Nigerian carriers face harshest operating conditions — IATA

The International Air Transport Association (IATA) has consistently highlighted Nigeria as one of the most challenging and expensive jurisdictions globally for airline operations, second only to Afghanistan in terms of difficulty. This critical assessment underscores the severe financial and operational pressures faced by Nigerian carriers, stemming from a complex interplay of high aviation fuel costs, chronic foreign exchange scarcity, and an extensive regime of multiple taxes and charges. These factors significantly impede the viability, competitiveness, and growth of the Nigerian aviation sector, necessitating a comprehensive review of the existing legal and regulatory framework to foster a more sustainable operating environment for airlines and support the industry's crucial role in national economic development.

The International Air Transport Association (IATA) recently issued a stark warning, identifying Nigeria as one of the most difficult and expensive places globally to establish and sustain an airline business, second only to Afghanistan. This pronouncement, reiterated at various international aviation fora, serves as a critical alarm for policymakers and stakeholders within Nigeria's aviation sector. It confirms long-standing grievances from domestic airline operators regarding the prohibitive costs and operational hurdles that stifle growth and profitability.

Nigeria's aviation industry, a vital artery for commerce, tourism, and national integration, is grappling with a unique set of challenges that transcend typical global aviation difficulties. While the sector is inherently capital-intensive and vulnerable to economic shocks worldwide, Nigerian carriers face additional burdens that make survival a daily struggle. This article delves into the legal and regulatory landscape that contributes to these harsh operating conditions, examining the statutory frameworks, economic policies, and administrative practices that collectively impact the viability of airline operations in Nigeria.

The Nigerian aviation sector is primarily governed by the Civil Aviation Act, 2022, which repealed the earlier Civil Aviation Act, 2006. This principal legislation empowers the Nigerian Civil Aviation Authority (NCAA) as the autonomous regulatory body responsible for aviation safety oversight, economic regulation, and the implementation of international civil aviation obligations, including the standards and recommended practices (SARPs) of the International Civil Aviation Organization (ICAO). Complementing the Act are the Nigerian Civil Aviation Regulations (NCARs) 2023, which provide detailed operational and safety standards across various aspects of aviation, such as airworthiness, licensing, and airport operations.

Beyond the NCAA, other key institutions play significant roles in the regulatory framework. The Federal Airports Authority of Nigeria (FAAN), established by the Federal Airports Authority of Nigeria Act, 1996 (and subsequently updated by the Federal Airports Authority of Nigeria Act, 2022), is responsible for airport management and infrastructure. The Nigerian Airspace Management Agency (NAMA), established by the Nigerian Airspace Management Agency (Establishment, etc.) Act of 1999 (and updated by the Nigerian Airspace Management Act 2022), provides air traffic control and navigation services. While these bodies are mandated to ensure safe, efficient, and orderly air transport, their operational modalities and financial demands on airlines contribute significantly to the high operating costs lamented by IATA.

A core component of the harsh operating conditions in Nigeria is the exorbitant cost and scarcity of aviation fuel, Jet A1. Airlines report that aviation fuel can account for as much as 40 to 50 percent of their total operating expenses. While global crude oil prices influence this, local factors exacerbate the situation, including the fact that marketers often purchase Jet A1 in dollars from local refineries and then sell in Naira, with freighting costs also denominated in dollars, creating a significant cost burden for airlines. Despite government interventions and discussions with regulatory bodies like the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) to stabilize prices, the volatility persists, forcing airlines to either raise fares or absorb substantial losses, neither of which is sustainable in the long term.

Another critical challenge is the persistent foreign exchange (forex) crisis and the difficulty in repatriating funds. Virtually all major components of airline operations, including aircraft acquisition, leasing, maintenance, insurance, and spare parts procurement, are denominated in foreign currency. The continuous depreciation of the Naira directly translates into higher operating costs for airlines, which earn predominantly in Naira but incur significant dollar-denominated expenses. While the Central Bank of Nigeria (CBN) has made efforts to ease foreign exchange restrictions and facilitate the repatriation of airline revenues, including special intervention windows, access to sufficient foreign currency remains a significant hurdle. Foreign investors are required to obtain a Certificate of Capital Importation (CCI) to guarantee the ability to repatriate funds, but even with this, the actual remittance timelines can depend on the dollar liquidity of commercial banks and CBN's rationing priorities.

The issue of multiple taxation and excessive charges further compounds the financial strain on Nigerian carriers. Airline operators have consistently complained about numerous taxes and charges, with some estimates suggesting over 35 to 54 different levies imposed by various government agencies, including NCAA, FAAN, and NAMA. These charges can constitute a substantial portion of an airline's revenue, with some reports indicating that up to 70% of a ticket price can be attributed to taxes and agency fees, leaving only a small fraction for the airline to cover operational expenses. For instance, the NCAA levies a mandatory five percent charge from every ticket, which, while legally mandated under the Civil Aviation Act, is viewed by airlines as a significant financial burden. The reintroduction of Value Added Tax (VAT) on aircraft purchases and spare parts, after a period of relief, has also added to the financial pressure, contradicting ICAO guidelines that suggest aviation authorities should operate on a cost-recovery basis rather than as primary revenue generators.

Furthermore, infrastructure deficits contribute to operational inefficiencies and increased costs. Nigeria still lacks sufficient world-class aircraft maintenance facilities, compelling airlines to ferry aircraft abroad for major maintenance checks. This practice not only drains scarce foreign exchange but also results in extended downtime for aircraft, further increasing operational costs and impacting ticket prices. The absence of aviation-specific insolvency legislation, with airlines relying on the general corporate laws under the Companies and Allied Matters Act (CAMA) 2020, also presents unique challenges for restructuring and asset management, although Nigeria's ratification and domestication of the Cape Town Convention on International Interests in Mobile Equipment (2001) has improved legal predictability for lessors and financiers regarding asset repossession.

IATA's assessment of Nigeria's aviation sector underscores a critical need for a holistic and coordinated approach to address the systemic challenges faced by airlines. The confluence of high aviation fuel costs, foreign exchange illiquidity, and an onerous multi-taxation regime creates an exceptionally difficult operating environment that threatens the sustainability of domestic carriers and deters foreign investment. While the Civil Aviation Act 2022 and NCARs 2023 provide a robust regulatory framework for safety, the economic regulations and fiscal policies require urgent reform to align with international best practices and foster a competitive market.

For legal practitioners, these conditions necessitate meticulous due diligence for clients considering investment in or engagement with the Nigerian aviation sector. This includes a thorough understanding of forex regulations, tax liabilities, and the implications of the Cape Town Convention for aircraft financing and leasing arrangements. Advocacy for policy reforms, particularly regarding tax harmonization, streamlined forex access, and investment in local maintenance infrastructure, will be crucial. Stakeholders should monitor legislative developments, particularly any proposed amendments to tax laws or new CBN circulars impacting foreign exchange, as these will significantly shape the future viability of airline operations in Nigeria. A concerted effort from government, regulators, and industry players is essential to transform Nigeria's aviation landscape from one of the harshest to one that supports growth and economic prosperity.