Trapped funds: Options for foreign airlines

The Nigerian aviation sector is facing a significant challenge with trapped funds and soaring ticket prices, leaving many stakeholders concerned about the future outlook. The recent payment of 61 million dollars towards the outstanding debt of 790 million US dollars owed to foreign airlines has been described as just a drop in the ocean. This situation has led to a lack of clarity and uncertainty within the industry, causing disruptions and impacting the capacity of airlines operating in the country. Fibara Angay, a Senior Advocate of Nigeria and Partner at ELX, highlighted the issues at hand and proposed solutions to address the ongoing crisis. One of the key proposals put forward by the Association of Foreign Airlines and Representatives in Nigeria is for the Nigerian government to enter into agreements with foreign airlines to ensure quarterly remittances of trapped funds. This proposal aims to provide clarity and stability for airlines operating in Nigeria, allowing them to better plan their operations and financial commitments. However, the current devaluation of the Naira, which has adjusted from 776 Naira and 90 kobo to 803 Naira, remains a significant concern for the aviation sector. The uncertainty surrounding exchange rates and remittance policies has further exacerbated the challenges faced by foreign airlines in the country. The lack of recognition of the aviation industry's economic impact and disproportionate influence on the nation's economy has also been a point of contention. Mr. Angay emphasized the need for greater commitment and support from the government to address the issues affecting the aviation sector. He suggested that a more proactive approach, such as allocating a larger portion of borrowed funds towards settling forward contracts and trapped funds, could help alleviate some of the pressure faced by airlines operating in Nigeria. The impact of high ticket prices and reduced capacity due to the trapped funds and exchange rate fluctuations has been felt across the aviation value chain. From reduced flights and demand-supply imbalances to operational challenges for both foreign and domestic carriers, the ripple effects of the current crisis are widespread. Nigerian travel agents are also facing challenges as ticket sales shift abroad, leading to job losses and revenue decline within the sector. As the industry grapples with these complex issues, stakeholders are calling for decisive action and collaborative efforts to find sustainable solutions. The need for clear policies, transparent communication, and a supportive regulatory environment has become more pressing than ever. Without a coordinated approach to address the trapped funds and exchange rate challenges, the aviation sector in Nigeria risks further instability and potential long-term repercussions. As airlines struggle to navigate the current landscape, the importance of rebuilding trust, restoring confidence, and fostering a conducive business environment cannot be overstated. It is imperative for all parties involved to work together towards a sustainable and resilient aviation industry in Nigeria.