High Funding Costs Threaten Aviation Profitability – Haske

The managing director and chief executive officer of Aerokeys Nigeria Limited, Abuja, Kudla Milinda Satumari Haske, has said high interest rates, foreign exchange fluctuations and the dollar-denominated nature of aviation business are shrinking operators’ profitability in Nigeria.

Haske, who spoke with LEADERSHIP on Friday in Abuja, said aviation companies could perform better if they gained access to funding at single-digit or significantly lower interest rates, noting that the industry’s high operating costs often erode substantial revenues.

Hasken who was reacting to a reports that many Nigerian aviation companies generates not up to $1m annually, said such report doesn’t reflect the realities in the sector.

Hasken who is contesting for Askira-Uba/Hawul Federal Constituency of Borno State, said.

“First and foremost, I do not want to think that there is no aviation company or organisation that does not make more than a million dollars.

“Even my modest company, Aviation Services in the industry, makes much more than that in a year,” he said.

Haske said the government, aviation regulators and other stakeholders had been working to create an environment where businesses could thrive.

According to him, however, access to affordable funds remains a major challenge confronting operators.

“All I could say is government has tried as much as possible to manage the business. Regulatory authorities, agencies are working hard, stakeholders in the industry to see how our businesses can thrive,” he said.

He identified the high cost of funds, exchange rate fluctuations and banks’ inability to provide single-digit interest rates as major constraints.

“Access to funds, cost of funds is very high, and aviation is dollar-denominated, and the exchange rate fluctuation and the interest rates from banks that we don’t have access to single digit is what is making profitability to be shrinking,” he said.

The operator disclosed that a development partner had provided funding that could be accessed by qualified players in the sector.

He said the pilot project was chaired by the Minister of Aviation and Aerospace Development, adding that its full operation could provide cheaper financing for airlines and other aviation businesses.

“I think by the time it becomes operational, companies, airlines, and stakeholders in the industry who meet the requirement may begin to access funds at a reasonable cost, and that could begin to impact on improvement in the industry,” he said.

Haske argued that aviation’s contribution to the economy should not be measured solely by the profits declared by individual companies.

He said investment in aviation stimulates commerce, tourism and passenger movement while creating economic activities across other sectors.

“In investment aviation, it will not just be the tangible profit that you make in terms of the bottom line, but the sharing of activities it generates, opening commerce, opening tourism, moving people from one place to the other.

“So it stimulates the economy,” he said.

He explained that aviation was a high-revenue, high-expenditure business, making it difficult to determine profitability by looking at gross revenue alone.

“Sometimes, because it is a kind of business that is very high revenue, and also high expenditure. So you end up seeing a little more.

“And at the end of the year, the clear profit may not,” he said.

The Aerokeys boss said lower financing costs would enable operators to expand their businesses and improve services.

“Once we are able to access funds that costs reduce to either single digit or very low levels, we will be able to thrive in our businesses and to improve,” he said.

Haske, who said he had participated in the aviation industry for more than 30 years, also noted that new companies continued to emerge at different stages of registration.

He said such investments showed that operators still saw opportunities in the sector despite the challenges.

“People don’t see viability in that they do not go into those endeavours,” he said.

He also cautioned against confusing the high revenues of major airlines with their actual profits, noting that substantial earnings from ticket sales were consumed by operational expenses.

“You would be surprised the revenues generated from sales of tickets and what have you to some of these major carriers.

“But also goes into traditional, into crew, into operations, into attendants, and what have you.

“It comes as the highest cost,” he said.

Haske expressed optimism that the sector was gradually stabilising as aviation authorities increasingly adopted investor-friendly approaches.

He said improved ease of doing business and ongoing reforms could strengthen the industry, although the impact might not be immediate.

“We know the economy is biting hard because of the reforms, so we may not see direct impact immediately,” he said.

“But I can say that as a participant in this industry for over 30 years, I see some improvement in different areas.”