Local Insurance Firms Lack Capacity To Insure Big Aircraft – Airline Operator

United Nigeria Airline, an operator in the nation’s aviation sector, has disclosed that no local insurance companies has capacity to insure big aircraft in Nigeria.

Speaking to LEADERSHIP, the chief operating officer, Osita Okonkwo, however, disclosed that the inability to insure big aircraft has made it difficult for lessors to operate in the country.

According to him, even if airline purchase aircraft, it is an international requirement that it has to be insured, but no insurance company can do that in Nigeria especially for bigger aircraft.

He said, “The other one on insurance is that there is no capacity internally to do big aircraft insurance in Nigeria. So many lessors are not operating in Nigeria because of insurance. It is killing business because even though you want to do indigenisation, you cannot do that with another person’s assets.”

“Even if you buy an aircraft today, it is a requirement that you have to insure it even if you pay with your money in Boeing, Embraer or whatever. The insurance must cover Boeing even though they have sold it to you, they must be party insured in that transaction. So you can’t escape the international requirements of the business and limiting it locally will not help lessors.”

“So what people do is they can do local, just to satisfy all righteousness, but still have to go outside and take another one to satisfy the manufacturers. There is nobody that will give you an aircraft today, sell or lease, that will accept local insurance, especially if it is above $200 million. The other ones we have like Embraer, there is no problem because the capacity is there. They will syndicate 15 insurance companies, no problem. But when you start going to $600, $500, forget it.”

Okonkwo, also stated that the escalating costs in airline operations, which have grown rapidly, have become one of the problems of airlines in the country.

He noted that the costs of operation was mind-boggling, leaving the operators with no other option than adjustments in fares.

He said, “If you look at the cost structure of every operation, first of all, you have the aircraft which is in most cases measured in hourly bases or circle bases for engine, maintenance, and any other things you have in the aircraft. You have to know that every component has a diminishing value. You have an engine with 20,000, 30,000 circles or whatever. It reaches a certain point and you have to go for some checks.

“Aircraft cost is one big chunk of it which you have to manage. The second component is the operating cost which is basically fuel, consumables and spare parts handling charges which are all related to particular operations. When we started, fuel was N200 per litre and rose to N300. “As of December 2021, we were buying fuel at N350. Suddenly, it rose to N500 per litre; that was when Airline Operators of Nigeria (AON) started shouting, it is around N790 and N800 now.”

He explained that 99 per cent of input into an aircraft was forex dominated, stressing that there were no parts of an aeroplane that are produced in the country.

“So you need to get your forex. We suffered double jeopardy; one is access to forex, and the second is availability and cost. It moved from about N400 plus to a time we bought at N900 for a dollar if you are not lucky to get it from the Central Bank of Nigeria (CBN).

“Currently, CBN meets about 20 per cent to 30 per cent of the needs and that takes time. You have to queue. Meanwhile, you have an Aircraft on Ground (AOG) that you have to get the spare parts. It has really been difficult. What we have seen is escalating cost of operation. It is escalating at a very rapid rate. There was a reaction on the fare side on the fare side from N23, 000, N30, 000 it moved to N50,000, N70,,000. Now what we are seeing is that because of the economic situation in the country, nobody is flying at N70,000,” he said.

The airline chief noted that as a result of the situation, airlines decided to react irrespective of what people said that they were colluding to fix prices, hinting that the airline business is driven by market forces as a way to survive as an operator. “Now you can see that you get tickets of N40, 000 but I can assure you that people are underwriting those costs.

He decried the attitude of some airlines he claimed underwrite costs by injecting capital from other sources to sustain the business, reiterating that one of the lessons learnt was that it is important to be mindful of the operational setup and cost of operations. “We learnt in the last two years that it doesn’t make sense to be competing on fares.