Aircraft lease rises as lessors classify Nigeria ‘high-risk’ nation written by Wole Shadare (The Guardian)

IT is another tough era for operators in the Nigerian aviation sector as wary international aircraft lessors have classified the country among “high-risk nations” for doing business.
The ‘strange status’ for the country is linked to the Sunday, June 3, 2012 crash involving Dana Air’s Flight 0992 in Lagos.
The Guardian learnt that due to the air mishap which claimed the lives of passengers and crew members, major aircraft leasing firms such as GE Capital Aviation Services (GECAS), International Lease Finance Corporation (ILFC), Cab Tree and Aercap have raised lease on aircraft to Nigerian airlines by over 40 per cent and with a plan to hike it to 50 per cent soon.
Prior to the Dana accident, a B737-500, which was leased for $120, 000, now attracts $200, 000 monthly.
For the new generation airplanes that are in high demand and popularly referred to as Next Gen (that is aircraft below 15 years), the lease, according to airline operators, has risen to $280,000 per month from $160,000.
Some airline chiefs, who spoke with The Guardian on the development, lamented that coupled with the declining passenger traffic, it has become very difficult for them to cope.
The lease remained stable from 2006 to June this year following near impeccable safety recorded in the aviation industry.
Added to this, is the belief in the international aviation sector that Nigerian operators lack skills in negotiating for aircraft lease; which has led to most airlines to be on the receiving end. Most local airlines are said to lack the ability to understand minimum flight hour and engine cycles for aircraft under lease.
Also, the dwindling of the sector, particularly the fortunes of the carriers, has equally made lease rentals to be on the high side because the foreign firms do not trust Nigerian operators enough with their equipment.
Currently, just three airlines among the hitherto big carriers are operating. Air Nigeria was over two months ago grounded over insolvency and safety issues. Dana Air remains grounded after the tragic accident that claimed over 153 persons, while First Nation Airlines has ferried its aircraft to Europe for mandatory maintenance checks. The airline is expecting its A320 airplanes back in the country.
The new high cost of lease is expected to affect the whole fiscal operations of the airlines, as they now find it difficult to buy fuel, pay workers’ salaries and still have enough operating cash.
GECAS is responsible for the leasing of aircraft and associated equipment to airlines. The firm buys aircraft from manufacturers like Airbus and Boeing and leases to airlines on three to five-year leases, usually on dry lease contracts. It also buys aircraft from airlines and leases them to others.
The primary competitor to GECAS is ILFC, but other companies such as Aviation Capital Group, AerCap, Babcock, Brown Aircraft Management and RBS Aviation Capital are also active in the industry.
GECAS is the largest aircraft lessor in the world by fleet size, according to the 2005 Air-finance Journal Operating Lessor Survey.
A representative of GECAS in Africa, who spoke with The Guardian on the hike in aircraft lease, hinted that a lot of things were taken into consideration before the company took the action. He listed them as asset value of Nigerian airlines and national risk assessment of the country, volatility of policies, state of the airports and fire tenders, which according to him, were adjudged to be inadequate in Nigeria.
The official, who preferred anonymity, said the only option left to lessors in the face of failure by operators to abide by the contract for release of airplanes to them was for them to repossess their equipment, which he said, could be a herculean task, despite the Cape Town Convention which Nigeria is a signatory.
On several occasions, the Nigeria Civil Aviation Authority (NCAA) had intervened in the repossession of aircraft by the lessors, as such cases have ended up in courts, but with Nigeria as a signatory to the Cape Town Convention, which makes it a guarantor to the carriers, it becomes very easy for the leasing firms to get back their airplanes after a default by the carriers.
According to the firm’s chief, “some Nigerian operators have been less than honourable in meeting their obligations.”
The Managing Director of IRS Airlines, Yemi Dada, told The Guardian that the operating environment, insecurity, coupled with the crash of Dana plane had adversely led to high insurance premium.
He added that these risk factors put the operators in a disadvantaged position during negotiation with the aircraft owners, stressing that an operator can negotiate a lease rate with what is obtainable in Europe, but lamented that the conditions attached outside the lease agreement make it very complex.
His words: “The implication is that the operators pay higher for the leased aircraft. It equally has implications on fares and increase cost components. It is either the operators want to absorb it or it goes up on ticket fares.”
The Assistant Secretary-General of Airline Operators of Nigeria (AON), Muhammed Tukur, attributed the high cost to statements and actions from the Ministry of Aviation, which he said helped to fuel insinuations that the country was not safe for aviation business.
The situation, he disclosed, led to high insurance premium on aircraft and lease rentals by insurers and lessors.
According to Tukur, “the Dana crash exposed the government. Comments by government, especially the Ministry of Aviation, people who do not know anything about aviation and the panel, set up by government to investigate the cause of Dana crash without following the International Civil Aviation Organisation (ICAO) procedures created fear in the minds of these firms.
“The Accident Investigation Bureau (AIB) is the only one recognised by law to investigate accidents. ICAO, the United States Federal Aviation Administration (FAA) were scandalised and the public hearing by the Senate further compounded the situation and these companies could no longer trust our system with the revelations that came out of the hearings.”
The AON scribe said aircraft lease had gone up by 50 per cent, adding that the best way to regain the country’s aviation reputation was to ensure that all airlines comply with the IATA Operational Safety Audit (IOSA) programme, adding that interference by the Aviation Ministry had further compounded the job of the NCAA.
The IOSA programme is an internationally recognised and accepted evaluation system designed to assess the operational management and control systems of an airline. It uses internationally recognised quality audit principles and is designed to conduct audits in a standardised and consistent manner. It was created in 2003 by the International Air Transport Association (IATA), the clearing house for global airlines.
The auditing standards have been developed in collaboration with various regulatory authorities, such as the Federal Aviation Administration (FAA) in the USA, Australia’s Civil Aviation Safety Authority, Transport Canada and the Joint Aviation Authorities (JAA).
The Director-General of NCAA, Dr. Harold Demuren, had said that all Nigerian airlines must now be IOSA compliant. Apart from Air Nigeria, no Nigerian carrier is IOSA certified.
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