JET A1 crisis: Operators fear industry collapse, job losses
…One hour flight ticket hits N150,000
The persistent rise in the cost of aviation fuel, known as jet A1, is beginning to cause apprehension in the minds of stakeholders in the industry as they express fears that the sector may collapse and there may be huge job losses if the rising cost is left unchecked.
As of Friday, reports indicated that Jet A1 fuel had risen from about N300 per litre in February to about N1,000 per litre, causing a significant increase in the cost of tickets.
Aviation Round Table, which is a body of professionals in the sector, said more airlines might be forced to halt operations, in addition to the two domestic airlines not in operation at the moment. Aero Contractors had on July 18 announced the suspension of its operations, citing the impact of the challenging operating environment on its daily operations, while the Nigerian Civil Aviation Authority on July 20 suspended the operations of Dana Air.
In an interview with one of our correspondents, a former Managing Director of the Nigerian Airspace Management Agency and Chief Executive Officer, TopBrass Aviation Company Limited, Capt. Roland Iyayi, said government must work towards reviving the refineries for the local production of JetA1. He added that government should consider supporting airlines in aviation fuel pricing in the short term.
He pointed out that many people were no longer travelling by air due to the hike in the price of tickets. This, he said, posed great danger to the survival of airlines and the aviation industry.
Iyayi added, “The key to the success of any airline is affordability. If fares are unaffordable, what you will end up having will be empty flights. Now, when you have empty flights, it will become a double whammy. At this point, how do you manage the sustainability of the airline?
“So, ultimately what we will have will be more airline failures. And if more airlines fail, it means that capacity will reduce and when this happens you will get very high fares. That is essentially what we are looking at now and it is a very precarious situation for the industry.
“This means there is imminent danger in the entire industry and it is bound to spiral out of control if something is not done urgently. So if the government considers aviation as a critical asset, I would expect it to intervene in JetA1 pricing.”
Also, the Assistant General Secretary of the Aviation Round Table, Mr Olumide Ohunayo, noted that the sector had been severely hit by the fuel crisis due to its dependence on importation and the high foreign exchange rate.
In an interview with Sunday PUNCH, he added, “The Russia-Ukraine war has increased the average cost of fuel and all forms of gas productions, and this is exacerbated for Nigeria because of the weakening naira to the dollar. That has increased the pain on the airline and even the supplier. What we have is that one airline is grounded voluntarily and the other involuntarily.
“If things do not return to normal, other airlines may also be grounded. That is where we are going. It is funny that the government is telling us now, through the senate committee, that some of the aviation fuel is being exported to neighbouring countries and sold there.
“Though it is deregulated and the government does not subsidise it, why would they not be able to monitor the distribution that they have to move to neighbouring countries? Something is wrong. We need to tighten control on it.”
He urged the government to look at the port charges and taxes on aviation fuel and see if it could be suspended temporarily, pending when the price returns to normalcy. He added that it was risky to continue waiting for Dangote Refinery to start operations, noting that there must be a way to address the problem without delay.”
Ticket hits N150,000
Meanwhile, the cost of an economic ticket for an hour flight on domestic routes has increased by about 400 per cent in less than five months. It rose from about N30,000 in February 2022 to about N150,000 as of Saturday. This has been tied to the high cost of aviation fuel.
Although the latest cost varied among various airlines, findings showed that the few surviving domestic carriers had raised the price of air tickets to match the rise in the cost of aviation fuel.
As of 9am on Saturday, it was observed that the airfare for 12.45pm flight to Lagos from Abuja on Nigeria’s largest commercial airline, Air Peace, was put at N150,000, while that of 5.35pm went for N100,000.
For MaxAir, the 7.20am Sunday flight ticket from Kano to Lagos went for N130,000, while Lagos bound flight tickets from Abuja on Saturday were sold at N90,000.
The rates, however, differed on some other routes, as Ibom Air’s 6pm flight ticket on Saturday from Abuja to Uyo, for instance, went for N86,000.
Airline operators justified the jump in airfares, attributing it to the hike in aviation fuel, which accounted for about 60 per cent of the cost of operations of an aircraft.
This, according to them, had also caused lamentations among air travellers and led to a drop in the passenger volume lately, as they expressed fears of more airlines’ failures and a possible collapse of the industry if nothing was done urgently to salvage the situation.
Iyayi analysed how a commercial aircraft consumes fuel and what operators spend on fueling their airplanes for an hour flight.
He told one of our correspondents that most carriers in Nigeria were currently struggling to survive.
