Nigerian airlines have called for the suspension of local content in aircraft insurance, which premium is projected to reach $2 billion annually, insisting that they are forced to undertake double insurance for their aircraft because lessors want their aircraft to be insured overseas. But the Nigeria Insurance Association (NIA) is insisting that Nigerian insurers can handle as much as $2 billion aviation insurance annually, since insurance is about collective risks. According to the Chief Operating Officer of United Nigeria Airlines, Osita Okonkwo, airlines are made to insure aircraft with local insurers, which most of the lessors do not recognise, a development that compels airlines to insure their aircraft with international insurers in compliance with leasing conditions of lessors. “There is no capacity internally to do big aircraft insurance in Nigeria. So many lessors are not operating in Nigeria because of insurance. It is killing business because even though you want to do indigenisation, you cannot do that with another person’s assets. Even if you buy an aircraft today, it is a requirement that you have to insure it even if you pay with your money to Boeing, Embraer or whatever. The insurance must cover Boeing even though they have sold it to you, they must be party insured in that transaction. So you can’t escape the international requirements of the business and limiting it locally will not help lessors,” Okonkwo said. Throwing more light on this, the Managing Director and CEO of Aero Contractors, Captain Ado Sanusi, told THISDAY that airlines were made to undertake 110 per cent to 140 per cent insurance cover on one aircraft because airlines pay minimum of local content cover of 30 per cent and also fully insure the aircraft 100 per cent with Lloyds, for example, which means paying for 130 per cent on insurance for one aircraft. Ideally, airlines are expected to share the insurance of their aircraft, 30 per cent local and 70 per cent international, but some lessors and aircraft manufacturer would insist on 90 per cent international or even 100 per cent and in order to abide by the regulation of the National Insurance Commission (NICON), airlines also undertake the 30 per cent insurance cover locally for the same aircraft, Sanusi said. However, Sanusi said that airline can undertake 100 per cent local coverage of an aircraft if the aircraft is owned by the airline and knows the value of the aircraft because size of aircraft, year of manufacture determine the value and the insurance premium; whereby local insurers cannot cover the value they will need international partners. “The choice of where to insure your aircraft depends on who owns the aircraft. We at Aero Contractors do local insurance because we know the local market can absorb it. We see the value of Boeing 737 Classics. If it is outside the country it won’t be the same. It boils down to how the lessor can get his money out of the country. The owner of the aircraft determines where the aircraft is insured. Local market is good. If we do not insure locally how can we advance? We must start from one point. So, I totally support local component. “Local component can be 30 per cent and you insure 70 per cent outside but some aircraft owners don’t agree; so, they insist you insure outside 100 per cent and you will have local content 30 per cent, which is 130 per cent insurance cover; some also agree on 110 per cent and 140 per cent. We should urge the Federal Government to talk to lessors to allow aircraft to be insured locally. We must develop our local insurance market. Insurance companies can even own aircraft and lease them to airlines. Some insurance companies do that overseas,” Sanusi further said. But the Director, Nigeria Insurance Association (NIA), the umbrella body of Insurance underwriters in Nigeria, Mrs. Yetunde Ilori, said Nigerian insurers could handle $2 billion aviation insurance, adding that insurance is a pull of risks and that no single insurance firm sits on a pull of risk alone. She noted that local content law was already in place in the country and must be open to everyone, including airlines operators in Nigeria. Ilori who was former Managing Director AXA Mansard insurance, said insurers engage in risk sharing through consortia and so can undertake any insurance cover because they have capacity. “The answer to your question whether Nigerian Insurers can handle up to $2bn aviation insurance is yes because insurance is a pull of risks and no single insurance firm sits on a pull of risk alone. Secondly, the local content law is in place in the country and must be obeyed by everyone including airline operators in the country and because of this local content law and issue of capacity, insurers engage in risk sharing through consortium arrangement. This is a situation where in handling huge business sector like aviation, a lead underwriter spreads the business to other underwriters based on their capacities and their reinsurance backing,” Ilori said. According to Ilori, “These must be based on regulation on the quantum of business each underwriter is allowed to accommodate. Thirdly, all the underwriters in the business shared have insurance backing mainly from abroad. These reinsurance backing enables them to retain big businesses and be in position to pay claims when the unexpected happens. The insurers themselves are backed by those called retrocessionaires who stand as reinsurer of reinsurers so the reinsurers reinsure the same business reinsured in their offices to the retrocessionaires. “These efforts gear towards ensuring seamless claims payment when claim occurs.They boost insurers’ capacities towards claims payment. Most of the reinsurance backing and retrocessionares support are sought for from insurers abroad. So insurance business is a global business and Nigeria plays in the global market arena and can handle any aviation business any one may want to take abroad here locally.” But this does not resolve the problem where lessors and even aircraft manufacturers decide where their aircraft must be insured. THISDAY also learnt that sometimes manufacturers approve where the aircraft they sold to an airline could be maintained. So, in the case of insurance, a leased aircraft belongs to the lessor and decides where the equipment should be insured.

