$2bn trapped funds: Operations of more foreign airlines under threat

•Nigeria tops list, as 27 countries owe airlines $2bn — IATA

IN the coming days, more airlines operating on the international route may be forced to downsize or cease air service operations, following their inability to repatriate their air services funds to their home countries over foreign exchange difficulties.

In Nigeria, foreign airlines collect naira for their tickets to customers and exchange same for foreign currencies for their operations. But recently, they said they have been unable to get the exchange executed through the official foreign exchange market due to scarcity of foreign exchange resources.

In response to the trapped funds, United Arab Emirates flag carrier, Emirates airline, grounded its operation in Nigeria, while some others shut down their low ticket inventory to Nigeria’s passengers, thus forcing travellers to pay high airfares.

However, the Central Bank of Nigeria, CBN, waded in, calling the foreign airlines operating in the country to respect its bilateral aviation services agreement, BASA.

The CBN Governor, Godwin Emiefiele, had said that the apex bank would tackle the problem of unrepatriated funds and ensure they were able to access the funds.

Meanwhile, the International Air Transport Association, IATA, had warned that the amount of airline funds for repatriation being blocked by the governments of 27 countries had risen by more than 25 percent ($394 million) in the last six months From June to December 2022. The global body stated that total funds blocked had hit $2.0 billion with Nigeria topping the list. IATA also announced that African carriers would record a loss of $638 million in 2022, while projecting passenger demand growth of 27.4 percent was expected to outpace capacity growth of 21.9 percent.

According to a breakdown of the fund cited by Vanguard, the top five markets with blocked funds (excluding Venezuela) are Nigeria, $551 million, Pakistan, $225 million, Bangladesh, $208 million, Lebanon, $144 million and Algeria, $140 million.

Meanwhile, IATA’s Regional Vice President for Africa and the Middle East, Kamil Al-Awadhi, in a statement noted that, “Repatriation issues arose in March 2020, when demand for foreign currency in the country outpaced supply and the country’s banks were not able to service currency repatriations.

“Governments in most of these countries need to remove all barriers to airlines repatriating their revenues from ticket sales and other activities, in line with international agreements and treaty obligations.

“Despite these challenges, Nigerian authorities have been engaging the airlines and are, together with the industry, working to find measures to release the funds available.

“Nigeria is an example of how government-industry engagement can resolve blocked funds issues. Working with the Nigerian House of Representatives, Central Bank and the Minister of Aviation resulted in the release of $120 million for repatriation with the promise of a further release at the end of 2022.

“This encouraging progress demonstrates that, even under challenging circumstances, solutions can be found to clear blocked funds and ensure vital connectivity.

“Preventing airlines from repatriating funds may appear to be an easy way to shore up depleted treasuries, but ultimately, the local economy will pay a high price. No business can sustain providing service if they cannot get paid and this is no different for airlines. Air links are a vital economic catalyst, and enabling efficient repatriation of revenues is critical for any economy to remain globally connected to markets and supply chains.”

African airlines to record $638m loss

Also, IATA in its report on the state of global aviation, noted that the African region was particularly exposed to macroeconomic headwinds, which have increased the vulnerability of several economies and rendered connectivity more complex.

According to the report, in 2022, airline net losses are expected to be $6.9 billion (an improvement on the $9.7 billion loss for 2022 in IATA’s June outlook). This is significantly better than the losses of $42.0 billion and $137.7 billion realized in 2021 and 2020 respectively.