Payment for aircraft insurance coverage and other required services has been challenging for most of the carriers in Nigeria. This is due to the continuously weakening local currency and a serious shortage of foreign exchange in the country. Despite this challenge, the Nigeria Civil Aviation Authority (NCAA) has said to ground uninsured aircraft and ensure issuance of penalties against airlines and aviation providers. Nigerian airlines are required to pay for aircraft maintenance, aircraft insurance premium payments, and spare parts in US dollars while they sell tickets in naira.
However, in June, the naira was floated by the Central Bank of Nigeria (CBN) which also mandated commercial banks to sell foreign exchange only at market-determined rates. This mandate caused a huge shortage of foreign currency in the country as investors became discouraged. There have been a steep decline in Nigeria foreign imports and exports in recent years, which has led to the spiral decline in the value of naira. Resultantly, carriers do not have enough access to the US dollars at a favourable exchange rate.
Without valid insurance, any operating airline is grounded — new directive.
With little or no access to the US dollars, there have been an alarmingly increasing rate of airlines that are not able to pay for aircraft insurance and other necessary services. There is a likelihood that the challenge will not cease to expand, even at the detriment of the inability of Nigerian carriers to get the required currency. According to the Chief Operating Officer of Ibom Air, George Uriesi, insurance is considered a growing problem, and due to the risk of flying an uninsured aircraft, airlines are left with no choice but to source for the dollars to cover insurance.
The losses that were suffered were majorly on dollar-based components. On August 11, due to the uninsured state of more aircrafts, the Nigeria Civil Aviation Authority made issuance of a directive, which was directed to all airlines and aviation service providers in the country; the Director General of Civil Aviation, Captain Musa Nuhu, appended his signature to the directive. The directive asserted that any aircraft that is operated without valid insurance coverage, by any local carrier, will be grounded.
Insufficient aircraft maintenance might/mightn’t have similar directive.
This necessary valid insurance cover implies that the aircraft must have an insurance of not less than three months. It also requires that aviation and airlines service providers ensure submission of evidence of premium payments, valid insurance certificates, and other policy-related documents to the authorities to prevent grounding. It is not certain whether or not the authorities will make a similar directive for any form of insufficient aircraft maintenance. However, if the trend becomes as alarming as lack of insurance is, there is a tendency for a directive to be issued.
Furthermore, the directive gave an indication that any airline and aviation service provider that refuses compliance with Part 18.14.11 of the Nigeria Civil Aviation Regulations, which began functional on July 10, 2023, will receive immediate sanctions. Captain Nuhu, the DG, placed emphasis on these sanctions, stating that, similar to the aircraft grounding, they will attract heavy penalties that will be enforced on every default of the regulations; although the penalties did not include precise details.
Nigerian aviation industry is currently struggling with regaining momentum.
With this new directive, the overall outlook for Nigerian carriers do not seem any better, even though there is a justifiable cause for the grounds and sanctions as they are needed for the safety of aviation. The Nigerian aviation industry is currently struggling with regaining momentum. Consequently, there is a likelihood that the current challenges that are encountered by the industry might cause the breakdown of some airlines. This is because the amount of grounded aircrafts, the fewer revenue flights operate.