On Monday the management of a new entrant into the aviation industry, United Nigeria Airlines held a press conference with Aviation Correspondents at the Murtala Muhammed International Airport, Lagos to mark their three years as schedule airline operator.

United Nigeria Airlines used the opportunity to expose the difficult terrain in which Nigerian airlines operate.

The Chief Operating Officer of United Nigeria Airlines, Mr. Osita Okonkwo, gave a briefing on what the airline has achieved in the three years of operations and recalled that the airline started flight service in February 2021 and has been operating ever since without suspending operation for one day. He said that the airline employed about 500 fresh personnel who hitherto did not have aviation experience, and the airline funded their ab initio training and engaged them to work in the company, disclosing that some of those personnel have been poached by other airlines.

Okonkwo said providing jobs and getting jobs for fresh hands was in tandem with the philosophy of the new carrier because “human capital development was major pillar of our strategy. With 500 direct jobs that must have created, about 1, 500 indirect jobs made possible by the airline.”

Speaking about the difficult terrain in which Nigerian airlines operate, Okonkwo said most airlines had been struggling to survive the harsh aviation environment in Nigeria. According to him, the challenge besetting the airline and other domestic operators is the uncertainty surrounding their operations in terms of cost of aviation fuel, the exchange rate, which impact on other issues involved in their operation, including airfares.

“For example, when United Nigeria Airlines started operation in 2021, aviation fuel was N300 per litre but today it has risen to N1, 300 and there are indications that it would rise further. Then average airfare was about N25, 000 but today base fare is about N80, 000. So, the run-away inflation and the fact that tomorrow is very, very uncertain deflates the zest and the commitment the operators have, which propelled them to go into airline business,” Okonkwo said, while describing the changes as ingredients for disaster and concluded that only miracle had kept the airline in business.

IOSA

He said that after one year of operation, United Nigeria Airlines started the International Air Transport Association (IATA) Operational Safety Audit (IOSA) Programme, which is an internationally recognised and accepted safety evaluation system designed to assess the operational management and control systems of an airline. IOSA uses internationally recognised quality audit principles and is designed to conduct audits in a standardised and consistent manner. United Nigeria Airlines passed the audit.

“Two years ago, we became IOSA certified. We are now IOSA member airline. This means that we can interline with other airlines who are IATA members and we can enter Billings and Settlement Plan (BSP), which is a system which airlines settle transactions through one central system,” Okonkwo said.

He also spoke about the spring alliance in which six domestic carriers decided to work together and support one another. For example, if one airline’s aircraft is grounded for tech or any other reason, another airline in the star alliance will airlift that airline’s passengers to their destination. Instead of two aircraft leaving, for example, from Lagos to Abuja with few passengers, the airlines would use one aircraft and record a full load and after, they will settle the fares.

“Spring Alliance was supposed to be a very formal structure but it is more informal and we must admit that it is not a perfect interline agreement. It is now more of a cooperation agreement but we are still working on it. At the moment, only two or three airlines are currently strong in that aspect, that is, United, Air Peace and we work very closely with Dana Air. There is the problem of capacity in the market and many people would not be able to bail you out if you have issues because they don’t have the capacity to do so and not that they don’t want to do so.

“Also, the person must be going to the destination you are going to in order to help you. So, you find out that the coverage of many operators is not as widespread as one would have expected. Some days ago, we had an agreement with Aero that did some of our flights. We also had one with Arik, NG Eagle because we didn’t want to do outright cancellation for passengers to find their way and in one day, we were able to sort out the flight of 300 passengers. We are committed to developing this alliance because the local airlines must collaborate before they expect others to collaborate with them,” Okonkwo further said.

He used the opportunity to urge journalists to use their articles in educating Nigerian passengers who become violent when flights are delayed or cancelled, noting that it is airlines that lose when flights are cancelled. He reiterated that the major reason why airlines delay or cancel flight is due to weather, stating that since November last year, bad weather has impacted so much on flight operations in Nigeria which led to series of flight delays and cancellations.

Route Expansion

Okonkwo said that United Nigeria Airlines is ready to explore new grounds like opening new destinations, as the airline did with Bayelsa and Abakaliki, where they pioneered scheduled service.

“We are ready to go into markets where others have not gone. That is why we went to states like Ebonyi, Bayelsa and that is why we are exploring other airports because there are people there who are willing to pay for air travel regionally and internationally. We are making final preparations to start our Ghana operations and we also focusing on other regions of Africa.

