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Tuesday, March 19, 2024

Foreign Airline Trapped Funds in Nigeria Hits $812m, Threatens Connectivity

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The scarcity of aviation fuel and shortage of foreign exchange has reached a full blown stage as funds belonging to foreign airlines trapped in Nigeria has hit $812.20 million, according to a latest report by International Air Transportation Association (IATA).

It must be noted that the IATA report is contained in a note sent to clients by CSL Stockbrokers Limited seen by our correspondents.

According to the note by the research firm, the world airline body cautioned that rapidly rising levels of blocked funds are a threat to airline connectivity in the affected markets.

The total global industry’s blocked funds have increased by 47 percent to $2.27 billion in April 2023 from $1.55 billion in April 2022.

The top five countries that account for 68.0% of blocked funds are Nigeria with the highest trapped funds ($812.2 million), Bangladesh (US$214.1 million), Algeria ($196.3 million), Pakistan ($188.2 million), Lebanon ($141.2 million).

According to news reports, airlines’ rate of exchange in Nigeria moved to N610/US$ last week from N462/US$ before March 22 and this is expected to impact the prices of both domestic and international air travels.

The challenges in the aviation industry laid bare the enormous responsibility or task before newly appointed president Bola Ahmed who has kicked ground rolling with removal of subsidy on Premium Motor Spirits (PMS).

Analysts are of the view that the president’s economic team has to be nimble in addressing the foreign exchange scarcity that undermines the aviation industry and hinders international carriers from repatriating articulated funds from ticket sold in

The cost of aviation fuel has significantly risen, forcing operators to hike flight flares and a lot of the no longer breakeven.

Of course, the high crude oil prices at the international market is responsible for a surge in aviation fuel.

Jet A1 today costs above N410 in Lagos, N422 in Abuja and Port Harcourt, and N429 in Kano per litre and has continued to rise fast and steadily.

Global industry losses due to aviation fuel costs and other expenses hit $9.7 billion, being an improvement from the October 2021 forecast of $11.6 billion loss, according to International Air Transport Association (IATA).

“In recent years, airline operators in Nigeria have been hit by pertinent concerns. First, was the scarcity and rising cost of aviation fuel (which accounts for c.40% of their operational costs), with the attendant impact on the cost of operations and conditions of service,” said analysts at CSL Stockbrokers Limited.

“Beyond the high cost of aviation fuel, the current acute shortage of FX is also a big problem for airline operators. For domestic airlines, carrying out operational activities such as servicing their aircraft has become almost impossible amidst the acute scarcity of forex. In our view, the government needs to address these concerns urgently, considering the importance of the aviation sector to the economy,” said analysts at CSL Stockbrokers.

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