He said, “It is possible for aviation fuel to cause a jump in the cost of air tickets and the reason is very simple. Fuel as a component of operation is about 40 to 60 per cent of the cost of operating an aircraft. So when you take a flight that will last an hour, for instance, a Boeing 737, the fuel it burns is about 2.5 tonnes an hour.
“If you translate that into litres, you’re talking of 104,000 litres. At the current rate of fuel being N1,000/litre, what that essentially means is that an airline must sell tickets to cover the cost of fuel, which will be approximately N4.5m for that particular flight.
“So at N4.5m, if you are selling at N100,000 you will need to sell 45 seats to even cover that cost alone. That is not talking about the maintenance reserves, crew cost, insurance and all other factors that you need to consider for your cost of operations to be covered. Therefore, if you look at it from the perspective of just fuel, what you have are airlines struggling to even cover their cost. There is no margin left.”
He said if the charges to be paid to the various agencies and regulators were added, the fate of the airlines could best be imagined.
He added, “You need to also know that five per cent of whatever revenue they make goes to the NCAA. Essentially, we are saying that even before an airline starts operations, it is already struggling. Hence, airlines cannot continue to sustain losses for all the other agencies and service providers to thrive in the industry. This has been the situation in the last decades.
“The truth is that airlines are operating in the most difficult and hostile environment in the Nigerian landscape.”
Also commenting on the situation, another major operator in the domestic air transport business berated the Central Bank of Nigeria for failing in stabilising the naira against the dollar.
“If you were buying fuel at N200/litre and all of a sudden you start buying it at N900 to N1000/litre due to the crash in your local currency, will you be happy with your Central Bank?” the operator, who spoke anonymously due to the sensitive nature of the matter, asked.
The airline operator added, “If the system gets better, then the cost of tickets would drop. But for now, that’s what you get if you must fly a safe aircraft. The CBN, the Federal Government and the Petroleum Resources Ministry must answer questions and tell us how they want to help address this concern.”
The umbrella organisation for the country’s domestic carriers, Airline Operators of Nigeria, had attributed the crisis in the sector to the high cost of JetA1 and the difficulty in accessing foreign exchange required for the business.
Another aviation expert and President, Association of Foreign Airlines and Representatives in Nigeria, Kingsley Nwokeoma, said there were fears that another domestic carrier might suspend operations soon.
He added, “Of course, we saw Aero’s coming and it happened. We also saw what happened to Dana. The question is who’s next? Apparently, when we have issues and everybody is trying to work around staying afloat, there is the tendency that safety might be compromised.
“From last year to this year, we have been having this price increase in airfares, moving from N30,000-plus to over N50,000 and now about N100,000. Now who is going to fly?
“The flying public will have to look for alternatives. So the government needs to sit down with the carriers if we are to still have a domestic aviation sector, because the average man can’t afford these tickets. That’s the truth.”
He, however, stated that the price hike in air tickets was justifiable, as the major component in the air transportation business had also skyrocketed in cost.
The AFARN president added, “Aviation fuel is the major component. So, if you don’t have fuel, you can’t fly. The fuel price is going astronomically high and that means it will reflect on the tickets. So it’s a serious situation that we have here, just like Allen Onyema (Chairman, Air Peace) said during the Nigeria Aviation Conference.”
Nwokeoma added, “He (Onyema) said it might get to a point where we would not even have carriers flying, because if you are spending all your money on buying fuel, then what of the other components like maintenance, payment of salaries, training, etc.
“So it’s the situation that we have here and it might degenerate if the government does not sit down with these carriers and find the solution on how to manage this crisis, for we are not close to a crisis. We are in crisis already.”
Nwokeoma observed that though the government had been meeting with airlines on some of those issues, such meetings had yet to yield the desired results.
However, amid these challenges, the NCAA promised to ensure that the air transportation business remained safe.
“It is our core mandate to ensure that the aviation sector is safe and that is what we’ve been doing and will continue to do,” the spokesperson for the NCAA, Sam Adurogboye, told one of our correspondents.
A senior official at the Federal Ministry of Aviation stated that the aviation minister had made it clear that there was no immediate solution to the crisis in the sector though efforts were being made to address the challenges.
Meanwhile, air passengers have been lamenting over the disruption to flight schedules in the last few days on account of the crisis in the sector. Visits by our correspondents to the domestic wing of the Murtala Muhammed International Airport Lagos and that of the Nnamdi Azikiwe International Airport in Abuja, observed huge crowds in the terminals, with many lamenting the postponement or outright cancellation of their flights.
