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Nigeria: Aviation Review 2017

Etigwe Uwa SAN, Streamsowers & Köhn

The aviation industry, like almost all other industries in Nigeria, witnessed some downturn in the past year, for several reasons, including the economic recession that affected the country. The challenges range from scarcity of forex, scarcity of aviation fuel (Jet A1), flights and baggage delay, and corrupt practices by regulatory officers.

Etigwe Uwa

Despite the turbulence experienced, the industry witnessed some positive feats. The federal government announced plans to establish a national carrier, and to concession the Lagos, Abuja, Kano and Port Harcourt airports in order to increase capacity and efficiency. It also took steps to clamp down corruption by effecting the arrest of alleged corrupt officials who are currently standing trial for procurement fraud. The Central Bank of Nigeria (CBN) committed to solving the shortage in forex and repatriation of funds by keeping the airlines a top priority for forex allocation. Additionally, the Nigerian-born Dr Bernard Aliu was re-elected as the president of the council of the International Civil Aviation Organization (ICAO) on 21 November 2016 in Montreal, Canada.

In the course of the year, we received a lot of requests for legal opinions on review of bilateral air services agreements and regulatory compliance as regards repatriation of earnings by foreign airlines and baggage claims. There has also been very little business in the areas of aircraft leasing and purchase. 

New Regulations

The Nigeria Civil Aviation Regulations 2015, which make provisions for economic and consumer protection, standardised operational procedures, implementation and enforcement in the aviation industry to conform to the standards and recommended practices contained in the annexes to the Chicago Convention on International Civil Aviation, became effective in July 2016. In addition to this, on 8 June 2017, the upper legislative house – the Senate – passed the Nigerian Federal Competition and Consumer Protection Bill, which contains provisions that, among other things, seek to prohibit business practices preventing or distorting competition in Nigeria. Significantly, this Bill is expected to, among other things, aid the development and promotion of fair, efficient and competitive markets in Nigeria.

Funding

There are no specific rules regulating or catering for any form of financial support to airlines and lessors. Funding for new aircrafts is mostly accessed from government grants, local and foreign banks and other financial institutions, lending agencies, and individual investors. But access to funding is often affected by factors such as change in government and policies, rigorous loan application processes, increased cost of doing business, and vagaries in the oil and gas sector (because airlines run on aviation fuel), among others. For example, in 2010, the federal government of Nigeria approved a 300 billion naira power and aviation intervention fund to be provided to power and aviation sectors through the Central Bank of Nigeria. The funds were to be accessed by power and aviation companies in the wake of failing business, particularly in the aviation sector, and so far, about 233.161 billion naira has been released to the Bank of Industry for disbursement to beneficiaries. The fund was provided at a very concessionary interest rate of 7 per cent and its objective was to fast-track the development of the aviation sector by improving the terms of credit to airlines, as well as provide leverage for additional private sector investments in the sector.

Recently, the federal government of Nigeria has indicated its intention to further support private investors seeking to establish maintenance, repair and operations (MRO) facilities in Nigeria. It is understood that this move will help save up to 190 billion naira and create more jobs in the industry.

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