Why Aircraft Leasing Companies Rip-off Nigerian Airlines

Some airline operators argued that leasing aircraft to operate in Nigeria is exploitive because of the low credit rating of the country among lessors (aircraft leasing companies).

The operators said poor credit rating has become a stigma on African airlines because some airlines default on leasing agreements and resist repossession by lessors.

THISDAY gathered that there is a strong warning being circulated around leasing companies to be wary of leasing aircraft to Nigerian airlines because of long history of default and resistance to re-possession.

An operator told THISDAY that lessors which want to lease aircraft to Nigerian airlines do so at outrageous cost with high insurance premium and the history of exchange rate fluctuation in the region.

“Also older airplanes are pushed to Africa because the continent is seen as high risk, poor safety region with poor economic performance of local airlines, which discourage lessors,” the operator said.

The Chief Operating Officer of Dana Air, Obi Mbanuzuo told THISDAY that globally airlines choose how they want to acquire aircraft, explaining however that airlines rarely buy aircraft with cash because such amount of money may not be readily available to acquire the number of aircraft they may want at anytime.

“Because of high the credit rating, many airlines in Europe, the US and Middle East are able to order aircraft from lessors at good rates but in Nigeria, Nigerian carriers do not enjoy such privileges due to poor credit rating and lessors give Nigerian airlines aircraft at outrageous rates.

“Airlines choose how they acquire their assets. No airline goes to purchase aircraft with cash. Small body aircraft like Embraer can cost about $75 million.

“No airline will pay cash to acquire such aircraft and some airlines acquire 20, 30 of them at the same time. So, they go to lessors like GCAS or Aircab and lease those aircraft and sign an agreement to operate them and register them in their country of operation. But they will give you specifications; that you must pay monthly fees with insurance and so on.

“You must give guaranty that when the aircraft is due for maintenance you have to maintain it. This opportunity is not open to a Nigerian operator and in Nigeria you will have to pay more if ever you are able to get a lessor that will agree to give you aircraft. Because they see our environment as risky they put higher premium on us.

“If they are sure that the regulatory environment is right, there is the issue of insurance, government policies and operating environment. There are different kinds of lease. There is operating lease and there is financed lease. In Nigeria airlines cannot easily lease so airlines tend to buy older aircraft because nobody can afford the price of new aircraft.

Also, the Managing Director of Medview Airline, Alhaji Muneer Bankole, who recently acquired a long-haul aircraft, Boeing B777 told THISDAY that the low value of the naira makes aircraft leasing in the country unprofitable.

“It is because of the low value of the naira. When you are charged in dollars by the time you exchange the naira earned in Nigeria to dollar, you see one huge amount of money to pay for the leasing.

So, it is not profitable.

“You borrow money from banks; you pay your taxes so after all the expenses you realise that you are not making any profits. If the naira were stable it would have been better. In some countries exchange rate is stable for several years. In Saudi Arabia, dollar is R4.74 and it has been there for about 30 years. This is stability but in Nigeria the value keeps on changing. This is great challenge for us,” Bankole said.

THISDAY also learnt that some Nigerian airlines do not keep to the terms of the leasing agreement and don’t willingly return the aircraft when they are due for return, while some of them do not pay the agreed fees at the agreed time.