- Domestication Cuts Cost For Airline Operators
- Air Peace, Others to Pay Less to Acquire Planes, Insurance
- Price of Tickets to Drop
- Tinubu, Keyamo Receive Accolades
September 15, (THEWILL) – The Nigerian aviation sector gained global altitude last Wednesday when the country signed the Cape Town Convention, CTC, and by that act became one of the few countries in the world to pioneer the issuance of Practice Directions by the Federal High Court, which is vested with the constitutional jurisdiction on aviation.
A remarkable feat by the Bola Tinubu administration pursued doggedly by the Minister of Aviation and Aerospace Development, Festus Keyamo, SAN, the signing will significantly reduce the cost of operation for Nigerian operators. The primary aim of the convention and the protocol is to resolve the problem of obtaining certain and opposable rights to high-value aviation assets, namely airframes, aircraft engines and helicopters which, by their nature, have no fixed location as defined by the International Civil Aviation Organisation, ICAO.
“If you read the actual Practice Direction, you’ll discover they contain many promises, such as reduced insurance costs, increased investor confidence, improved access to aircraft financing, and enhanced dispute resolution,” President of the Aircraft Owners and Pilots Association of Nigeria and former CEO of Associated Airlines, Alex Nwuba, said while appraising the formal adoption of the CTC in the country.
“Starting with insurance cost, insurance is more than law and beyond promises; it is the management of risk. To begin with, what is the airport rating? What are the chances that someone will not climb over the airport fence and introduce a foreign object into the aircraft? What is the state of security at the premises? What is the perception of the regulator and his capacity to handle safety and prevent accidents?
“Practice guidelines are a tiny part of the risk assessment to reduce rates, but they help. Then, we look at investor confidence. Is it based on the state of practice direction or the economy? Do we have dollars and pounds for leases or special provisions for the industry’s forex? What guarantees are available, even for export credit loans? How stable is the polity, etc.? Then, we ask how these things integrate to improve investor confidence, which is the basis of the effort.
“Finally, regarding dispute resolution. It is essential to point out that though the Cape Town Convention Practice Direction is only a framework that does not specify a specific dispute resolution mechanism, it however offers guidance on how such disputes should be handled, as is already found in existing contracts. It also defines the remedies available to parties involved in a dispute, such as the applicable law, jurisdiction, and procedures,” he added. According to him, this insight into the CTC’s role in the aviation industry is crucial for all stakeholders to understand.
Arguing that though Nigeria has been a signatory to the CTC since 2001 and only domesticated the convention by last Wednesday’s action, thus ensuring that beneficiaries fully enjoy the intended benefits without any ambiguity, Nwuba applauded the Minister of Aviation and Aerospace, Mr Festus Keyamo, a Senior Advocate of Nigeria, for taking this bold step towards addressing the broad questions facing the country’s aviation industry.
“I am sure that everyone who has signed any lease and finance contracts in over a decade has incorporated the terms of the CTC into the agreement, yet we talk about the challenges institutions face during conflict and resolution,” he said.
Examining the essence of the CTC further, Nwuba stated that problems which primarily arise from legal systems with different approaches to securities, title retention agreements and lease agreements, creates uncertainty for lending institutions, regarding the efficacy of their rights. This hampers the provision of financing for such aviation assets and increases the borrowing cost.
“This document will create specific conditions to enforce the terms of the legal agreement, which will not vary in substance from current agreements but hopefully will now give it more teeth,” he noted.
EXPERTS, INVESTORS, OFFICIALS CELEBRATE CTC DEAL
Investors, experts and government officials are on the same page about the immediate and real positive impact of the signing of the CTC on the restoration of investors’ confidence in the nation’s aviation sector. This was the message conveyed by their presence at the signing into law of the CTC Practice Directions by the Chief Judge of the Federal High Court, Justice John Terhemba Tsoho, during a stakeholders’ meeting of the Presidential Enabling Business Environment Council (PEBEC) chaired by Vice President Kashim Shettima at the Presidential Villa, Abuja, last week.
Stanley Nkwocha, Senior Special Assistant to the President on Media & Communications (Office of The Vice President), said before now some local operators had, in the past, breached the Cape Town Convention, which regulates aircraft leasing across the world, leading to the Aviation Working Group, co-chaired by Airbus and Boeing, saying Nigeria would be blacklisted until it implements a law that would guide against a repeat of such breach.
