Nigeria: Federal government's Incentives and Aviation Sector

Lagos — Last week's announcement by the federal government lifting import duties on aircraft and spare parts is exciting the aviation industry. Stakeholders say it raises hope of new investors into Nigeria's aviation industry.

The announcement is a relief to airlines who currently pay about 14 percent import duties on aircraft and spare parts. Airline operators have consistently prayed for government to remove import duties on spares and aircraft as is obtainable in other societies.

They said that this would enable them invest more in the aviation industry and grow it.

Aviation experts had contended that the amount paid to customs on duties can be reinvested in Nigerian aviation industry and deepen more capacity in the industry.

In announcing the lift on import duties, government explained that it was obvious that airline operators in the country maintain their aircraft overseas at heavy cost and that the relief would go a long way in assisting the airlines to renew their fleet of aircraft.

It could be recalled that the Report of March 2006 of Air Vice Marshal Paul Dike had recommended that government should cancel the 5 percent Value Added Tax being charged on ticket and cargo as part of the palliatives sought for airline operators.

In the final report of the Presidential Task Force on Aviation Industry, the Paul Dike Committee recommended that, "Government should grant custom duty waivers on aircraft spares, engines and test equipment. This would reduce financial burden on the airlines. It would also encourage good maintenance practices since spare parts would be more easily available. It would also remove the extra delay occasioned by cumbersome Custom procedures."

Mr. Akin Oni, the managing director, West African Business Unit, Bristow Helicopters during a chart with our correspondent earlier in the year had remarked that "If you import an aircraft say for $29 million, approximately $30 million. The import duty for that aircraft is about 14 percent that is about $4 million. That is why a lot of Nigerians cannot go into this business. The high import duties are killing the entrepreneurs to come into this business. Nigeria is among the few countries imposing import duties on aircraft."

Like he hoped for, someone has indeed done what they cried for.

Reactions from Aviation stakeholders

The Assistant General Secretary of AON, Alhaji Mohammed Tukur commended the president for his good gesture and hopes that the proposal would scale through the National Assembly screening so as to further enhance safety of aircraft operations within the country's airspace.

He, however noted that nobody should start claiming credit for this proposal except Mr. President who had mustered the political will to forward the Paul Dike Committee recommendation to the legislature for approval in the 2013 Appropriation Bill.

The Federal Airports Authority of Nigeria (FAAN) also welcomed the development. "This is a further confirmation of the federal government's commitment towards transforming the aviation sector. We recall with delight that the Minister of Aviation, Princess Stella Adaeze Oduah made a case for the lifting of the tariff duty as part of an overall effort towards transforming the aviation sector," the managing director of FAAN, Mr. George Uriesi has said.

He believes that this action will turn around the industry and make aviation attractive to the much needed foreign investment. He said the ongoing remodeling exercise has already created a platform for the takeoff of Nigeria as a major hub in the Sub-Saharan region of Africa.

Uriesi noted that the FG's action has indeed inspired enthusiasm in international investors who had indicated strong interest in doing business with the Nigeria's aviation industry during the minister's recent road show.

The chief executive of Mish Aviation, a flying and ground school based in Ghana, Captain Ibrahim Mshelia also said the zero tariff proposed by President Jonathan while presenting the 2013 budget to the National Assembly will help airline investors plough their resources to other important areas.

Captain Mshelia said that government can also be magnanimous in other areas including availability of Jet A1, price regime and cost of handling so as to ensure total growth of the industry.

"If an airline was to buy an aircraft for $50 million for instance and the duty was only 2.5% which I think the ongoing tariff is more, the airline instead of looking for $1,250,000 to pay duty, will now convert that into other issues that will either support expansion or infrastructural development or whatever the airline wants," he said.

"This is something good. Also with spare parts, we can now enroll our aircraft cockpit (Avionics) equipment's and the aircraft itself on certain maintenance programs and enjoy same benefits as airlines in Europe and America do while enrolled on same maintenance support program. We now only have to contain with component shipping charges," he said.

"In the past, you have free component from the program when yours fail, but when a new replacement is shipped to you, you had to pay duty on the original cost which made the program totally senseless to a Nigerian operator and the desired objective in the first place. With this zero duty, we are left with shipping charges. What can be better?"

He further appealed to government to look into other areas that will benefit the industry.

"There are still a few issues that I believe if government can be magnanimous as in this case to also look into, Nigerian aviation will reach its promise land within a very short time. These are: availability of Jet Fuel and the pricing regime, cost of handling and sundry matters which can be discussed amicably as partners between the government and operators to mention a few."

Two notable aviation unions in the country, the Air Transport Services Senior Staff Association of Nigeria ATSSSAN and the National Union of Air Transport Employees NUATE have also commended the move by the federal government. Comrade Benjamin Okewu, national president of ATSSSAN said it has provided a golden opportunity for airline operators in the country to bring in aircraft that can stand the test of time.

Comrade Okewu said it was also an opportunity for the operators to re-fleet their aircraft and cut down their fares, pull resources together and source for one digit loan from the international financial organizations to bring in economical machines that will enhance the air transport system in the country.

"Airline operators especially those that are still in operation should capitalize on this noble opportunity to re-fleet their aircraft. In doing that, they must take into consideration the routes that they are flying. The route must determine the type of the aircraft to be brought in," they said.

Okewu noted that tariffs have been the major constraints on the parts of the airline operators especially in the last five years when it became very obvious that local airlines were on the verge of going down as a result of high tariffs on parts which led to calls by the unions to grant waivers to the aviation sector.

Comrade Mohammed Safiyanu, national president of NUATE in his reaction said the union and the Airlines Operators of Nigeria AON have long agitated for this removal.

According to Safiyanu, airline operators have argued that the cost of importation of aircraft and its parts have been responsible for the high cost of fares, adding that the zero tariffs will go a long way in crashing air fares on the domestic routes.

The NUATE president however called on the government to look into the possibility of refining petroleum products in the country especially the JET A1 in order to bring down the airfares in the country.

"We saying that all the refineries must be made to work and refine these products in the country especially JET A1. This will make more people to fly instead of going by road," Comrade Safiyanu said.

Mr. Chris Ndulue, the Executive Vice President/Managing Director of Arik Air described the concession as heart-warming and one that will not only enhance safety but also assuage the high operating cost incurred by Nigerian airlines.

He praised the president for mustering the political will to incorporate the tariff waiver in the 2013 budget presentation thereby giving vent to the long sought relief for domestic airlines which have been reeling under the cumbersome Customs procedures for imported aircraft and spare parts.

"There can be no better time than now for this tariff waiver announced by the president as Nigerian airlines are bleeding from excessive taxes. We have been clamouring for this kind of succour over time and are happy that it has finally come."

"The waiver of import duties on aircraft and spare parts will undoubtedly reduce the financial burden on airlines and encourage good maintenance practices since spare parts will now be available at lower costs," Ndulue stressed.

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