Business

Nigerian airlines can’t survive current economic crisis – Fairfax Africa boss alerts

Published

3 weeks ago

August 26, 2024

Nigerian airlines can’t survive current economic crisis – Fairfax Africa boss alerts

The Fairfax Africa Fund, backers of the ill-fated national carrier, Nigeria Air, has issued a stark forecast, predicting the collapse of all domestic airlines currently operating in Nigeria amidst the country’s worsening economic crisis. According to Zemedeneh Negatu, Global Chairman of Fairfax Africa Fund, only one airline among Nigeria’s domestic carriers has a chance of weathering the economic storm.

Negatu’s foreboding projection follows a statement by Prof. Obiora Okonkwo, Chairman of United Nigeria Airlines, in which he described Nigeria’s aviation sector as being on “life support.”

Addressing Okonkwo’s concerns, Negatu expressed that the current state of domestic airlines is dire, insisting that no amount of government bailouts—no matter how generous—could save the majority of them from inevitable collapse.

“None of Nigeria’s airlines operating today, except one, will survive even if they were to be given tens of millions of dollars in government (taxpayer) bailouts in perpetuity,” Negatu asserted, without elaborating on the specific reasons behind this grim outlook.

However, the Fairfax chairman did not stop at predictions.

He leveled serious accusations against two leading Nigerian airlines—Air Peace and United Nigeria Airlines—alleging that they had orchestrated the failure of Nigeria Air through legal actions spearheaded by the Airline Operators of Nigeria (AON). Negatu claimed that Nigeria Air would have been a lifeline for the industry, potentially stabilising it and attracting significant foreign investment, but that these efforts were thwarted by what he described as self-serving interests masked as patriotism.

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“Promoting self-interest under the guise of ‘patriotism’ is not a viable long-term business strategy,” Negatu declared. “The efforts by United Nigeria and Air Peace to block a substantial Foreign Direct Investment (FDI) into Nigeria, including significant American investment, will deter others from considering the much-needed FDI in the sector.”

Negatu’s comments come in the wake of a landmark judgment on August 5, 2024, by Justice Lewis Allagoa of the Federal High Court in Lagos. The court ruled the sale of shares in Nigeria Air to Ethiopian Airlines as illegal, citing multiple violations of existing laws, including the Companies and Allied Matters Act and Securities and Exchange Commission regulations. The court invalidated the entire bidding process, revoked Nigeria Air’s Air Transport License, and permanently barred the former Minister of Aviation, Hadi Sirika, and Ethiopian Airlines from further involvement in the project.

Reacting to Negatu’s dire forecast and allegations, Prof. Obiora Okonkwo, spokesperson for the Airline Operators of Nigeria (AON), dismissed the claims as misguided. He pointed out that the harsh economic conditions affecting the aviation sector are a reality everyone is grappling with and not a result of Fairfax’s predictions.

“It doesn’t take a soothsayer to know that the economic environment in Nigeria is harsh and doesn’t only affect the aviation sector,” Okonkwo told Daily Sun.

He added: “If anything happens to airline operators in Nigeria, it won’t be because of Negatu’s prediction but due to the broader economic environment. The survival of Nigeria’s aviation sector so far is because the ‘evil’ intentions of Ethiopian Airlines and their collaborators under the guise of Nigeria Air failed. If it had succeeded, it would have sent the aviation industry to an early grave.”

On the accusation that Air Peace and United Nigeria spearheaded the downfall of Nigeria Air, Okonkwo was emphatic in his defense. He acknowledged that both he and Allen Onyema, Chairman of Air Peace, are indeed members of the AON, the body that took the federal government and Ethiopian Airlines to court, effectively safeguarding the aviation sector from what he described as a catastrophic plan.

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“Ethiopian Airlines had the opportunity in court to present evidence of their investment, and if they had done so, the outcome—which permanently banned them from owning shares—would have been different,” Okonkwo argued.

He continued: “We can understand Negatu’s pain because from being a transaction advisor, he was to get three percent shares from Nigeria Air for doing nothing and also be the only person to do all the procurement. He is a cry baby and if he says that Air Peace and United Nigeria are the ring leaders, then we are very proud to be part of the AON which saved Nigeria from their dubious transactions. We consider ourselves heroes because they couldn’t contradict any accusations that the AON made against them in court which are that the transaction is dubious and they just wanted monopoly which would have drained our economy.

“The then administration signed that the government will indemnify ET from every debt they would have accrued. In the agreement, ET wasn’t supposed to invest money to buy aircraft on behalf of the partnership. The airline would continue to lease to the partnership on wet lease, so the money they would have been indemnified against would have been in billions of dollars to buy aircraft for ET, which they would in turn, lease to Nigeria. ET and their Nigerian dubious collaborators would have been the only ones profiting. There would have been nothing for Nigerians to gain,” Okonkwo said.

