High risk

The consensus is that aircraft lessors and financiers are still reluctant to lease or finance aircraft to African operators, which are considered high risk relative to other placement opportunities.

The reason is that prospecting in the African continent is difficult, ostensibly operating with barely enough working capital.

Due to the higher perceived risk of investing in Africa, aircraft lessors and financiers are less receptive to financing African carriers via aircraft lessors rather than as direct lending deals.

Many airline operators’ past actions gave the country a bad image. They necessitated aircraft lessors to block Nigeria from dry lease agreements, categorising the country as high risk of getting their equipment back when needed.

The situation opened the door for a wet lease, which costs so much per bloc hour as the airlines pay the foreign crew and maintain the aeroplane with the crew reserving the right to ferry the aeroplane back to its owner in the event of a default.

Cape Town convention

The violation of the Cape Town Convention has equally put Nigerian airline operators in a precarious situation which made lessors blacklist the country.

There are many instances where the lessors found it extremely difficult to repossess their airplanes with the lessee rushing to court to seek an injunction to stop them.

The lack of keeping to the aircraft lease agreement prompted Nigeria, through the Nigeria Civil Aviation Authority (NCAA) to be a signatory to the Cape Town Convention.

The primary aim of the Convention and the Protocol is to resolve the problem of obtaining certain and opposable rights to high-value aviation assets, namely airframes, aircraft engines and helicopters which, by their nature, have no fixed location.

As the guarantor of arrangement between the two parties for aircraft lease, the aviation regulatory body has risen above pettiness to hand over aircraft to their owners whenever there is a violation of a binding agreement.

Legal bottlenecks

This problem arises primarily because legal systems have different approaches to securities, title retention agreements and lease agreements, which create uncertainty for lending institutions regarding the efficacy of their rights.

This hampers the provision of financing for such aviation assets and increases the borrowing cost.

Some carriers in the past tried to frustrate moves by owners of the aircraft to retrieve their aeroplanes; a situation that almost damaged the reputation of the sector, which former Director-General of NCAA, Dr Harold Demuren, worked hard to rectify through the Cape Town Convention, which Nigeria is a signatory.

Faced with the ignominy of being put on the blacklist of aircraft lessors, the Federal Government began the process to remove Nigeria from the ‘country risk’ status that has made aircraft dry lease impossible for airline operators.

As a result, the Minister of Aviation and Aerospace Development, Mr. Festus Keyamo, met with the international lobby group to expunge the country from the black book which locked the country out of the dry lease of aircraft by the operators.

Consequently, the Minister took it up with Aircraft Leasing Group (ALG) comprising the two largest aircraft makers, Airbus and Boeing, among others when he visited Toulouse, France recently.

Challenges

A wet lease is not only a problem in Nigeria but many other African countries, especially in sub-Saharan Africa. The biggest challenges are political uncertainty and civil unrest.

Take Sudan as an example; with reports of aircraft being destroyed at Khartoum International Airport, lessors may charge (if they are not already doing so) a premium for aircraft flying into this type of region.

Despite the fears, not a few experts are of the view that it would be rewarding for them to explore the prospect of aircraft leasing.

Also, those desirous of joining the class of successful startups, and the surviving startups with the impetus to break even in record time, and with the view to progress to making a profit, should give careful consideration to leasing, or like you rent a car, rent aircraft to reducing drastically the financial burden of acquiring brand new aircraft.

It has also been explained that such a decision would enable an investor/airline operator to save at least 30 per cent of the cost of brand-new aircraft hence, helping the investor to possess financial resources that could be used in another vital arm of operations and ultimately provides the much crucial tailwind for record financial success.

However, caveats are deserving of serious attention so that success could be made of the reasonable investment in aircraft leasing by both the lessor and the lessee.

This much was inferred from the panel discussion organised by the renowned non-government organisation with the resolution to promote air safety, and profitable commercial air transport in Africa, AVIASSIST.

Experts’ views

Given the rationale for the subject at the panel discussion dubbed, FOCUS, and with the theme, “Safety of Aircraft Leasing”, Mr. Tem Kok, Director, of AviAssist Foundation, said over 50 per cent of the aircraft in the skies were leased.

Kok noted that by that statistical fact, aircraft leasing could not be a bad idea. He called the panelists’ attention to the issue of the complex lease agreement that has often been the subject of litigation when an agreement goes awry.

He also called the attention of the panellist to the issue of aircraft registration and which country would exercise oversight, is it the country of registration or the country of operation?

Having set the ball rolling, Tel Van Zundert, an aircraft remarketing expert, who works with SGI Aviation, enumerated circumstances that often compel leasing of aircraft.

Zundert said route expansion oftentimes makes leasing imperative. He added that smart firms that yearn for a reduction in their capital outlay often avoid new aircraft but opt for a lease.

He also added that oftentimes when one or two aircraft are on routine check, the scheduled commercial operator wouldn’t want to lose its slots, and the airline management doesn’t want to invest in maintenance and ultimately lose loyal customers and money hence, lease aircraft often saves airlines’ much worries.

Richard Jacobs, Chief Commercial Officer, True Noord, emphasised that lessors were often very rabid about documentation and strict compliance to the maintenance schedule of a particular aircraft.

He stated that operators in Africa should rapidly embrace leasing to stimulate their growth as Africa’s potential in growing air travel is the second largest growth potential in the world, waiting to be harnessed.

Last line

No airline in the world buys their fleet 100 per cent. It is not possible. Statistics say that out of 100 aircraft flying around the world, about 70 per cent are on dry lease from leasing companies and aircraft manufacturers.

So, it is imperative to take advantage of these lease arrangements to empower Nigerian airlines.