Airline in cash bind

Press, 17 June 1988, Page 12

Airline in cash bind

From the “Economist,” London

TO LOSE one Airbus might be bad luck. To lose three must be carelessness. Nigeria Airways has done it. Of the four it owns, one is stuck on the tarmac at Lagos, wanting spares. One has been held in Bordeaux since last November, and another was detained there in late May; the company that maintains them has court orders to back its claim for overdue bills of some SNZI9 million.

.The airline perhaps forgot about this small fraction of the SNZSI9 million in hard currency it says it owes to suppliers, contractors, airport authorities, fuel companies and others. " The airline had been trying to do better. Its owner, the Nigerian Government, keeps it in this fix. In September 1986 the soldiers who rule Nigeria belatedly devalued its puffed-up currency.

But they sought to protect the urban middle class by not allowing prices to rise correspondingly. Petrol prices have beqn raised, but petrol still costs the equivalent of less than ten American cents a litre. Air faires are still below half international rates.

Prices that customers do not pay directly have been handled more toughly; aviation spirit has gone up by almost 400 per cent. So the Government, while raising the airline’s main operating cost, has held down its only revenue. For lack of foreign exchange to pay its overseas bills, the company is now losing the aircraft that were its one chance of earning hard-currency income.

The banks and institutions that might lend Nigeria new money to help pay its old debts want the price controls removed, and will not help until they are. But even

the modest changes already made expose the Government to riots, plots and worse.

The potential lenders also want more privatisation of State enterprises, especially airlines. The ruling generals agree; indeed, they began privatising domestic air travel some five years ago, by giving influential people licences to run services on the few domestic routes where Nigeria Airways was breaking even.

The private airlines, with old leased aircraft, foreign pilots on short contracts, and cheap fuel, gave good service and made good profits. Now their fuel too has gone up by 400 per cent and their fares too are controlled by government order. They say they will soon be out of business.

Copyright — The Economist