WARNING: This is Version 1 of my old archive, so Photos will NOT work and many links will NOT work. But you can find articles by searching on the Titles. There is a lot of information in this archive. Use the SEARCH BAR at the top right. Prior to December 2012; I was a pro-Christian type of Conservative. I was unaware of the mass of Jewish lies in history, especially the lies regarding WW2 and Hitler. So in here you will find pro-Jewish and pro-Israel material. I was definitely WRONG about the Boeremag and Janusz Walus. They were for real.
Original Post Date: 2010-06-11 Time: 16:00:33 Posted By: News Poster
By Daniel Omale
Like wildfire, the news of a N500 billion bailout package for airlines spread to every stakeholder in the aviation industry in Nigeria, last week.
While some claimed to have read the story in the newspapers, others heard it on the the Africa Independent Television (AIT). Still, some of us are yet to confirm either source, but we are being bombarded with questions on when and how much will be doled out to each airline.
As I write this article, nothing substantive on the bailout figure has been confirmed, although the anxiety among the airlines is so high that it is difficult to calm anyone down at this moment. The latest news from one angle, which seems authentic but yet to be confirmed, is that the federal government has approved N500 billion as airlines’ bailout package and the funds are with the Central Bank of Nigeria (CBN). The source also claims that government has stipulated a maximum interest rate of 7% for 15 years per borrower. No one is sure if the CBN will lend directly to the airlines or through their bankers.
Nevertheless, if it is true that such funds have been allocated and released to the CBN, it is the best news for aviation industry in Nigeria as this should propel growth, stimulate competition to reduce airfares and create or sustain mass employment of personnel.
But, for an airline to access the funds, there are huge obstacles to overcome. This is what everyone should clearly understand from the beginning, and it is also very important that every applicant must apply through its local commercial bank, because there is no way the CBN can directly deal with an airline or support any application that comes directly from the end user. It must be through a commercial bank, which must guarantee each and every penny released by the CBN.
The greatest hurdle at this stage is: very few airlines in this country are creditworthy and, maybe for the sake of recovering their debts, their bankers would guarantee the loans, but will not release a penny to the carriers that have, for a long time, defaulted in repayment of credits and loans. This will soon be the unfolding scenario as many carriers are currently buried in debts.
An airline bailout package today will be the best news for those banks which cannot recover their debts from the various carrier debtors . The funds will rejuvenate the lives of all those banks that are heavily in red because their airline customers have failed to meet up with the loan repayment arrangement many times over. It is more of a recovery package for the banks than for the airlines.
One interesting area, if this bailout is real, is the interest rate. If the federal government has agreed that the interest rate on each allotted loan is 7%, then the banks must find a way to alleviate the burdens of the airlines that have been saddled with 25% interest rate. The guaranteeing bank, if it wants to salvage its debts and give a bit of reprieve to a carrier, must commit to reduce the interest rates charged when the airline took the loan two or three years ago. This will directly reduce the airline’s financial burden for a while.
All surviving schedule airlines in this country – Arik, Virgin or Air Nigeria, Aero, Chanchangi, IRS, DANA (Lagos) – are financially fragile, heavily indebted to banks and lost in how to wangle their way out of the mess. A bailout from the government can give a breathing space, but will not completely alleviate the demise of the industry.
Many airlines in this country would fare better if the operators could run the business purely for profit and not as an integral part of their self-inflated ego, get sincere and honest consultants who can explain the pros and cons of airline business right from the start, acquire aircraft through leasing as opposed to outright purchase syndrome in the country, and finally invite other investors and people with management acumen to support the team right from the onset.
Unfortunately, in this country, it is very difficult to detach airline owners from their businesses, because the associated pride of being identified as the owner is more important to them than running the business efficiently. This attitude, which has developed into an ego and personality crisis, has not helped most operators to define their true position as to run and manage the business efficiently.
Understanding the core nature of airline business is the beginning of wisdom because this is the only business that fetches billions of naira in a short time and leaves you penniless in less time. Therefore, financial discipline, sound technical personnel and a very strong management team who can oppose the owner when he is going off are very important.
Any bank that is ready to guarantee the bailout funds should encourage airline operators to desist from buying aircraft but lease the required equipment. All aircraft leases come with stipulated financial savings to meet future maintenance costs – these savings cannot be accessed or mismanaged by the lessor and, of course, the lessee; therefore, it is the only way an airline can achieve a secured financial position to meet future maintenance requirements.
This compulsory saving is what our airline operators abhor; instead, they prefer to borrow money at exorbitant rates, buy the aircraft, operate and spend the earnings at will without reporting to the creditors. Since the aircraft become the collateral or security for the loan, the bank or financial institution involved is at the mercy of the operator, because if the lender takes possession of the aircraft as a way of forcing the airline to make payment on the loan, there is nothing the bank can do with the security because the aircraft, in most cases, are worthless. Some aircraft may require more than the original loan to make it airworthy again.
This has been the catch-22 for all our local banks. Most of them are currently in this dilemma and find it hard to get out of the mess, except to write off the huge loans that have dwarfed their profits over the years.An airline bailout package from the government will surely sanitize both the banking and the aviation industries.
Will the funds get to the end users? This is a million naira question that only the CBN and the affected commercial banks can answer. As for the anxious airline operators, those who are heavily indebted and have refused to work out a more palatable repayment process with their bankers, there may not be any changes in their current status financially — but it will an eye opener that if you borrow, you must pay and it takes extra will and dedication to keep one’s promise. And if that promise is kept, the reward is usually pleasing.
Original date published: 11 June 2010
Source: http://allafrica.com/stories/201006110748.html?viewall=1