Job loss looms
There are fears that the suspension of operations by Aero and Dana and the growing uncertainty in the sector may put about 8,000 jobs on the line. Some aviation analysts told Sunday PUNCH that it would be almost impossible for an airline that was no longer working to continue to pay salaries and retain its staff strength. Indications have therefore emerged that the troubled domestic airline industry may succumb to job losses.
This came amid an ongoing investigation of the financial health of some local carriers believed to be in crisis by the NCAA.
Findings show that unless the crisis abates, over 8,000 domestic airline jobs may be on the line.
According to industry analysts, a significant number of jobs may be lost in the event that one, two or three carriers go under.
Findings show that Aero currently has 730 employees, while Dana has over 820. Air Peace has over 3,500 workers while Arik Air has over 1,100 employees. The number of workers engaged by Max Air, Overland Airways, Azman Airlines and Ibom Air and Green Africa Airways has been put at over 3,000.
A former Managing Director, Associated Airlines, Alex Nwuba, said, “The crisis currently affecting the domestic airline industry may lead to the industry’s collapse if the government fails to tackle the issues.
“Also, some airline jobs may be lost if some of the carriers fail to survive this crisis. This is a major problem in our hands. The foreign exchange scarcity, JetA1 exorbitant prices, high taxes, among others are issues that may make the industry collapse or the sector succumb to major job losses.”
Nwuba, who is the President, Aircraft Owners and Pilots Association of Nigeria, explained that the skyrocketing price of aviation fuel had negatively impacted on the costs of other components in the airline business.
He said, “Clearly, the costs in this business have completely gone out of control. Therefore what is an airline going to do? It has two choices: first, the airline is going to increase its revenues by increasing its charges to cover those costs or to ask themselves, can we continue in business because we are simply heading down the hill, which is what Aero has done.
“The second case is, while still contemplating that decision and already in a slide, the government says to a particular airline that ‘we do not think you can continue given these factors, so we will suspend your operation,’ as in the case of Dana Air.
“So, if the airlines go out of business or reduce their operations, they would have to also start to manage their costs and one of the ways in which they manage cost is to say we will lay off staff because that is one component of cost.
“This also has an adverse effect on the economy. If productivity is down, it is not just the airline that suffers, the GDP and all of the elements that make for economic growth are diminished. One person’s job loss is not that individual’s job loss. It is a loss to the family and the environment. Basically, the effect is not on the airlines but on the entire economy in view of the fact that we already have unemployment in very high numbers.”
Operators stated that currently in the domestic aviation space, the functional airlines were now few, including Air Peace, Ibom Air, Azman, Green Africa Airlines, Arik Air, Max Air, among others.
Emirates slashes flights to Nigeria over withheld $85m
Meanwhile, Emirates Airlines has said it will reduce its flights to Nigeria from August 15, due to its failure to repatriate the $85m it generated from the sale of ticket sales in the country.
The airline said it would be forced to reduce weekly flights from Dubai to Lagos from 11 to seven. It said it was constrained to take the action.
These were contained in its July 22 letter to the Minister of Aviation, Hadi Sirika, and signed by Sheik Majid Al Mualla, the DSVP International Affairs.
The letter explained that as of July 2022, Emirates had $85m of funds awaiting repatriation due to non-availability of dollars in Nigeria and that the figure had been rising by more than $10m every month, as the ongoing operational costs of the airline’s 11 weekly flights to Lagos and five to Abuja continue to accumulate.
“We simply cannot continue to operate at the current level in the face of mounting losses, especially in the challenging post COVID-19 climate. Emirates did try to stem the losses by proposing to pay for fuel in Nigeria in naira, which would have at least reduced one element of our on-going costs, however this request was denied by the supplier. This means that not only are Emirates’ revenues accumulating, we also have to send hard currency into Nigeria to sustain our own operations. Meanwhile, our revenues are out of reach and not even earning credit interest,” the letter added.
The mega carrier said the funds were urgently needed to meet its operational costs and maintain the commercial viability of its services to Nigeria.
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The Labour Party candidate for Enugu East Senatorial district, Oyibo Chukwu has been killed.
Oyibo, a lawyer was said to have been attacked while returning from a campaign trip in the Agbani area.
He was said to have been burnt inside his vehicle, and three persons were suspected to be with him in the vehicle but it was not yet known how many of the occupants were killed.
Information about the attack is still very sketchy but a top member of the party has confirmed it but said he should not be quoted until the family speaks.
It was also learned that the APC governorship candidate in the state, Uche Nnaji was also attacked at the spot where the Labour candidate was killed.
