel. That’s how bad it is.

Roland Iyayi, a member of the AON's Board of Trustees, stated that some airlines owe over 60 billion naira to local banks just to procure fuel. This heavy reliance on borrowing underscores the precarious financial state of the sector. The worsening burden is attributed to the government's alleged failure to implement recommended measures aimed at addressing the escalating cost of aviation fuel.

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The AON had threatened to shut down because of the escalated fuel costs in February. Then Keyamo was in Riyadh. He called to say that the AON should allow him to get back and look at all the issues so he could address them.

In February, the AON had threatened to cease operations due to the surge in fuel prices. The Minister of Aviation and Aerospace Development, Festus Keyamo, intervened, promising to address the issues. Meetings were held involving the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), fuel marketers, and the AON. However, Iyayi expressed disappointment that these meetings did not yield concrete solutions. A committee was formed, but its recommendations to the government have yet to be acted upon.

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Of course, the meeting was really not any meeting where anything could be resolved. There was a committee that was set up to see what immediate steps could be taken to address the issue of fuel costs.

Iyayi pointed out that Nigeria's aviation fuel prices are significantly higher than global benchmarks, with local prices reportedly reaching 270% of the original value, compared to 60-80% in other parts of the world. This peculiar situation has also affected airlines' ability to meet statutory obligations, such as remitting the five percent ticket sales charge to the Nigeria Civil Aviation Authority (NCAA). All earnings are currently being channeled into fuel procurement, with the alternative being a complete shutdown of services, which would have severe economic repercussions.

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So Nigeria is a peculiar case. That’s what the airlines are saying.