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Why Africa lags behind in aviation, by ADB president

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Why Africa lags behind in aviation, by ADB president

High risk tag scares lenders, leasing firms

President, African Development Bank (ADfB), Dr. Akinwunmi Adesina, has taken a swipe at most African airlines, saying the operation of very old airplanes and lack of good business model have done incalculable damage to them, leading to extinction of many of the carriers.
He disclosed this to New Telegraph at the recently-concluded International Civil Aviation Organisation (ICAO) World Aviation Forum in Abuja.
Adesina noted that Africa needs $150 billion to finance aircraft acquisition in the next 20 years, but wondered where the finance would come from considering the fact that financial institutions are very reluctant to fund aircraft purchase for the continent’s airlines because of terrible business model and the fragmented nature of their operations.
The ADfB boss also said the way the present Africa’s aviation architecture is constructed, it is difficult for the industry to grow, adding that African countries must make air interconnectivity seamless. “Africa needs to procure about 970 jets and 700 turboprops over the next 20 years. Financing needs will exceed $150 billion. African aviation needs fleet modernization, efficiencies, better connectivity and much improved quality of services for an exponential growth in the number of passengers,” he said.
Besides, he said: “The fact is, Africa faces much higher costs for aircraft purchases due to the relatively small size of most airlines, weak balance sheets for corporate loans, a lack of access to export credit agreements, higher insurance costs, inability of commercial banks to provide long term financing, and very high interest rates when they do.
“Africa also does not have any aircraft leasing markets, and therefore has to lease planes at much higher costs, sometimes 100 per cent higher than developed economies. There is a compelling need to address market failures in aircraft financing.”
Adesina cited many national airlines such as Nigeria Airways, Air Afrique, Ghana Airways and lately, Virgin Nigeria that came with so much promise but left much to be desired.
In developed economies, loans given to the transport sector are usually long term and at very low interest rate because of the importance of transport in the economic mix of a country and the fact that road, rail and air transport system do not make run-away profits.
In Nigeria, commercial banks, which are profit-oriented and without huge financial base are reluctant to lend such long-term loans to airlines and this has hampered air transport sector in the country.
The AfDB president said: “Commercial banks don’t like to lend to airlines with high interest rate. They have to buy aircraft at cost way above the normal. They pass the cost to passengers.
“Aircraft leasing is very high because of high risk that the continent’s aviation is tagged. We need to find the missing link in the market.”
It was learnt that due to the air mishap, which claimed the lives of passengers and crew members some few years ago, major aircraft leasing firms such as GE Capital Aviation Services (GECAS), International Lease Finance Corporation (ILFC), Cab Tree and Aercap have raised lease on aircraft to Nigerian airlines by over 40 per cent and with a plan to hike it to 50 per cent soon.
He stated that the availability of aviation infrastructure varies across Africa, noting that North, East and Southern Africa have established hubs in Cairo, Addis Ababa, Nairobi and Johannesburg.

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