The Federal Government's recent decision to raise the contributions of aviation agencies to the Treasury Single Account (TSA) from 40 to 50 percent has sparked renewed concern among industry operators.

Previously, there had been extensive discussions among experts regarding the government's intentions behind enforcing the TSA policy, which initially required a 25 percent deduction from the revenues of cost recovery agencies in the air transport sector, later increasing to 40 percent.

The latest announcement of an additional 25 percent increase in remittances has escalated tensions among stakeholders in the industry.

Earlier this year, the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, issued a circular on December 28, 2023, instructing parastatals designated as "super agencies" to remit 50 percent of their Internally Generated Revenues (IGR).

Edun emphasized that this measure aims to enhance revenue generation, promote fiscal discipline, ensure accountability and transparency in the management of government financial resources, and mitigate waste and inefficiencies.

However, just six months after the policy's implementation, findings from Vanguard indicate that the air transport sector may be facing significant challenges, as the Federal Airports Authority of Nigeria (FAAN), Nigerian Airspace Management Agency (NAMA), and Nigerian Civil Aviation Authority (NCAA) could be experiencing financial strain, with potentially severe long-term consequences.

This situation has also led to unrest among industry unions, who have decided to stage a protest regarding this issue tomorrow.

Recently, the Managing Director of the Federal Airports Authority of Nigeria (FAAN), Mrs. Olubunmi Kuku, expressed concerns regarding the financial challenges faced by the agency. Despite being responsible for managing 22 airports across the country, 19 of these airports are currently not viable. Additionally, FAAN is required to contribute 50% of its earnings to the federal coffers, which further limits its operational capabilities.

Our investigations have revealed that capital-intensive projects such as terminal upgrades, airfield lighting, security equipment acquisition, and periodic runway maintenance are essential for the smooth operation of airports in accordance with International Civil Aviation Organization (ICAO) standards. However, the scarcity of funds poses a significant obstacle to FAAN’s ability to consistently execute these projects.

On numerous occasions, the Managing Director of NAMA, Engr. Farouk Ahmed, has formally requested a reconsideration of the 50% deduction. He emphasized that NAMA’s capacity to maintain cutting-edge safety-critical equipment, recruit, and train personnel to meet local and international safety standards as outlined by the International Civil Aviation Organization (ICAO) heavily relies on the resources at its disposal.

Recently, during a speech at the agency’s headquarters in Abuja, Engr. Farouk expressed his concerns, stating, “The safety of our airspace is of utmost importance, and the current financial model is not sustainable. The 50% revenue deduction significantly impedes our ability to maintain and upgrade critical infrastructure, including our outdated surveillance systems, which are over a decade old and urgently require replacement.”

According to his assessment, the current practices and net estimate of Internally Generated Revenue (IGR) are insufficient to cover NAMA’s recurrent and capital expenditures.

Despite the Acting Director General of NCAA, Captain Chris Najomo’s silence on the matter, the Director of Public Affairs and Consumer Protection of the NCAA, Mr. Michael Achimugu, has advocated for the agency’s exemption.

Achimugu expressed concern over the 50% remittance requirement, emphasizing its adverse impact on the NCAA’s ability to effectively oversee the aviation industry. He explained that after remitting funds to the government, the NCAA shares the remaining amount with other entities, leaving it with only 28% of recovered costs. This financial constraint hinders the NCAA’s capacity to fulfill its safety oversight and regulatory responsibilities.

 

What do experts say?

In light of the numerous complaints emanating from aviation agencies, the National President of the Air Transport Services Senior Staff Association of Nigeria (ATSSSAN), Mr. Ahmadu Illitrus, expressed concerns regarding the detrimental Impact on the financial stability of the Federal Airports Authority of Nigeria (FAAN), the Nigerian Airspace Management Agency (NAMA), and the Nigerian Civil Aviation Authority (NCAA).

Mr. Illitrus emphasized the urgent need to address critical areas such as operations, personnel training, and airport surveillance, which are currently facing significant challenges due to financial constraints. He highlighted that the aviation industry operates on a cost-recovery basis, prioritizing service provision over profit generation.

In this regard, ATSSSAN has formally communicated the imperative to exempt aviation agencies from certain financial obligations, ensuring their ability to fulfill their mandates effectively and contribute to the development of civil aviation in Nigeria.

NAMA requires funding to acquire air navigation facilities essential for ensuring the safe operation of flights to and from Nigeria. Significant resources are necessary for both the procurement and ongoing maintenance of these facilities. Additionally, FAAN needs substantial investment to enhance airport infrastructure.

If the government can provide exemptions to other sectors in Nigeria, why should civil aviation be any different? The safety and security of passengers are paramount. Once an aircraft is airborne, any incident becomes unmanageable, and we all hope to avoid such occurrences.

This is why many countries have chosen to significantly invest in their civil aviation authorities and institutions, enabling them to deliver optimal services to both domestic and international operators. Currently, Nigeria is classified as Category Two by the ICAO Council.

