How Double taxation kills, High Cost of Aviation fuel cripples Airlines

by on October 11, 2016

Former Managing Director of Skyway Aviation Handling Company (SAHCOL), Dr. Olu Owolabi, has blamed domestic airlines’ problems on owner-manager syndrome and double taxation, in addition to high cost of aviation fuel. Owolabi  said that Nigerian entrepreneurs of which airline operators are part of, are impatient and greedy which is why they will not allow professionals run their businesses in order to get the desired output.

He said that the moment the entrepreneurs see light at the end of the tunnel they jettison the professionals thinking they have understood the business and therefore can run it as the sole authority.

Owolabi said they only have the vision and mission of the business but that the nitty gritty of running it to fulfill the goal lies with the professionals.

“That is exactly what is happening. One owner of an airline may wake up tomorrow and say ‘Dr so and so’ is my friend I have to embark on flight operations to the state where he is, even when the projections and findings indicate that the route is not profitable but because he’s the owner he still says to the management go on and you go. No problem but day in day out the revenue starts dwindling because what we’re getting from that route cannot meet up with the expenses of what we’re doing, that’s one.

“Secondly, being the owner does not make you a professional; the captains, and the engineers who are professionals in this field know what is the best for you, and when you want to buy aircraft they will tell you which one is fuel efficient and which one is not. But because you want to cut corners you say they should go and buy the cheaper one that guzzles fuel four to five times more the fuel efficient one. What do you do with such things? Day by day the revenue you have put in or you’re making keeps dwindling down waiting for the ‘D’ day and what is the ‘D’ day? – the day you want to do your ‘C or D check,’ the day you’re to do three months or six months or one year maintenance check and you’re not going to do it in naira but in foreign exchange. By the time you wake up you don’t have that money. So that is why we have rays of aircraft parked at our major airports turning into scraps,” he explained.

He also lamented the challenge of the domestic airlines refusal to form alliance which is a global phenomenon to aid development and growth in the sub sector.

He said: “Also there is challenge in Nigeria that because of my ego I don’t want to partner with you. Even see these major airlines in alliances – Oneworld, Star alliance, Skyteam, and others; the domestic airlines can’t they sit down and find out why people are having alliance.

They are having alliance to connect routes, they are having alliance on spare parts, they are having alliance on passengers uplift, they are having alliance on their aircraft movement, for example if two or three airlines are in an alliance; when they are coming to Nigeria rather than come with two aircraft they will come with only one and both or three of them will fill the aircraft and make it full.

When we know our problems here in Nigeria, why is it that these our local airlines have refused to have alliance? It is because I want only my name. Then get a name that has nothing attached to it, you can use it within your system, even when you want to keep your name you can keep your name on your airline but your internal agreement, the codesharing you have can help.

Take for example you want to go to Abuja and we have three airlines on ground some of them will now fly to Abuja half or almost empty while if we codeshare that flight may be full with three airlines coming together sending their passengers on that flight, the same schedule and it’s going to be the same cost. They’re not ready to do that and as long as they continue to do this they will continue to have financial problems. There’s no way any of them can claim to stand at this trend of things in Nigeria; they will continue to owe and they will continue to push it forward until the ‘D’ day when they need to their C or D check.

Owolabi pointed out that with the refusal of forming partnerships they (the airlines) ought to have had a serviceable escrow account to save for the rainy day, but this he said most of them have failed to do, rather they diversified into other areas of business when the profit was coming.

His words: “However, since they have refused to codeshare as soon as they start operating there’s what is called escrow account; based on the agreement with the financial system that supports them they suppose to be chipping certain amount of money into that account every month for those maintenance checks so that by the end of the day when the aircraft are due for check they can have something to fall back on. Some of them did not do this, rather they diversified to other areas when this money was coming in; some will go into agriculture, some will go into other areas thinking that proceeds from those areas in the future can be of help to the airline. There’s no way you can take fish to come and work with ship, it is not possible. The ship is on the land and the fish is in the water it can’t be combined, because by the time you diversify into other areas if there’s problem in that place too it’ll affect what you’re doing.”

Speaking further, Owolabi identified the anomaly of double taxation in the industry as another grave challenge weighing down on the growth of Nigerian airlines, which he said he had condemned in several write ups, that it is not helping the system, but to no avail.

He however, noted that one of the former ministers of Aviation, Stella Oduah looked into it, “she made some move and her successor, Osita Chidoka was able to finalise what she did but up to today some of it have not seen the light of the day by means of seeing the white paper, by means of somebody making decisions and for the decisions to be carried out. That do impact a lot of things negatively in aviation; aviation doesn’t wait for the country, this is an international organisation; it moves, it doesn’t wait, if you need fuel you need to pick up fuel whether you’re picking it up at 100 per cent increase or not you need fuel.

That’s why I’m saying in aviation there’s no short cut to it, you just have to face it, the needs are the same, but the way the government will go about it should help to reduce this burden, the burdens are so much. At the airport; could you believe that dollies years back the charge was added into the tax FAAN collects? Dollies suppose to be free. When the federal government appointed some stakeholders to scrutinise and harmonise security activities at Muritala Muhammed Airport, I was fortunate to be part of them and we looked into this area and we said why should passengers arrive and start looking here and there for dollies, that they should buy enough dollies, how much will the dollies cost per passenger? Then they should build it into the airport tax and that the passenger will pay either coming in or going out.

So they should make dollies available, I agree that in some countries you pay a token of about $2 or $5 for dollies, but in some of other countries dollies are free of charge in most of their domestic flights. Rather than FAAN look into this and provide the staff that will be bringing these dollies back they decided to sell it out to another entrepreneur who now collects about N1, 500 per passenger before they give them dollies; that is double taxation.

The worst of it all is that the federal government based on their gazette said airlines should pay 5 per cent of their total (gross – profit and loss) revenue per year to FAAN, the same FAAN turns around to say you pay for ID card, you pay for car park, you pay for every equipment that is being used in all the airports, these equipment do not move out of the airport, these equipment are the ones making this gross revenue that you’re (FAAN) going to collect 5 per cent. An amount that even the owners cannot afford to have, you pay ground rent, and so many other things that they come up with,” he explained.

Also on the issue of Jet A1 (aviation fuel) which has remained a recurring challenge, Owolabi noted that the Niger Delta militancy may be contributing to this because a lot of destructions have not allowed the Nigeria National Petroleum Corporation (NNPC) to really produce aviation fuel, and that this has forced a lot of airlines to look for a cheaper source as far as Ghana where it is readily available.

More so, according to him, it is sad to say that the quality of the fuel is a challenge, “I think it is God that God is helping us. Part of the problem which has been on for years is that they substitute Jet A1 for household kerosene because it’s very light, lighter than kerosene, so they will make more gain diverting and selling it as kerosene.

You know some Nigerians don’t look at the future, they don’t look at the end result of whatever they’re doing in life, they are just after making money, and they don’t know that at the end of the day when the results start creeping in the money they made is nothing compared to the consequences. You know now Kerosene has escalated and those who say they are testing they’re only making a noise, once they make a little noise and they grease their palms; that is the end of it.


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