Nigerian Airlines Urge Government for Long-Term Financing Policies

Airline operators in Nigeria are calling on the federal government to implement robust policies and strengthen regulations to attract long-term, single-digit loans from financial institutions. The push comes as carriers struggle with high financing costs that hinder fleet modernization and operational stability.

The Airline Operators of Nigeria (AON), the primary advocacy group for domestic carriers, highlighted the critical need for a more sustainable financial environment. According to AON, the current lending practices of Nigerian banks, which favor short-term, high-interest retail loans, are unsuitable for the capital-intensive nature of the aviation industry. This makes securing funding for essential investments like aircraft acquisition exceptionally challenging.

The High Cost of Capital

Industry leaders point to prohibitively high interest rates as a primary obstacle. According to data from the Central Bank of Nigeria (CBN), airlines face lending rates between 23% and 30%, a level Captain Ado Sanusi, CEO of Aero Contractors, described as unsustainable for survival. This financial pressure is compounded by currency risk; servicing international loans in U.S. dollars while earning revenue in Naira creates significant economic strain.

Speaking on behalf of AON, Trustee Member Captain Roland Iyayi noted that while local banks show renewed interest in the sector, their fundamental model remains misaligned with aviation's needs. “Nigerian banks have an appetite to finance retail rather than long-term investment,” Iyayi stated. “Nigerian banks like short-term funding structure better than long-term arrangement of five to ten years.”

To address this, operators have proposed a special portfolio arrangement through the Bank of Industry (BOI), Nigeria's main development finance institution. Such a policy would enable airlines to access long-term loans with lean interest rates specifically for aircraft financing, mirroring government support mechanisms seen in other countries.

Regulatory Progress and Lingering Concerns

The federal government under President Bola Ahmed Tinubu has taken steps to de-risk the market for international lessors. The recent implementation of the Cape Town Convention (CTC) Practice Directions and the Irrevocable De-Registration and Export Request Authorisation (IDERA) framework are significant milestones. These regulations are designed to protect lessors' assets by ensuring they can swiftly repossess aircraft in case of a default.

This regulatory enhancement has yielded positive results. According to the Aviation Working Group (AWG), the IDERA implementation raised Nigeria's CTC compliance score from 70.5 to 75.5%. The move is credited with helping facilitate a shift from expensive wet leases to more cost-effective dry leases for Nigerian carriers. It also follows the successful resolution of another major financial issue, with the International Air Transport Association (IATA) reporting in June 2024 that trapped airline funds in the country had been reduced by 98%, from a peak of $850 million to just $19 million.

Despite this progress, concerns about policy sustainability remain. Captain Sanusi of Aero Contractors emphasized the need to institutionalize these protections. He warned that international lessors might fear that a future government could reverse the current administration's commitments. “Government should pay more attention to policies and regulations that will strengthen the industry because if the institutions are right, lessors will be more comfortable,” Sanusi argued.

New Financing Models Emerge

In response to the evolving landscape, new partnership models are emerging. Fidelity Bank recently announced a strategic deal with the Frankfurt-based Aircraft Finance Germany (AFG) to streamline aircraft leasing and acquisition. Stanley Amuchie, an Executive Director at Fidelity Bank, explained the partnership combines local financing capacity with international technical expertise.

“The aviation industry is one industry you have to have the technical know-how to get into,” Amuchie said. “We’re bringing the technical know-how from AFG to our ability to finance.” This collaboration represents a potential pathway for de-risking aviation financing and allowing airlines to scale through structured lease agreements rather than relying on prohibitive local debt.

Historical Context and Future Outlook

The importance of robust, legally-binding lessor protections was starkly illustrated by events in India. In 2023, lessors involved in the Go First bankruptcy case struggled to repossess their aircraft after local bankruptcy laws were prioritized over the Cape Town Convention. The incident led to a downgrade in India's AWG compliance score and highlighted the exact risk Nigerian operators want to avoid by institutionalizing the IDERA framework.

Looking ahead, the Nigerian government is expected to continue its focus on building a more resilient aviation sector. The Federal Ministry of Aviation and Aerospace Development is anticipated to establish a national aircraft leasing company, a milestone expected in late 2026 or 2027, to further support domestic carriers.

Why This Matters

Establishing a stable and affordable financing ecosystem is crucial for the future of Nigerian aviation. It would enable airlines to modernize their fleets, which directly impacts safety, reliability, and operational efficiency. For an economy heavily reliant on air transport, a healthy airline industry is a catalyst for broader economic growth, and these proposed regulatory and financial reforms are fundamental to achieving that goal.