Naira crisis: Await our decision, S’Court tells states seeking to join suit
The Supreme Court, on Wednesday, shut its door to more states seeking to be joined as interested parties in the suit challenging the decision of the Federal Government to ban the use of the old N200, N500 and N1000 banknotes as valid legal tenders.
A seven-man panel of Justices of the apex court, in a unanimous decision, asked all the states interested in the matter to await its decision in the suit that was originally filed by three northern states- Kaduna, Kogi and Zamfara.
The panel headed by Justice Inyang Okoro took the decision after it rejected a joinder application that was filed by Abia State.
It proceeded to consolidate the different suit that was filed by Rivers State, with all the pending cases challenging the Naira swap policy that FG introduced through the Central Bank of Nigeria, CBN.
All the suits the apex court consolidated for hearing on Wednesday, were marked: SC/CV/162/23, SC/CV/162/23, SC/CS/197/23, SC/CV/200/23, SC/CV/210, SC/CV/227, SC/CV/229/23 and SC/CV/222/23.
It will be recalled that the court had earlier joined seven states- Lagos, Cross River, Ogun, Ekiti, Ondo, Sokoto and President Muhammadu Buhari’s homestate, Katsina, as parties to the suit that was filed by the three northern states.
Though only the Attorney-General of the Federation and Minister of Justice, Mr. Abubakar Malami, SAN, was initially cited as the sole defendant in the matter, the apex court okayed requests by Edo and Bayelsa states to be allowed to join the suit to support FG as co-plaintiffs.
Rivers, Kano, Jigawa and Nasarawa states had maintained that there own case was different, stressing that their grouse was not only with the Naira swap policy, but also with the cash withdrawal limits the CBN allowed for corporate entities and individuals, respectively.
While consolidating all the cases, the Supreme Court noted that the issue in dispute resolves around Section 20(3) of the CBN Act.
It held that there was no need for more states to apply for permission to join the legal fireworks.
“We will no longer join any state in this matter. When we give our decision, whoever that is dissatisfied can file a fresh suit. There is still time”, the apex court held.
It will be recalled that the apex court had on February 8, issued an interim order that restrained FG from implementing its February 10 deadline for the use of the redesigned Naira notes as legal tenders.
However, despite the order of the ex-parte order by apex court, the CBN had since invalidated the old N500 and N1000 banknotes, even as President Buhari, in a nationwide broadcast he made on February 16, okayed the N200 note to remain a legal tender till April 10.
Specifically, the states, in their consolidated suit, are among other things, seeking a declaration that the Demonetization Policy of the Federation being currently carried out by the CBN under the directive of the President of the Federal Republic of Nigeria, is not in compliance with the extant provisions of the Constitution of the Federal Republic of Nigeria 1999 (as amended), Central Bank of Nigeria Act, 2007 and actual laws on the subject.
They applied for, “A declaration that the three-month notice given by the Federal Government of Nigeria through the CBN under the directive of the President of the Federal Republic of Nigeria, the expiration of which will render the old banknotes inadmissible as legal tender, is in gross violation of the provisions of Section 20(3) of the Central Bank of Nigeria Act 2007 which specifies that Reasonable Notice must be given before such a policy”.
As well as, “A declaration that given the express provisions of Section 20(3) of the Central Bank of Nigeria Act 2007, the Federal Government of Nigeria, through the CBN, has no powers to issue a timeline for the acceptance and redeeming of banknotes issued by the Bank, except as limited by Section 22(1) of the CBN Act 2007. The Central Bank shall at all times redeem its bank notes”.
Besides, the states urged the apex court to direct the immediate suspension of the demonetisation of the Federal Government of Nigeria through the CBN under the directive of the President of the Federal Republic of Nigeria until it complied with the relevant provisions of the law.
The plaintiffs told the apex court that since the CBN announced the new naira policy, there has been an acute shortage in the supply of the new naira notes in their respective states.
They decried that residents in their states who complied with CBN’s directive and deposited their old naira notes have increasingly found it difficult to access new naira notes to conduct their daily businesses.
They maintained that the inadequacy of the new naira notes as well as the haphazard manner the monetary policy was being implemented, has wrought serious hardship on residents in their states, stressing that the 10-day extension of the deadline would not be sufficient to address the challenges occasioned by the policy.
Old Notes: Kogi, Kaduna, Zamfara accuse Malami, Emefiele of violating S’Court order
Three northern states, Kogi, Kaduna and Zamfara, have initiated contempt proceedings against the Attorney-General of the Federation and Minister of Justice, Mr Abubakar Malami, SAN, at the Supreme Court, following his alleged refusal to comply with the order that extended the deadline for the use of the old N200, N500 and N1000 banknotes as valid legal tenders.
