GROWING NIGERIAN AIRLINES: Reliable Airlines Should Earn Reliable Finance

By-: Johan M. Westerhoff

A financial layer for disciplined Nigerian airline operators – within a broader strategy for Nigeria to become a mature West African aviation gateway.

Nigeria does not need to solve the financing problem of its aviation sector by creating another government-owned national airline. Rather, it needs to create the conditions under which safe, transparent and financially disciplined Nigerian airlines can obtain capital on terms appropriate to the assets they operate.

1. The Financing Problem

A financially disciplined airline should not be forced to finance a long-life aircraft at a cost resembling short-term, unsecured consumer credit, simply because it operates in Nigeria. Aircraft are productive, internationally recognized assets. They can be leased, refinanced, sold and repossessed; subject to a contractual and legal framework. Their financing should therefore reflect the quality of the asset, the strength of the operator, the cash flow supporting it and the relevant country risks not automatically the highest prevailing domestic credit price.

2. The Principle:

Support Must Be Earned. Nigeria should create an independent Aviation Fleet Finance & Guarantee Facility for qualifying operators. This should not be a subsidy program, political allocation mechanism or rescue fund. Access should be earned through measurable financial, operational and governance performance. Qualification should include:
FINANCING PILLAR

• Audited and transparent financial statements, with agreed key figures published regularly;

• Clear disclosure of debt, lease obligations and material liabilities;
• Satisfactory regulatory, tax and safety compliance;
• Demonstrated operational reliability and disciplined fleet maintenance;
• Adequate maintenance reserves and working-capital controls;
• Professional corporate governance and accountable management;
• Credible route and fleet economics;
• Appropriate shareholder equity and cash-flow discipline; and
• A demonstrated record of meeting obligations to employees, airports, lessors, financiers and service providers.

Transparency should become part of the price of cheaper capital. An operator asking for enhanced financing access should demonstrate publicly why it deserves that backing.

Finance the Aircraft as an International Asset

3. Where practical, aircraft financing should be separated from an airline’s general corporate borrowing. Individual aircraft or fleet packages can be placed in a dedicated, special-purpose vehicles, SPV, with appropriate security over the aircraft, lease cash flows, maintenance reserves and related contractual rights.

Funding can combine airline equity, commercial lenders, aircraft lessors, international aviation finance, export-credit support where available, institutional investors and Shari’a-compliant structures. The Nigerian facility should principally provide carefully limited credit enhancement rather than funding the entire aircraft purchase.

4. Match the Debt to the Economic Life of the Asset
   Long-life Aviation assets require appropriately structured tenor. Depending on aircraft age, operator quality, security and market conditions, financing could extend approximately 7-15 years. Repayment should be matched to realistic aircraft utilization and cash generation rather than compressed into short domestic lending cycles. This gives sound operators the ability to plan fleets, routes and maintenance instead of continually refinancing expensive short-term debt.
6. Reward Performance – Do Not Socialize Failure
7. The structure should deliberately differentiate among airlines. Stronger transparency, safety performance, financial discipline and repayment history should improve access to financing. Failure to meet agreed financial, governance, operational or safety covenants should reduce or remove preferential access.
   There should be no automatic government rescue.
9. The purpose is not to eliminate commercial risk; it is to ensure that every Nigerian airline is not automatically priced as though it carries the same risk.
11. Keep Government Out of Airline Operations
    Government’s role is to provide and regulate the aviation environment such as the provision of modern airports, air-navigation infrastructure, safety and security oversight, customs and immigration capability, emergency and public services, and a predictable regulatory framework.
    Airlines should remain commercially managed. A sovereign-backed institution may provide limited guarantee capacity or other credit enhancement, but airline ownership, fleet decisions and operations should remain driven by commercial responsibility and professional entrepreneurship.

4. Build A Nigerian Aviation Credit Record
6. The most important long-term product of the facility may be a credible performance history. Every audited year, reliably operated aircraft and successfully repaid financing obligation strengthens the credit record of the participating operator. A carrier demonstrating five or ten years of disciplined borrowing and repayment should progressively require less public credit enhancement and gain more direct access to international aviation capital.
9. A Competitive Nigerian Airline System
11. The objective is not to select one national champion. Nigeria should encourage a diverse network of professionally run airlines serving domestic, regional and international markets according to their capabilities.

Smaller aircraft can strengthen domestic and cross-border connectivity; larger Nigerian operators can develop African and intercontinental networks, including commercially balanced partnerships with foreign carriers. Competition, private ownership and commercial responsibility should remain central.

9. The Wider National Objective:

Aviation is infrastructure for economic participation. Reliable air connectivity supports tourism, business, investment, diaspora travel, trade, professional mobility and Nigeria’s ability to function as a West African gateway. The country should therefore concentrate public resources on the infrastructure and institutional conditions that make aviation work, while creating a financial architecture through which disciplined private operators can grow.

The Core Proposition

Is that Nigeria should not finance inefficient airlines merely because they are Nigerian. Neither should it structurally disadvantage its best operators by forcing them to finance internationally recognized aviation assets through credit conditions designed for fundamentally different categories of domestic borrowing.
Reliable airlines should earn reliable finance.

The national objective should be to create the conditions under which a safe, transparent and financially disciplined Nigerian airline can finance an internationally recognized aviation asset on internationally credible terms.

That is a stronger foundation for Nigerian aviation development than the creation of another government-owned national carrier.

This paper is presented by Johan M. Westerhoff, as a policy contribution to the discussion on the development of a competitive, privately operated and financially sustainable Nigerian aviation sector.

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