CAPTAIN MOHAMMED ABDULSALAMI EXPLAINS WHY LOCAL BANKS CANNOT FUND AIRLINES
The Managing Director of Discovery Air, Captain Mohammed Abdulsalami is a man that the management of Tectono Group respects and values so much. He has identified double digit interest rate, rigorous conditions attached to base lending rates approved by the Central Bank of Nigeria (CBN), as impediments on the way of funding local carriers.

According to him, the base rate of about 20 per cent for on-lending to the aviation sector is unfavourable, adding that because no domestic airline can access loan from the banks to buy aircraft and expect to make any appreciable profit in the end.

The Discovery Air boss said airlines in other parts of the world access funds from financial institutions paying as less as two to three per cent as interest, stating that such low interest window, is the reason such airlines could remain in business profitably.

He canvassed a regime whereby soft loans could be made available to domestic operations by the Federal Government as financial intervention to enable them acquire new aircraft .
He said:”Many Nigerian carriers cannot buy new aircraft because the interest rate charged by Nigerian Commercial banks is too high. If airlines get soft loans from the government, they could buy new aircraft from it and not what they expect from the banks.”

Captain Abdulsalami said in the developed world, interest rate by banks to airlines is between one to two per cent, but in Nigeria where the interest rate is over 20 per cent, how do you expect domestic carriers to compete with foreign airlines that enjoy such credit facility from their governments and financial institutions? he queried.

He said if Nigerian carriers could get such credit facility at two or three per cent interest rate, that would be free money to buy new aircraft, pointing out that domestic operators will find it difficult to compete if they pay over 20 to 24 per cent interest rate on loans .

He said banks annualise all their charges, commissions and fees and add them to their base lending rates to arrive at their all-inclusive average lending rates which they summit to the CBN, stating that base lending rates include all charges, commission and others which are submitted to the CBN.

He appealed to government to assist domestic carriers by reducing the huge burden of taxes, and the oscillating price of aviation fuel, which he said, could be resolved through local refining of aviation fuel.

” The major challenge Nigerian airline operators face is the cost of getting money. It is very difficult. If the government could intervene by giving soft loans it would be easier for operators. It is very difficult for a Nigerian company to start an airline because nobody is willing to lease an aircraft to you. We are forced to look for money to buy. This increases the capital outlay to start an airline. But, if government could give soft loans , it would be easier,” he said.

He pointed out that although government assisted some domestic carriers in the past but not all carriers accessed that window saying, “I do not think the intervention funds given to some benefitting airlines were judiciously used.”

“That is the problem, but I am convinced that there is still room for government to step in and assist, he stated. Government should ensure due diligence in giving out financial assistance to any airline to ensure that the money is utilised for the purpose it is given ,” Captain Abdulsalami said.

From: http://tectono..com/