Equally joined in the contempt action was the governor of the Central Bank of Nigeria, CBN, Mr Godwin Emefiele.
The three states, in the two sets of Form 48 they lodged before the apex court, warned both Malami and Emefiele of the consequence of their continued disobedience to the interim order the court made on February 6, which halted the full implementation of the new monetary policy that was introduced by the CBN.
Specifically, Form 48, which has already been served on both the AGF and the CBN Governor, read: “Take notice that unless you obey the direction contained in the attached Order of the Supreme Court of Nigeria delivered on 3rd day of February 2023, you will be guilty of contempt of Court and will be liable to be committed to prison.”
Vanguard learned that the contempt action by the three states who had originally gone to court to set-aside the initial February 10 deadline the CBN gave for usage of the old Naira banknotes, will form part of processes the Supreme Court will consider on Wednesday.
Basically, a Form 48 (notice of consequence of disobedience of court order), is followed with a Form 49, should the party it was served on continue to disregard the court order alleged to have been flouted.
Upon receipt of a Form 49, the alleged Contemnors would be compelled to show cause why they should not be committed to prison for disobeying a subsisting court order.
It will be recalled that the three states had on February 15 when proceedings resumed on the legal dispute sorrounding the Naira swap policy, drew attention of the apex court to the fact that FG had through the CBN, banned the use of the old N200, N500 and N1000 banknotes, despite the ex-parte order that restrained it from doing so.
Counsel to the plaintiffs, Mr. AbdulHakeem Mustapha, SAN, while accusing FG of engaging in “Executive recklessness”, urged the apex court to extend the interim order.
Mustapha, SAN, further indicated that he had filed an affidavit to establish how the express order of the Supreme Court was disobeyed by FG.
However, FG’s lawyer, Mr. Kanu Agabi, SAN, urged the apex court to disregard the allegation by counsel to the plaintiffs, insisting that it was based on “mere rumour”.
Before adjourning the case till Wednesday, the seven-member panel of the apex court led by Justice Inyang Okoro, stressed that parties, having submitted themselves before the court, ought not to take any action that would affect the subject matter of the suit.
Even though only the AGF was initially cited as the sole defendant in the matter, the panel however granted applications that Edo and Bayelsa states filed to be allowed to join the suit to support FG as co-plaintiffs.
Likewise, the court allowed seven states- Lagos, Cross River, Ogun, Ekiti, Ondo, Sokoto and President Buhari’s home state, Katsina- to also join the case to challenge the new monetary policy.
On the other hand, Rivers, Kano and Jigawa states filed separate suits to vacate the cash withdrawal limits the CBN allowed for corporate entities and individuals, respectively.
The court held that all the suits would be consolidated for a hearing.
Meanwhile, barely 24 hours after the court proceeding, President Muhammadu Bihari made a nationwide broadcast and restated the ban on all the old banknotes except N200 which he okayed to remain a valid legal tender till April 10.
Aggrieved by the action, the 10 states that are now plaintiffs in the suit marked: SC/CV/162/2023, re-approached the apex court with another process to invalidate the President’s directive on the old banknotes.
It will also be recalled that Malami had filed a Preliminary Objection to dismiss the suit, even as he contended that the Supreme Court lacked the requisite jurisdiction to entertain it.
Listing his grounds for challenging the power of the Supreme Court to intervene in the matter, Malami, accused the plaintiffs of opposing FG’s power, through its agency, the CBN, to withdraw old banknotes and introduce new ones.
According to him, “The Plaintiffs’ suit is about the power vested on the Central Bank of Nigeria by the Central Bank of Nigeria Act, 2007 to call in its Banknotes and introduce new ones.
“This suit as presently constituted falls under section 251(1)(a)(p)(q) & (r) of the Constitution (exclusive jurisdiction of the Federal High Court) by virtue of the subject matter and parties.
“The Claims or reliefs are not against the Federation, but the Federal Government and its Agency, the Central Bank of Nigeria.”
“The Federal Government of Nigeria is distinct from the Federation or the Federal Republic of Nigeria. The Plaintiffs have no grievance whatsoever against the Federation of Nigeria.
“This Suit has disclosed no dispute that invokes this Court’s original jurisdiction as constitutionally defined. This suit is an abuse of the judicial process.
Plaintiff has no locus standi to institute this action. The Plaintiffs have no reasonable cause of action against the Defendant”, Malami argued.
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