AIRLINES; THE FACE OF FINANCIAL EPILEPSY

Hello and welcome to the blog.

With the aim to join the discussions on ensuring financial stability in the aviation industry, today's discussion shall be addressing financial epilepsy in the aviation industry with limelight on the Nigerian industry.

Aviation has continued to expand; it has weathered crises and demonstrated long-term resilience, becoming an indispensable means of transport. Its benefits range from being an economic development driver, traffic growth, promotion of diversified funding, financing sources in partnership with states, fostering an informed and engaged public as a crucial partner to advance sustainable air transport solutions, and many more.

Taxation is a means by which governments finance their expenditure by imposing charges on citizens and corporate entities. The main purpose of taxation is to accumulate funds for the functioning of the government machinery.

How do these two definitions come into play you might wonder!


There is no gainsaying that the Aviation Act of 2006 birth the need to create Agencies such as the Nigerian Civil Aviation Authority. The Civil Aviation Act of 2006 (part 5.13.) requires that the NCAA regulates civil aviation and the charges imposed by civil aviation authorities and/or agencies.

However, there seems to be an area of concern, soon to be addressed which is the focus on financial expenses and its justification. Payments such as taxes, levies, charges, fines in the guise of statutory recommendation, prevalent in the sector have continuously left airlines in a state of financial turmoil.

The government’s goal for imposing such taxes is to facilitate the sector; this is of no doubt, and to provide for an internal generation of funding. But, when would such intentions be called into questioning?   

The purpose of a taxation system is to plough back profits to create more capital and not to ruin small and upcoming businesses in its pursuit of such aim.

The Airlines Operators of Nigeria, AON, attributed the poor performance of domestic airlines to multiple taxations by various agencies in the Aviation sector. Domestic airlines, on the average, pay about 35 per cent to 40 per cent of a ticket cost as taxes and charges that come under the guise of statutory levies in addition to other charges.


These include 5 per cent ticket sales charge, 5 per cent cargo sales charge, 5 per cent value-added tax, passenger service charge, charter sales charge, aircraft inspection fees, simulator inspection fees, landing charges and parking charges. 


Others are terminal navigational charge, enroute charge, fuel, surcharges, airport space rent, spare parts, insurance, simulator training, electricity charges and Apron pass, ramp access charges, ODC and a newly imposed registration fee all of which are paid to the government agencies.

A case in point is the recent takeover of Arik Air and Aero contractors by The Asset Management Corporation of Nigeria (AMCON) in the face of huge financial burdens owed to government agencies and banks. This has realized as a fallout of the multiple and sometimes unfair charges and taxes airlines are forced to grapple with on a daily basis.

Arik Air, a wholly-owned Nigerian Airline, operated without hitch for ten years. It started when naira was 150/$1 and fuel was 97 per litre and managed without any significant increase in fares, it survived for 10 years in a very hostile operations environment, paying loans it obtained in USD and salaries to over 2000 employees. 

The company ran into heavy clouds as the economy went into recession and special considerations were not given into the amount of taxes and charges still expected of the company to remit to the appropriate collecting agency.

The Act was created on the backbone of accountability, sustainability, independence and stability, rather, the system is continuously manipulating, feasting, and pushing the financial stability of airlines by inflicting multiple taxes and levies to the extent that airlines are now groaning under the pressure and some are going bankrupt.

This is without recourse to the fact that aside from all the multiple charges, levies and fees, airlines still have to pay mandatory statutory corporate taxes to relevant agencies. These charges, in consultation with stakeholders, are to be approved and reviewed periodically by both parties. On the contrary, Airlines are saddled with charges without any form of consultation whatsoever. 

Many of the taxes and charges amount to double taxation such that any incentive seemingly provided by the government to Airlines are taken back by the Agencies. Airlines have to also sometimes pay for the arbitrary extension fees or cancel a flight entirely with the attendant burden and inconvenience due to no fault of theirs.

Airlines operators and other industry stakeholders maintain that as long as these multiple taxes are levied on the airlines; as long as there are infrastructural limitations, which forestall maximum use of aircraft; as long as major aircraft maintenance is done overseas; as long as aviation fuel is scarce and costly and as long as the government does not have incentive policies for airline operation in Nigeria, it would be difficult to have successful airlines that are profitable with long term incentives.

Aviation is not a cash cow that should be strangled out of existence due to multiple taxes, levies and charges

Do you also take the same standpoint with the Airline operators?

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