CTC PRACTICE DIRECTION: 541 days after, Nigerian airlines still battle leasing challenges

•Experts warn reforms may take long to yield results

By Dickson Omobola

Exactly 541 days after Federal Government, through Chief Judge of the Federal High Court, Justice John Tsoho, signed the Cape Town Convention, CTC, Practice Direction, questions are being raised over why Nigerian airline operators are still struggling to easily dry lease aircraft.
CTC Practice Direction is a regulatory guideline designed to make aircraft leasing easier and faster, while also ensuring that aircraft owners can quickly recover their planes if a lessee fails to meet its financial obligations.
It includes provisions such as the Irrevocable De-Registration and Export Request Authorisation, IDERA, which allows lessors to promptly remove and take back an aircraft from a country if an airline fails to honour its contract.
However, concerns over the slow impact of the framework are coming at a time federal government, through the Ministry of Aviation and Aerospace Development, announced plans to hold an international aviation summit aimed at bringing together aircraft manufacturers, lessors, financial institutions and airline operators to address the persistent challenges surrounding aircraft acquisition among domestic operators.
International organisations expected at the event include major aircraft manufacturers like Boeing, Airbus, Embraer and Bombardier; global and local financial institutions, international insurance companies, Maintenance, Repair and Overhaul, MRO, organisations and suppliers.
Industry observers told Saturday Vanguard that the situation ought to elicit questions, especially when viewed against past experiences in the sector when Arik Air, which was once the pride in the country’s skies, seamlessly leased aircraft during its prime.
Saturday Vanguard learnt that some of the airline’s aircraft, currently being managed by Asset Management Corporation of Nigeria, AMCON, was financed by international companies and guaranteed by some Nigerian banks.
For instance, some Boeing B737 in Arik Air’s fleet were financed by Pacific Export Finance Corporation, PEFCO, of US-Exim Bank, while the Airbus A340-500 were financed by the European Credit Agency, ECA.
However, with the country currently able to secure only a handful of dry-leased aircraft, one of which is the Boeing 737-700NG with registration number EL-HRN operated by Air Peace, industry stakeholders have said the expected gains from the Cape Town Convention framework have not fully materialised.

Initial commitment
Recently speaking at United Nigeria Airline’s fifth anniversary, the airline’s Chairman, Professor Obiora Okonkwo, said while the agreement led to a significant improvement in the country’s compliance rating, many aircraft were already committed to other operators at the time it took effect.
He, however, expressed optimism that as soon as the aircraft were returned to the lessors, they would be in a favourable position to access them.
Addressing newsmen, Okonkwo, who is also the Spokesperson for the Airline Operators of Nigeria, AON, said: “Yes, we are aware of the progress being made with the Cape Town Convention, CTC, Practice Direction, and the new rating that we have, which is now higher than most countries in Europe. Thanks to the Minister of Aviation, Festus Keyamo, United Nigeria has been an integral part of it, participating in all the meetings locally and internationally. Yes, we are very well positioned to be the early beneficiaries, and we have a lot of positive discussions going on in that direction.

2027
“But you know, aircraft are not kept in the warehouse or a store for you to pick. By the time this agreement was made, a whole lot of these lessors had their aircraft committed with different operators. It will take a while, but we are aware. We have gone into agreement signing with some lessors that the first set of aircraft that will come in from them in a very short time, we will be one of the beneficiaries. But we see this more or less materialising to a very fruitful position from the year 2027 when some of the aircraft that are already committed will be returned to the lessors. Because the Original Equipment Manufacturers, OEMs, are now meeting us and some of them are factoring expectations. This is because it is only when the lessee gets a new supply that you release the old contract.”

Reputational consequences
Meanwhile, a lawyer, Bolaji Daodu, tied the situation to the ongoing legal dispute involving AMCON and Arik Air, saying the issue might have projected the country negatively in international leasing markets.
Daodu, in a piece titled: ‘Rescue, Receivership and the Rule of Law: Re-Examination of the Arik Takeover,’ stated that given that aviation is globally regulated, aircraft financing, leasing and insurance operate across jurisdictions.
According to him, Nigeria’s participation in that ecosystem depends on predictability of legal enforcement and respect for property rights.
He said: “If a state-linked enforcement action is ultimately adjudged to have been premised upon a defective asset transfer, the reputational consequences will reverberate through international leasing markets and credit risk assessments. Nations are judged not by the absence of controversy, but by fidelity to legal correction when defects are exposed.”

Cautious
Like him, aviation analyst, Mr Lanre Bamgbose, warned that accessing dry-leased aircraft might remain difficult for Nigerian airlines because major financial institutions such as the European Credit Agency, the United States Exim Bank, Export Development Canada and Pacific Export Finance Corporation, PEFCO, were aware of the challenges and policy inconsistencies in the sector and remained cautious until progress was apparent.
Addressing newsmen in Lagos recently, Bamgbose said investors often examine a country’s governance structure and legal framework before committing funds.
He said: “As a businessman, if I were to invest in your country, I would have to look at the governance structure of commercial transactions in the country. Let us go back to history, and due to some reasons, I do not want to comment particularly about the company that I worked for. However, I am yet to find any significant investment by anybody in the leasing world, particularly the core European side and the Americas in Nigeria since 2010.
“What happens when things go wrong? How are contracts enforced? How are disputes resolved? At least, I am privy to particular transactions with the European Credit Agency and the US Exim Bank, Export Development Canada and with the Pacific Export Finance Corporation, PEFCO. I can tell you their disposition towards the Nigerian market, especially since some issues in the sector have happened.

Way out
“When looked at very broadly, they have affected investment in this country’s aviation. These companies, which are the largest lenders in the aviation space and give structured financing, you rarely find them come to Nigeria and even West Africa. While I must honestly commend the tireless efforts of the Minister, if you are asking me to bring money to your space, the question would be: what has happened to the monies that we put in your space before now? We need to revisit everything and clean up ourselves.”Meanwhile, an industry source who did not want to be named also told Saturday Vanguard that the international aviation community has been following the Arik Air case with AMCON because of their financial commitments with the airline.“““She said: “Whichever way the case swings may influence their perception about investing in Nigeria. The country is still seen as high risk, thereby influencing the cost of aircraft insurance and cost of leasing.”