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Aircraft Leasing: Managing Forex Challenges In Nigeria 

Aircraft Leasing: Managing Forex Challenges In Nigeria 

Aviation industry operators have stressed that one of the major factors making it difficult to replenish their depleting operating aircraft is the difficulty they face in remitting money to lessors due to forex scarcity.

The operators also said that the current exchange rate and the delay in financial institutions to remit the funds to lessors overseas make the transactions a frustrating experience.

Leasing is the easiest way commercial airlines acquire aircraft in other parts of the world and major airlines, including well-known mega carriers, operate largely leased aircraft.

Former Director General of the Nigerian Civil Aviation Authority (NCAA) and current Rector, International Aviation College, Ilorin, Benedict Adeyileka, highlighted challenges faced by domestic airlines in leasing aircraft.

Adeyileka, stressed that getting forex remains a challenge for the airlines, disclosing that while waiting to obtain dollars for the payment the leasing window may elapse, as other airlines may also be leasing aircraft from the lessor.

“If you have your naira to lease aircraft, the regulator and your bank will be the problem. They will be the stumbling block because of the scarcity of dollars. Another problem you will face is the exchange rate. The exchange rate is very high that you must have a lot of money in naira to earn the dollars that will enable you to lease,” he said.

Adeyileka pointed out that another major challenge is the leasing conditions, which is stringent for Nigerian carriers because Nigeria is designated as high country risk.

“You may even have the money but the lessor will not allow you to bring the aircraft to Nigeria. Even if he allows you, he will slam high returns to it that you won’t be able to pay. When you look at what you could be generating with the aircraft, you will find out that you won’t be able to raise the leasing cost.”

Another issue, however, is that when you lease the aircraft, NCAA has its own stringent conditions that you must face. The officials will do pre-inspection of the aircraft and on arrival of the aircraft they will carry out post arrival inspection in which the inspector can ask you for anything about the aircraft, including manufacturing documents.

Recently the Director General of NCAA, Captain Musa Nuhu said the agency would guarantee lessors that it would protect their equipment leased to Nigerian carriers and with the new assurance, lessors could now give out their aircraft to Nigerian operators at relatively lower rates.

“We will work with Nigerian airlines that lease aircraft and if there is any disagreement we will intervene and resolve the issues without having serious negative consequences on the Nigerian aviation market,” he had said.

The Director General said it would rebuild the confidence lessors have in Nigeria and could now lease aircraft to Nigerian airlines without stringent measures that describe Nigeria as risky environment, which ups the insurance premium and leasing rates.

“If we continue to intervene for a longtime, it is going to make it easier for Nigerian operators to lease equipment, be it aircraft, engine or whatever, it will also come at a competitive global rate rather than adding premium because Nigeria is considered a high risk market. These are part of the things we are doing,” Nuhu had said.

Some industry observers have adduced the skepticism lessors have about Nigeria to false propaganda, which they said makes those leasing aircraft to Nigerian airlines install unnecessary, difficult clauses, which are not found in their lease agreements with airlines from other countries.

“The situation is tilted against the Nigerian carriers to the extent that when the lessor is in default, he gets away with it because of the preconception that the Nigerian should be in default. The Cape Town Convention addressed this anomaly.

“The convention stipulates that all aircraft lease agreements be registered with the Civil Aviation Authority (CAA) of the contracting states. It further stipulates in case of default by the lessee in the agreement, the CAA shall grant permission to the lessor to fly out her aircraft to a destination of her choice.

“Simply put, if the lessor applies to NCAA, he shall be granted permission by NCAA to ferry out her aircraft. There have been instances that NCAA successfully implemented the Cape Town Convention protocol. Also, there are instances where the Nigerian courts have barred the NCAA and the lessor from implementing this protocol in Nigeria,” an industry analyst noted.

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