Kenya Airways expects its cash flow problems in Nigeria to ease this month, once it starts repatriating funds stuck in the country for the past seven months.
“We are working with banks to start repatriating this cash. We should be able to start seeing a flow this month,” chief executive officer Mbuvi Ngunze said
Last month, the airline had said it could not recover about $25 million held in African countries due to foreign exchange constraints. It would not say how much of this was held in Nigeria.
Already, international airlines based in the US and UK repatriating funds from Nigeria have recorded more than 40 per cent losses after the recent devaluation saw the naira drop to its current rate of about 285 to the dollar, from 199. The Nigeria Civil Aviation Authority directed all airlines to sell flight tickets in the naira.
Kenya Airways, RwandAir and Ethiopian Airlines are among airlines owed more than $600 million in income from ticket sales that cannot be repatriated, according to the International Air Transport Association (IATA).
Angola is another country in which these airlines are facing a cash crunch. The country owes more than $237 million to airlines, including South African Airways, KQ and Ethiopian Airways.
The directive to sell flight tickets in naira is expected to worsen matters for some airlines.
Sam Adurogboye, the spokesman at the Nigeria Civil Aviation Authority (NCAA) said that the use of dollars as peg on airfares is contrary to the provisions of the Bilateral Air Services Agreement (BASA) between Nigeria and other countries.
“As a consequence of this action, we have written warning letters to such erring airlines to immediately comply with the provisions of the directive from BASA and the Central Bank of Nigeria. Sales of tickets and services should henceforth be offered to air travellers in naira without further delay,” said Mr Adurogboye.
However, Mr Ngunze said this directive would not affect KQ revenues as it charges ticket sales in the local currency.
“We are not among these airlines that have received the letter because we did not violate the directives. We will continue to trade in Nigeria as we have done in the past. We will also continue with our risk management mitigation which we apply on all our routes,” Mr Ngunze said, adding that the tight forex situation in many markets is an issue which impacts travel and is also tied to the drop in commodity prices, especially in Africa.
RwandAir also said it was not affected as it accepts local currency in all its markets.
In an expression of displeasure, the airlines under the umbrella body Airlines Operators Committee have written to NCAA, Federal Airports Authority of Nigeria and Nigerian Airspace Management Agency protesting the payments of the Nigerian aviation agencies charges in foreign currency, which puts them at a loss position.
John Owunobi, Africa economist at BM Capital said that if the Nigerian agencies did not rescind the directive, then the airlines will be expecting high operating costs and tax expenses.
We will then start seeing a huge difference between revenue per passenger and net profits per passenger. This will see airlines post losses on these routes,” said Mr Owunobi.
According to the 2015 IATA financial reports, airlines generated $224 in revenue per passenger.
However, after adjusting for costs, interest and taxes, the net profit per passenger was only $2.24. This is expected to deteriorate even further for African airlines, despite the low oil prices regimes.
Mercyline Gatebi an analyst at Kingdom securities says that with the current economic situation in these countries including Angola, there is an expected decrease in the demand for international travel.
“The reduction will be as a result of the adverse economic developments in countries that are oil- reliant, such as Nigeria and Angola. We expect the inflation to rise translating to reduced business for these airlines. I won’t be surprised to see a reduction in frequency,” said Ms Gatebi.
In a previous interview with The EastAfrican, Kenya’s Transport Cabinet Secretary James Macharia said that they are yet to start diplomatic talks with both the Nigerian and South Sudanese government on how to unlock the block air fares for the national carrier but would be making contact soon over the matter.
“That’s a financial matter that will have to be dealt with financially. Because of the controls, this becomes a commercial issue. There are ways of resolving it. If we get a counter party in Kenya who is owed some money in that country, then they can do a swap. This is one of the things I would be encouraging Kenya Airways to do. I will get an update on this from KQ in the coming week,” said Mr Macharia.
Source: The East African
