Nigerian airlines are facing a major financing disadvantage as domestic carriers borrow at interest rates approaching 30 per cent, compared with the single-digit rates available to airlines in some other markets, Air Peace Chairman, Allen Onyema has said.
Onyema disclosed this at the 30th Annual Conference of the League of Airport and Aviation Correspondents (LAAC) in Lagos, warning that the high cost of capital was making it increasingly difficult for Nigerian airlines to acquire aircraft, renew fleets and compete with foreign carriers.
He said Nigerian airlines currently obtain financing from local banks at rates ranging from about 29 to 33 per cent, although borrowing costs had recently declined from earlier levels of around 35 per cent.
By comparison, Onyema said airlines in some other countries could access financing at interest rates of about three to four per cent.
The wide disparity, according to him, places Nigerian carriers at a structural disadvantage because the cost of financing an aircraft can significantly affect the profitability of the operation long after the aircraft has entered service.
Onyema said the financing challenge was so difficult to explain to aircraft manufacturers that Nigerian airlines sometimes had to provide documentary evidence to original equipment manufacturers (OEMs) to demonstrate the actual cost of borrowing in the country.
He said OEMs initially found it difficult to accept that Nigerian airlines could be paying interest rates approaching 30 per cent when aircraft operators in other markets were securing financing at much lower rates.
“When we say to the OEMs, those who supply us with aircraft, ‘We want to buy planes, and we want you to share the cost,’ because when we borrow money, we pay as much as 30%, they say, ‘No, that’s a lie. Maybe 5%,’” Onyema said.
The financing gap has significant implications for fleet development. Aircraft acquisition requires substantial capital, and higher interest payments can increase the financial burden on airlines even before operating costs such as fuel, maintenance, insurance, airport charges and navigation fees are taken into account.
Onyema argued that Nigerian airlines could not be expected to compete on equal terms with international carriers if their access to capital remained significantly more expensive.
He said airline profitability was relatively narrow and questioned how domestic carriers could absorb financing costs of nearly 30 per cent while competing with airlines borrowing at three or four per cent.
The challenge is compounded by other expenses associated with operating in Nigeria. Onyema pointed to government charges, infrastructure constraints and unexpected operational costs as additional pressures on airlines already struggling with expensive capital.
He cited bird strikes as one example, saying an incident involving a new E2 aircraft in Abuja resulted in a repair bill of approximately $1.852 million.
According to him, the financial consequences of such incidents demonstrate how quickly unexpected costs can affect an airline’s finances, particularly where the carrier is already operating under heavy debt obligations.
The Air Peace chairman said the financing problem should therefore be considered as part of a wider structural challenge confronting Nigerian aviation rather than simply as an issue of individual airline management.
He argued that high interest rates restrict the ability of airlines to invest in new aircraft, expand their networks and improve service quality, while also increasing the pressure on existing operators to generate sufficient revenue to meet debt obligations.
The concern comes as Nigerian airlines continue to face intense competition from foreign carriers, many of which have greater access to international capital markets and cheaper sources of financing.
Onyema said this disparity could ultimately affect the competitiveness of Nigeria’s domestic aviation industry because airlines that cannot access affordable capital would struggle to maintain modern fleets and expand capacity.
The financing issue also intersects with the wider debate over the profitability of Nigerian airlines. At the LAAC conference, Onyema said no Nigerian airline currently makes as much as $1 million in annual profit, including Air Peace, which he described as the country’s largest carrier.
He attributed the weak profitability of domestic operators to a combination of high interest rates, aviation fuel costs, taxes, levies and other operating expenses.
Onyema said the solution required policymakers to understand the financial realities facing indigenous airlines and create conditions that would allow them to access capital at more competitive rates.
He maintained that the survival and growth of Nigerian airlines would have benefits beyond the carriers themselves, including stronger connectivity, employment, fleet expansion and increased economic activity.
“If any airline succeeds in this country, it is the success of the entire nation,” he said.
The financing challenge therefore remains a critical factor in the ability of Nigerian airlines to modernise their fleets and compete effectively, with operators arguing that lower-cost capital is essential if the domestic industry is to achieve sustainable growth.