“We are grateful to the Ministry of Aviation and Aerospace Development and the Nigerian Civil Aviation Authority (NCAA) for giving us a designation to places like London, Netherlands, Amsterdam, Italy, Milan, Houston, Dublin, among others. But these are opportunities we want to develop gradually and systematically. We don’t fly for the sake of flying, we fly because the route is viable and we can sustain whatever we but in there,” he said.

Okonkwo said air travel remained very critical because it is a catalyst to economic development of any nation and it promotes tourism, which flies on the wings of aviation.

“Aviation industry is essential service driven industry. All over the world, it contributes to a country’s GDP and ours should not be different. We need to promote local tourism with aviation. I lived in Kenya for over 25 years and one of the things they have is the Mombasa migration. When that happens, the President moves the entire cabinet out of Nairobi to Mombasa and that does so much to the economy of Mombasa. We need to begin to do something that would retain forex in the country. Apart from the migration to the South East during the Christmas celebration, what other migrations do we have? Even with the insecurity, without the annual migration, the economy of the South East would not be what it is.

“So, we need to create markets and opportunities for movements. We really have a lot of work to do and we are committed to supporting any initiative that would help to develop internal travels which we think is still very low. We are major players and are ready to do the heavy lifting and hard work that is required to unite our customers across the globe. We look forward to an aviation market that is fully developed. We need investments in all the subsectors of the industry,” he said.

New Aircraft

On aircraft acquisition, the management of United Nigeria Airlines listed the challenges Nigerian airlines face in their effort to buy or lease aircraft and said that the process is fraught with inherited problem and others which could be solved through the intervention of government.

“We said we would be bringing in new aircraft every quarter and it was supposed to be dry lease or outright purchase. What we did last year was to bring in two Airbuses in keeping with our plan. When the ones we had planned to acquire were being delayed, we had to opt for wet leasing, which is a short term measure. We are hoping that by the time the lease terminates, we would have something to replace them. We have ongoing discussions to lease three more aircraft and we have placed an order with Embraer for five new aircraft and we are finalising the negotiations,” he disclosed.

According to Okonkwo, the Minister of Aviation has met with the international lobby group to prompt the lessors to remove Nigeria from their blacklist and this include Aircraft Leasing Group (ALG) comprising the two largest aircraft makers, Airbus and Boeing.

“Our appeal is that we don’t miss out opportunities. Nigeria is the largest market in Africa. The potential is there. The market is large. The Minister is on top of this issue. It would help that Nigeria is removed from country risk on aircraft dry lease. The country risk rating has hampered our operations and we are exposed to wet-lease which is very expensive,” he said.

High Handling Charges

Recently, handling companies in cognisance of the inflationary trends, increased the cost of their services, which many airlines described as exorbitant. The Chief Operating Officer of United Nigeria said that everyone is increasing tariffs and charges except the airlines.

“Handling companies have announced an outrageous increase in their charges. All the airport owners have increased their rates except FAAN (the Federal Airports Authority of Nigeria). Asaba airport has increased its Passenger Service Charge to N8000, Anambra has also increased theirs, MM2 is at N7, 000, NCAA is still collecting five percent charges, so if they are talking about reducing air fares, they should also reduce theirs because it is all additional cost to the passenger. We are buying aviation fuel at a minimum of N1, 300, forex is N1,700, so, if we are leasing, how do we pay for the aircraft and spare parts?

“The truth of the matter is that the minimum cost of airfare should be $100 and I don’t see how you can fly for less than N150,000. Once the cash runs out, you will start seeing people parking their aircraft. In fact, some have done so because if not for the parked aircraft, you would not have been able to use someone’s plane to do 300 passengers. Today, we had another operator telling us they want to transfer their passengers to our aircraft because it doesn’t make sense to fly with 50 passengers in a 160-seater aircraft,” he said.

Okonkwo also stated that the minister and policy makers need to also intervene on behalf of airlines because airlines need cheap loans, forex, lower country risks “so that lessors don’t put more money on you because you are from Nigeria, whereas someone from Lome is getting cheaper prices.”

“If you fly into Asaba airport by 7.05pm on a 50-seater, it would cost you N500, 000 extra. They would tell you they close at 7pm, so, if you land at 7.05pm and leave at 7.10pm, you would still pay N500, 000 per hour. If you tell them you are landing at 8.05pm, it would cost you one million. If you tell them to leave the airport open for 10; 00 pm, you are going to pay extra N1.5 million for three hours. So, what does the operator make? We have to have a conversation around the idea that air fares are expensive. When we started, we were charging N25,000 but the exchange rate was still at $100. Now, we are not even getting $50, yet 90 per cent of our expense is in dollars. It is a discussion that is very important,” Okonkwo said.

The airlines seem to be in a precarious situation and until the uncertainties occasioned by hiccups in Forex and ever rising cost of aviation fuel are resolved, Nigerian carriers will find it difficult to plan and make projections in their operations.