Naira depreciation threatens $4.7bn aircraft order
The continued fall of the naira against the dollar has posed a threat to aircraft acquisition plans by domestic airlines in Nigeria with aircraft orders worth over $4.7 billion hanging. The major threat to the survival of domestic airlines today is the scarcity of the dollar as the business is completely dollar-denominated. Airlines carry out […]
The continued fall of the naira against the dollar has posed a threat to aircraft acquisition plans by domestic airlines in Nigeria with aircraft orders worth over $4.7 billion hanging.
The major threat to the survival of domestic airlines today is the scarcity of the dollar as the business is completely dollar-denominated.
Airlines carry out maintenance of their aircraft, buy spare parts, among others, in dollars and also sell their tickets in dollars.
It was learnt that over 60 per cent of aircraft belonging to the domestic airlines are grounded due to non-availability of the dollar to carry out maintenance but airlines in Nigeria are apprehensive over pending aircraft orders which may be jeopardised with the current naira devaluation.
Three airlines have pending aircraft orders valued at over $4.7bn as our checks show. Air Peace, Ibom Air and Overland made aircraft orders expected to be delivered between 2022 and 2023.
Air Peace in 2019 ordered 10 E195-E2 aircraft valued at $2.1bn and later added another three worth $212.6 million with a purchase right for another 17. Only five of the aircraft have been received at the moment with the remaining eight being expected.
Shortly before the order from the Brazilian plane maker, Embraer, the airline made an order for 10 Boeing 737 Max valued at $1.1bn.
The airline reaffirmed the order recently after the aircraft returned to service more than two years after it (10 Boeing 737 Max) was grounded globally over two crashes.
Also, Ibom Air, in November last year ordered 10 A220 aircraft valued at $905m, while Overland at the same time ordered six Embraer E175 jets. The Overland deal, sealed in 2021 at the Dubai Airshow, just like Ibom Air’s, is worth $299.4m, at least prices, if all purchasing rights are exercised.
On the average, one aircraft creates at least 200 to 500 direct jobs and thousands of indirect jobs.
While the order values remain unchanged, airlines will require more naira to complete the financing of the deals as they were signed at times of lower exchange rates. The deals were sealed when the exchange rate at the Investors and Exporters (I&E) window was between N300 and N400, while the scarcity wasn’t as pronounced as it is today.
At the parallel market, though not recognised by the Central Bank of Nigeria (CBN), it is almost N700 (N683 to a dollar as of the time of filing this report).
An airline operator lamented the situation, saying while the aircraft order values remained unchanged, the challenge was they would need more naira to complete the deals.
He said, “The value has not changed, but you have to look for more naira to pay for that value. For the order, it does not affect it. It is you that will have to look for more naira to pay for that value. If when naira was N500, what you needed to look for was N500,000. Now, the dollar is N600, you have to look for N600,000 to pay for the same value.”
An industry player who spoke with our correspondent said, “I know that there is scarcity of foreign exchange. I believe they (airlines) will try and get away with it because with any default, there is a penalty clause to it.”
An aviation analyst and Principal Managing Partner, Avaero Capital, Sindy Foster, said, “The devaluation of the naira against the dollar increases the cost of all dollar-based products to Nigerians. The scarcity of forex on top of that makes it more difficult to obtain the funds needed to fulfil orders and contracts.”