“It is a great day for the Nigerian nation. We had fruitful engagements and we were able to cross-pollinate ideas across all sectors and have come up with robust solutions to the challenges facing the aviation industry,” said Vice President Kashim Shettima, at the event, witnessed by Allen Onyema, the Chairman and Chief Executive Officer of Air Peace and Alhaji Abdulmanaf Yunusa Sarina, the Chairman of Azman Airlines, Mr. Wale Edun, the Minister of Finance and Coordinating Minister of the Economy, Dr. Jumoke Oduwole, Special Adviser to the President on Presidential Enabling Business Environment Council (PEBEC) and Investment, Dr. Anastasia Gbem, the Aviation Ministry’s Director of Human Resources, who represented the Minister, Keyamo and Mr Olusegun Omoseye, the Chief Executive Officer of the National Insurance Commission of Nigeria.
On his part, Edun promised to meet with airline operators and other stakeholders to perfect issues pertaining to agreements reached at the meeting with the vice president.
He said: “My Lord, the CJ of the Federal High Court, called it action to revolutionise the airline industry. PEBEC is all about improving the business environment and reducing cost and what has been signed here is action that will substantially reduce cost in the airline industry, facilitate growth and development of that industry, and include further action that, I’m sure, would be taken in that direction once I meet with the airline industry and also have Customs present to discuss some charges which they want lowered, and which they believe by law should, in fact, have been implemented at lower levels.”
Speaking on behalf of Airline Operators of Nigeria (AON), Onyema, the Air Peace Chairman and CEO, said the convention will impact the aviation sector positively. He described the event as a revolution that would restructure the aviation sector for greatness globally. He said, “Today is a historic day for Nigeria. President Bola Ahmed Tinubu has once again demonstrated that he is not only a listening president but has gone a long way to engender the ease of doing business in the aviation industry more than any other since the creation of this country called Nigeria.
“We the airline operators are so happy and we commend him for what he has done today. Today is a revolution. President Bola Ahmed Tinubu has caused a positive revolution in the aviation industry by making sure of this practice direction concerning the Cape Town Convention and its application in Nigeria.”
Dr Jumoke Oduwole, disclosed that the signing of the document would help to reduce the cost of insurance as well as reduce the cost of doing business in the aviation sector and also impact passengers who had experienced a high cost of flight tickets lately, which was caused by a number of factors, including foreign exchange and others. For Dr Anastasia Gbem, the Aviation Ministry’s Director of Human Resources, the signing of the document on actualising the CTC was in line with the ministry’s goal of enhancing the capacity of local airlines’ business.
According to her, “Investors can bring their aircraft into Nigeria and if there is any problem, such aircraft would be recovered within the 10-day period that Nigeria and the Cape Town Convention have provided. So, it is an unprecedented history made today and it is a venture that will boost the Nigerian airlines and the entire aviation industry.”
A NEW DAWN
With this new development, aviation stakeholders are of the view that the Practice Directions issued by the Chief Judge of the Federal High Court will eliminate judicial impediments in the implementation and compliance with the Cape Town Convention. To them, this singular move will obviously revolutionise airline business in Nigeria as it will boost investors’ confidence and open the floodgate to Nigerian air operators to have easy access to aircraft acquisition at much lower costs. According to them, such a move would also significantly enhance the growth of the aviation industry by creating more jobs and promoting the rapid economic development of the aviation industry. By doing so, they are of the opinion that the Nigerian aviation industry, which has a huge global market can favourably compete and increase its contribution to the Gross Domestic Products (GDP).
A CASE WITH NIGERIA
Despite being a signatory to the Cape Town Convention (CTC) since 2001, domesticated in the Civil Aviation Act 2006, as amended in the Civil Aviation Act 2022, Nigeria has not benefited from the convention, due to the fact that most airline operators in Nigeria, before now, were not complying with the requirements. In fact, the issue of aircraft lease had remained one of the major challenges to airlines in the country.
THEWILL investigation showed cases where operators went abroad and leased aircraft and returned to Nigeria. These operators refused to pay and hold on to the aircraft, thus creating a bad reputation for the Nigerian aviation market. There have been instances where an airline took some aircraft engines worth millions of dollars and never wanted to return them. There was another case in which a helicopter was seized by a creditor and the lessors had to fight for its release. In both instances, it took the intervention of the Nigeria Civil Aviation Authority NCAA to settle the dispute amicably.
Such sharp practices led to the blacklisting of Nigeria by the Aviation Working Group.
The AWG CTC compliance index shows Nigeria’s substantial non-compliance with the CTC which is largely as a result of legal impediments in the country’s judicial process that have had adverse impact on the implementation and compliance with terms of the convention.
Certain judicial cases, THEWILL gathered, have also shown that speedy reliefs sought by the creditors were not granted within the 10-day declaration made by Nigeria under the convention.
