CBN releases $265 million out of the trapped aviation funds

The Central Bank of Nigeria (CBN) has released $265 million out of the total $464 million in trapped funds to foreign airlines.

CBN releases $265 million out of the trapped aviation funds
CBN Governor, Godwin Emefiele

The Central Bank of Nigeria (CBN) has released $265 million out of the total $464 million trapped funds to foreign airlines leaving a balance of $199 million to clear the backlog.

According to the CBN, the funds will enable the airlines to settle outstanding ticket sales. A breakdown of the figure indicates that the sum of $230 million was released as a special FX intervention while another sum of $35 million was released through Retail Secondary Market Intervention Sales (SMIS) auction.

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Globally, airlines are owed $1.6 billion, and Africa accounts for 67% ($1bn) of that sum, as of April 2022. Nigeria alone accounts for 25% ($280m) of the global debt.

Osita Nwanisobi, the Director, Corporate Communications Department at the CBN said that the Bank is not against any company repatriating its funds from Nigeria but to ensure an orderly exit for those that might be interested in doing so.

The unremitted revenue is said to be a result of a forex shortage, a sign that Nigeria is facing serious financial challenges.

Per Pitstop by Stears, foreign firms (including airlines) that do business in Nigeria agree with the CBN to convert their naira proceeds to dollars at the official rate, as their costs are priced in dollars. However, oil revenue, Nigeria’s primary FX source, has declined, and so has the amount of dollars available to the CBN to successfully defend the naira's peg to the greenback.

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This dollar shortage makes it difficult for airline operators to access foreign exchange in Nigeria, especially through official channels. They often have to buy forex at black market rates, which can be costly in high volumes.

Recall that Emirates said that it will suspend all its flights in and out of Nigeria due to its inability to repatriate $85 million stuck in Nigeria. The United Arab Emirates (UAE) flag carrier noted that the suspension will help in curtailing further losses and reduce the impact on its operational costs that continue to accumulate in the Nigerian market.

The International Air Transport Association (IATA) also issued a warning stating that unless Nigeria releases $464million in revenue due to foreign airlines trapped in the Central Bank of Nigeria (CBN), more airlines may suspend operations in Nigeria.

"Airlines can’t be expected to fly if they can’t realize revenue from ticket sales. Loss of connectivity harms the economy, hurts investor confidence, and impacts jobs and people’s lives. The Government of Nigeria needs to prioritize the release of funds before more damage is done," IATA tweeted.

Local and foreign airlines battle over BASA equity in Nigeria

The Airline Operators of Nigeria (AON) have argued that the foreign airlines’ demand is not legitimate, adding that the Central Bank of Nigeria, CBN, should not be dragged into their plight, adding that there is also the option of Investors and Exchange Foreign Exchange, I&E FX window where they can access forex.

The AON noted that local airlines have the capacity and the aircraft to fly passengers from Nigeria to other countries but are being denied the opportunity by other countries—which is against the bilateral air services agreement (BASA).

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BASA is an air transport agreement between two countries that allows designated airlines to operate commercial flights, covering the transportation of passengers and cargoes.

"There is a need for fairness and equity, the BASA as it is operated now is skewed to favour the foreign airline operators more than AON. You have a system where Emirates is operating 21 flights in Nigeria, and it took a lot of rancour for Air Peace to be given three slots in Dubai a week," Amos Akpan, the Managing Director of Flights and Logistics Solution stated in an interview with Arise TV.

"British Airways is flying from Lagos, Abuja all-round the year, and Air Peace, Azman Air are ready to fly to Heathrow, London, and they are having difficulties accessing that traffic, clearly there is inequality in equity distribution with the way our government is ensuring that we exploit the agreement," Akpan added.