Nigeria's Category Two status stems from its considerable contributions to civil aviation infrastructure across Africa and globally. Numerous aircraft traverse Nigerian airspace. Without the necessary infrastructure, the global objective of harmonizing and providing seamless support for the aviation industry cannot be realized. Unfortunately, the government has not fully acknowledged these needs and is diverting funds that should be reinvested into infrastructure development and the training of qualified personnel.

Aircraft falling off skies

It is often said that resources allocated to the aviation industry should remain within the sector to support infrastructure development, modernization, and technological advancements. However, there is a concerning trend of diverting aviation funds to other areas, which poses financial risks and jeopardizes the operations of critical agencies.

One such affected area is surveillance, which is essential for ensuring the safety and security of the aviation industry. Despite the potential consequences, the government seems reluctant to address this issue until a crisis occurs. It is imperative that we prioritize and allocate resources effectively to prevent a return to the days of aviation disasters. Proactive measures are necessary to safeguard the industry and ensure its continued growth and success.

Unique practice

Sindy Foster, Principal Managing Partner at Avaero Capital Partners, recently commented on the potential damage to Nigeria's aviation reputation, stating that she had not observed similar practices in any other part of the world.

In her discussion with Vanguard, she noted that aviation service providers, including airports, regulatory authorities, and air traffic control, typically operate on a cost recovery basis.

Foster explained, "Regulatory bodies are designed to function independently from government influence, which requires them to generate their own revenue streams. Globally, airports earn income from both passengers and non-traveling individuals who utilize non-aeronautical services at departure and arrival terminals.

In Nigeria, the main clients of these agencies are air service operators, both scheduled and non-scheduled, who are likely to pass on any increased costs to their passengers.

Furthermore, they may also increase charges for vendors operating within the airports, which will consequently lead to higher prices for their customers."

Operating costs

The increase in prices is expected to lead to a decrease in passenger numbers due to the elasticity of demand, resulting in diminished revenue for airlines, airports, and related agencies. Consequently, the entire aviation ecosystem will be adversely affected.

A significant drop in revenue—estimated at 50 percent, coupled with the decline in passenger traffic—will limit the funds available for essential operating expenses, including maintenance, salaries, and employee benefits. It is imperative for all agencies to eliminate unnecessary overhead, waste, and redundancy to alleviate the financial strain on both airlines and passengers.

Enhanced transparency in financial reporting and accountability will also prove advantageous. Without necessary restructuring, the responsibility will inevitably shift to the Federal Government to address funding shortfalls for maintenance, repairs, and capital investments needed for the replacement of aging infrastructure.

The current state of Nigeria's aviation sector is difficult to envision worsening. Although there was a brief opportunity for improvement with the resolution of blocked funds, the situation for Nigerian airlines has deteriorated significantly. Given the existing challenges, now is not the time to exacerbate the situation.

Earnings

The former commandant of the Murtala Mohammed International Airport in Lagos, Group Captain John Ojikutu (retired), emphasized the importance of considering an agency’s revenue generation capabilities before mandating a 50% remittance of their earnings.

In an interview with Vanguard, Ojikutu raised concerns about the sustainability of operations if 50% of an agency’s income is deducted without assessing whether the remaining 50% is sufficient. He highlighted the critical nature of safety operations and the need to ensure that agencies have adequate resources to fulfill their responsibilities.

Ojikutu stressed the significance of understanding an agency’s earnings before determining the appropriate percentage for remittance, suggesting that it could be adjusted based on accurate financial information.

He also drew attention to the need for regular maintenance and the lack of a proper security fence at the Lagos airport, emphasizing the importance of investing in infrastructure and security measures.

Investigation

The aviation sector requires thorough examination. NAMA prioritizes safety more than any other organization. Unlike other agencies, NAMA operates continuously, providing 24-hour service. Their personnel are stationed at control towers and are equipped with more safety apparatus than any other entity. For example, the radar and radio systems are essential for maintaining communication with aircraft from the moment of take-off until landing.

Financial resources are necessary to uphold safety standards, which is why it is imperative for the government to ascertain NAMA's revenue before requesting remittances. Safety is not a matter of short-term or long-term considerations; it is a constant requirement. It is a fundamental principle that must be adhered to at all times.

Air transport not in danger — Keyamo

In response, Tunde Moshood, Special Assistant on Media and Communications to the Minister of Aviation and Aerospace Development, Mr. Festus Keyamo, emphasized that safety is a paramount priority and will not be compromised despite the implementation of the 50% Treasury Single Account (TSA) policy.

Moshood stated that the Nigerian Civil Aviation Authority (NCAA), Nigerian Airspace Management Agency (NAMA), and Federal Airports Authority of Nigeria (FAAN) have formally requested the government to exempt them from the TSA policy. Additionally, these agencies are actively exploring alternative strategies to enhance their financial stability. The Minister is actively engaging in discussions with the government to seek an exemption for these agencies. Any updates on this matter will be duly communicated. Furthermore, the Minister is intensifying efforts to improve the financial health of these agencies through various means. Safety remains the cornerstone of the Minister’s five-point agenda and is non-negotiable.