In a rapidly-changing landscape, the battle for the soul of Nigeria’s aviation industry remains fierce, with accusations and counter-accusations flying between stakeholders. As the dust settles on the Nigeria Air debacle, the future of the country’s aviation sector hangs in the balance, clouded by economic uncertainty and the specter of past controversies.

Nigerian airlines can’t survive current economic crisis – Fairfax Africa boss alerts

Related Topics:economic crisis Nigerian airlines

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$900m FG bond: United Capital leads with 180% subscription

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United Capital Group has successfully led the issuance of Nigeria’s first-ever Domestic FGN US Dollar Bond, securing more than $900 million in funding with over 180 per cent subscription. The bond program, with a 9.75 per cent yield, attracted significant interest from local and international investors, including Nigerians in the diaspora, institutional investors, and non-resident Nigerians, highlighting confidence in Nigeria’s economic growth potential and financial markets.

The bond will be listed on the Nigerian Exchange Limited (NGX) and FMDQ Securities Exchange and proceeds from the issuance will be used to fund key infrastructure projects in critical sectors of the economy.

Commenting on the achievement, Chief Executive Officer of United Capital Group, Peter Ashade, said, “The successful issuance of Nigeria’s inaugural Domestic FGN US Dollar bond is a significant milestone for both the country and United Capital. This transaction aligns perfectly with our vision of transforming the African financial landscape. By providing access to innovative investment opportunities, we are empowering investors and contributing to Nigeria’s economic growth.”

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On his part, the Managing Director of Investment Banking at United Capital Gbadebo Adenrele, described the transaction as a “landmark moment for Nigeria’s capital market.” He added, “As a pioneer in this class of transactions, United Capital has laid the foundation for more significant capital raises by the Nigerian Government, other African sovereigns, and major corporate issuers.”

United Capital was the Lead Issuing House and Coordinator for the transaction, with Africa Finance Corporation serving as the Global Coordinator. Other firms involved include Meristem Capital, Stanbic IBTC Capital, Vetiva Advisory, and several other financial institutions and legal advisers.

This bond issuance reinforces United Capital’s position as a leading player in Africa’s financial markets, following recent successes like the listing of Transcorp Power on the Nigerian Exchange Limited and the issuance of Sierra Leone’s first local currency corporate bond.

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Naira loses N100 to US dollar at official market

Published

16 hours ago

September 18, 2024

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Naira loses N100 to US dollar at official market

The Naira lost more than N100 against the U.S. dollar at the official window, despite a slower headline inflation rate in August.

Data from the Nigerian Autonomous Foreign Exchange Market (NAFEM) highlighted that the local currency was sold at N1,656/$1, higher than the N1,546/$1 recorded on Monday.

However, in the parallel market, the Naira appreciated by N5, trading at N1,660/$1 compared to the previous rate of N1,665/$1.

This marks the second consecutive month of lower headline inflation, attributed to reduced food prices during the harvest season.

According to the Nigerian Bureau of Statistics (NBS), headline inflation for August was 32.15%, down from 33.40% in July. Food inflation also decelerated, reaching 37.52% compared to 39.53% in July 2024.

U.S. Dollar Index Gains Momentum Ahead of Fed Meeting

On Tuesday, the U.S. dollar appreciated against most currencies, including the Naira, as higher-than-expected U.S. retail sales data was released, raising the possibility of a less aggressive Federal Reserve.

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The U.S. Dollar Index, which tracks the dollar against a basket of six currencies, showed a slight increase, recovering from earlier lows this year. While some market pricing suggests a 50-basis point rate cut, most analysts predict a more modest 25-basis point cut.

The U.S. labor market continues to strengthen, suggesting that further relaxation of monetary policy could support economic growth. However, this high optimism may indicate that the Federal Reserve might continue raising interest rates, albeit at a slower pace.

The U.S. Commerce Department reported a modest 0.1% rise in retail sales in August, fueling hopes that the economy has stabilized through much of the third quarter.

Investors are now awaiting the Federal Reserve’s decision on interest rates, expected at the conclusion of its policy meeting later today. The last time the Fed cut rates was in response to the COVID-19 pandemic in March 2020.

While Nigeria is expected to see foreign capital inflows later in the year, it is unlikely the Federal Reserve will make aggressive rate cuts, given the current market conditions.

The dollar index, which measures the dollar against major currencies like the yen and euro, increased by 0.199% to 100.90 on Tuesday.

Fed funds futures currently reflect a 63% chance of a 50-basis point rate cut, up from 30% a week ago, while the likelihood of a 25-basis point cut is at 37%. These probabilities have shifted after reports reignited discussions of potential aggressive easing measures.

Other U.S. economic data released on Wednesday suggest that the Federal Reserve may find it challenging to implement aggressive rate cuts. U.S. business inventories increased by 0.3% in July, and factory production rebounded in August.

Present fundamentals indicate that the market is already pricing in some rate cuts over the next several months, though some analysts warn that the market may be moving ahead of itself.