To bridge the gap and for local airlines to survive and keep afloat in their flight operations, Mr. Keyamo after extensive engagements with aircraft manufacturers and international lessors started chasing the domestication of the CTC Practice Direction which was eventually signed during the meeting of the Presidential Council of Presidential Enabling Business Environment Council (PEBEC) last week.
GAINS FOR AIRCRAFT FINANCIERS/LESSORS
For a financier or lessor (each one a creditor), the virtues of the 2001 Cape Town Convention bring speed, certainty and cost savings to repossession, deregistration and export of aircraft, helicopters and aircraft engines (aircraft objects). This should be on insolvency or other default where the aircraft object is in a country whose laws would otherwise not be creditor-friendly.
The convention also protects creditors’ interests in aircraft objects by providing for the registration of “international interests” in those aircraft objects at a single, web-based, “International Registry” that is open 24/7; subjecting those interests to a simple priority regime.
AIRLINES/ OPERATORS BENEFITS
For airlines and other aircraft operators, Cape Town’s virtues are that improved creditors’ rights can translate into better pricing. For example, airlines in states that have implemented Cape Town’s Alternative A insolvency regime, with a “waiting period” of 60 days, have achieved impressive pricing on their capital markets financings of aircraft. With better pricing, stakeholders have affirmed that such a good gesture would surely rub off on the price of ticketing, reduce flight delays and cancellations, increase flight frequencies and connectivity and ultimately ensure quality service delivery.
A GAME CHANGER
Commending Mr. Keyamo and the Ministry of Aviation and Aerospace Development for the landmark achievement, the Director of Research, Zenith Travel Consult, Mr Olumide Ohunayo, said the new CTC Practice directive is a game changer for the entire industry.
Ohunayo, who said the minister has done well, stated that the notoriety of the judiciary in matters affecting the aviation sector is what Keyamo has come out to address.
“Our judicial system has been notorious for granting irrational judgements. That is what the minister wants to address,” he said.
He noted that this renewed effort by the minister will definitely cut down the cost of airline operation in Nigeria, reduce insurance expenses, make provision for more aircraft, increase flight services and ultimately create a better experience for travellers.
He said, “It is a good one for Nigerian airlines and congratulations to the Minister of Aviation, Mr Festus Keyamo. However, Nigeria signed the CTC some time ago, ratified and domesticated it, but our operators were always using the judiciary to circumvent that convention and that puts us in a bad light in the International community. It made things more difficult and more expensive.
“What the minister has done is to work with the government to use his position in the executive arm and his experience as a lawyer to make the judiciary understand the implications of that convention and promise not to intervene with the process of turning in leased assets to the owners. That gives confidence to the leasing companies. What had happened was that Nigerian operators were running to the courts to hold on to the aircraft that did not belong to them, knowing that they failed to meet up their financial obligations”.
The aviation expert affirmed that the Minister of Aviation succeeded in saving the assets for the lessors so that the court will not hold on or intervene in such fake injunctions.
Ohunayo urged airlines to seize the opportunity of the convention and start fresh relationships with the lessors. He said the convention will bring down the leasing fee and insurance, as well as technical support.
“All these costs will come down and it will help the industry. There will be more aircraft, more flights and everybody will be happy,” he said.
He also asked the government to go further by licensing airline operators with smaller aircraft that can be used for shuttles to and from smaller and less viable airports. “The licensing of such a group of operators and lifting the ban on the age limit of aircraft is one area they should work on now. We should not tie our hands with an age limit ban, so that we can have different types of aircraft and grow short haul flights, cargo and other sectors of air transport operations,” he added.
In his submission, the former commandant of the Murtala Muhammed International Airport (MMIA), Lagos, Group Captain John Ojikutu (retired) welcomed the new development.
Group Capt Ojikutu however queried the nature of Federal Government’s commitment to private airlines’ default in payment. He also wondered about the nature of the FG commitment to the default of private airlines and the national/flag Carrier defaults.
RISK FACTORS
Stakeholders maintain that for the CTC to be fully operational, the risk factor has to be taken into consideration. Aviation, they contend, is a capital intensive sector that involves a lot of risk that will require closer collaboration with the insurance sector, thereby reducing risk and encouraging investment in the sector on the part of the aircraft lessors and lessees.
The Commissioner for Insurance /CEO National Insurance Commission (NAICOM) Mr Olusegun Ayo Omosehin, penultimate week, said there was a need to create such collaboration between the insurance and the aviation sector.
Anthony Awunor, is a business correspondent who holds a Bachelor of Arts Degree in Linguistics (UNILAG). He is also an alumnus of the Nigerian College of Aviation Technology (NCAT), Zaria Kaduna State. He lives in Lagos.
