TWO months ago, the International Air Transport Association (IATA) accused the Nigerian government of preventing foreign airlines from repatriating the sum of $450 million (about N188.6 billion) they had earned from ticket sales to their respective countries.
IATA’s Regional Vice President, Africa & Middle East, Kamil Al-Alawadhi, made this known on Sunday, June 19, 2022 during a press briefing, against the backdrop of the opening of its 78th Annual General Meeting and World Air Transport Summit in Doha, Qatar.
Al-Alawadhi said, “We heard that there is a shortage of dollars. It has been a hectic ride. We met with the Vice-President. We will keep checking. This is going to damage the image of the country. We are hoping that it will go down well. The figure is huge.”
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The IATA Regional Vice President disclosed that some 20 countries worldwide had blocked airline funds totalling about $1 billion.
Of the money, more than $700 million was tied up in 11 African countries, with Nigeria accounting for the largest amount withheld by any African nation.
One month after, on July 30, 2022, Emirates Airlines reduced the number of its weekly flights from Dubai to Lagos from 11 to seven due to issues of repatriation of its funds.
In a letter addressed to the Nigerian Minister of Aviation, Hadi Sirika, Emirates stated it had been attempting to repatriate the sum of $85 million it alleged was stuck in Nigeria.
“As of July 2022, Emirates has $85m of funds awaiting repatriation from Nigeria. This figure has been rising by more than $10 million every month as the ongoing operational costs of our 11 weekly flights to Lagos and 5 to Abuja continue to accumulate,” the letter read in part.
It said the blocked funds were beginning to affect the carrier’s operating costs, as well as its commercial viability, adding it could not continue to accumulate losses in the face of the challenging coronavirus pandemic.
The issue of airlines’ blocked funds has become a phenomenon in the Nigerian aviation industry, in addition to issues like aviation fuel and issuance of foreign exchange to transact businesses. Already, Air Peace has suspended flight operations from Nigeria to Johannesburg, effective August 22, 2022, citing delayed issuance of South African visas to travellers. Worsening forex crunch and aviation fuel scarcity were adduced as reasons behind the decision.
What is a blocked fund?
A google search describes a blocked fund as any amount realized from foreign operations but is blocked based on regulations imposed by the government of that country.
However, a simple definition is given by the President of the National Association of Nigeria Travel Agencies (NANTA), Susan Akporiaye, as money owed to airlines on credit.
Akporiaye said, “In layman terms, the airlines are selling but are not getting their money. The airlines’ money should be given to them in dollars and not in naira since they are foreign organisations. The Central Bank and the banks are meant to give them their money in dollars.
“It is like buying from my hand on credit and refusing to pay me. If the agreement we have is that you should pay me by month end but I get no payment. Then by the fourth month, you pay me for the first month and leave the other three.”
She explained that when this default in payment occured, the seller would refuse to sell tickets, or be forced to double the service charge.
“If I were giving you tickets at N500,000, then I would be forced to give you a ticket for N1.5m,” she added.
The NANTA president said that the foreign airlines have not stopped selling. What they have been doing, she explained, was charging more for selling to travel agents because the CBN was not allowing them to repatriate the money.
She opined that it would have been easier in naira, but the airlines are not in Nigeria, hence the need for dollars.
The accumulation of those funds is what blocked funds translates to, Akporiaye said.
The Group Managing Director of Flinchglow, Bankole Bernard, explained that the current situation was not the first time airlines would be experiencing the problem of trapped funds.
Bernard said, “But one critical reason why they are more agitated is that in 2016 after their money was held back without being repatriated, Nigeria devalued its currency. As business persons, they felt that if they had taken their money out, they would not have been affected by the devaluation. So, that is the fear they are nursing now because if the currency is devalued, it means that they would have lost several percentages of that money they intend to repatriate.”
The NANTA chief believed that foreign airlines would make efforts to continue in business in Nigeria before abandoning it
She said, “The last resort is to stop sales. But before they get to that level, they would try different things. They would increase fares and reduce frequencies. The reduction of frequencies has been on for over a month now. Emirates had reduced their frequencies in Abuja over two months. They are just announcing the one for Lagos now. However, when they reduced for Abuja they didn’t announce it. This is their own way of reducing the amount of money stuck in the system. If they continue to fly every day, the money stuck in the system would increase.”
She stated that airline frequencies have reduced across the world due to scarcity and high cost of aviation fuel. She linked the two reasons foreign airlines are reducing flight frequencies in Nigeria to aviation fuel and blocked funds.
She said, “Aviation fuel is not a Nigerian thing. But blocked funds is a Nigerian problem; they don’t have the problem in other countries. However, aviation fuel scarcity is a worldwide problem.”
Implications for travel agents
Akporiaye said the implication for travel agents are reduced incomes, especially in a season when inflation is at an all-time high, with purchasing power low.
“It means our incomes are being reduced, our sales are reduced. The cost of living is on the increase but your income is reducing. Do the maths. What do you think would happen?” she asked.
She added that bookings had become a little low as travel had dwindled to only important meetings, as more and more air passengers increasingly take to zoom online.
Way forward
The NANTA boss told The ICIR that more foreign airlines had lost more money than Emirates. She refused to name such airlines.
Akporiaye, stressing that only the Federal government can solve the matter, said, “This issue is purely government, no one else can solve it. Can you give them their tickets in dollars at official rates? Nobody can give them at official rates. It is a government issue. These tickets are being sold at official rates. They have to collect their money at official rates. They cannot collect their money at the black market rate of #650/$ when a ticket is sold at around N400. Even though N450 is not the official rate, if they get someone to give them at this rate, they would be happy. They can live with that.”
Experienced Business reporter seeking the truth and upholding justice. Covered capital markets, aviation, maritime, road and rail, as well as economy. Email tips to [email protected]. Follow on Twitter @theminentmuyiwa and on Instagram @Hollumuyiwah.