COVID-19: Airlines, Others To Get CBN's Cheap Loans But Operators Don't Need It

 

Airlines and other aviation operators will get loans at a reduced interest rate as the Federal Government begins plan to provide palliatives for the aviation industry. The airline operators have been badly hit by the economic downturn that resulted from the COVID-19 pandemic, and some of them are projected to shut down businesses if they don't receive financial interventions.

So in order to prevent them from shutting down operations, the airlines and other aviation stakeholders will be thrown a lifeline to ensure their businesses do not get swept away by the onslaught of COVID-19 pandemic. The lifeline will come in the form of loans, which will be provided at a reduced interest rate of 5%. This comes a month after the Asset Management Corporation of Nigeria (AMCON), requested that FG offers financial relief or bailout to airlines to ensure their survival.

The cheap loan is expected to assist the aviation companies as they prepare to resume operation after the aviation industry was shut down for over three months by a presidential directive. The industry was caught in the middle of the battle to curb the coronavirus, as FG adopted the lockdown measure.

According to the Minister of Aviation, Hadi Sirika, the airlines, ground handling firms and other aviation operators or firms will get the 5% interest rate that will go into effect from 2021. In an AllNews report, Sirika had disclosed that about N24 billion is being lost monthly, explaining that out of the loss, the aviation loses about N7 billion a month, airlines lose N10 billion, while ground handling loses N4 billion monthly as well.

It was learnt that the government has not concluded on the framework of the aviation COVID-19 loan. The Central Bank of Nigeria (CBN) and the Federal Ministry of Finance, Budget and National Planning are reportedly still working on the framework. But despite the cheap loan, many of the airlines might not survive the coronavirus period due to the financial impact.

Cheap Loans Won't Stop Some Airlines From Shutting Down

Both airline companies and travel agencies have been greatly affected by the restriction on movements within Nigeria and globally. This has led to the cancellation of flights and travel bookings. With some companies already pondering downsizing, some might just shut down. Already, Arik Air has placed 90 per cent of its staff on unpaid leave since May 1, a month after slashing staff salary by 80 per cent.

Sirika said the revenue loss recorded in the aviation sector can't be compared to any other sector even though these sectors were also impacted negatively by the coronavirus outbreak. He stated that several airlines won't survive the pandemic, “We are very aware of our responsibilities and the weight attached to this. We are worst hit among all the sectors. Some 17 billion is being lost by the airlines monthly, thanks to COVID-19... This is the situation of civil aviation. It is really a pathetic one and I can guarantee you that several airlines won’t come out of this, unfortunately," he said a month ago.

Aviation Sector Doesn't Want Reduced Interest Rate

The aviation industry is in need of financial relief measures but the challenges faced by the operators in the aviation industry is too critical for the type of loan the government is offering them. According to the Director-General and Chief Executive Officer of International Air Transport Association (IATA), Alexander de Juniac, half of passenger revenues will disappear - that means $314 billion will go down the drain.

For the most part of the first half of 2020, the aviation business and revenue was negatively affected by the COVID-19 pandemic and the lockdown measure, yet the global industry, according to Juniac, is expected to burn through $61bn of cash reserves in the second quarter alone. Also, in Nigeria, N160.58 billion has been projected to be lost in the Aviation Industry, with 2.2 million jobs at risk this year.

This shows reduced interest rate loans is not what the industry needs, rather, an interest-free loan that won't take more than what has been borrowed. The reduced interest rate loan is like kicking the aviation operators while they are down. The President of National Association of Nigeria Travel Agencies (NANTA), Bankole Bernard, had stated in March 2020 that the soft-loan needed from the government is an interest-free loan and overdrafts.