Top Nigeria Airline Hit by Sector Turbulence, Uncertainties

(Bloomberg) -- Nigeria’s biggest airline, Arik Air Ltd., resumed flights Wednesday after a brief suspension of all its operations amid dollar and fuel shortages threatening the aviation industry in Africa’s most populous country.

The restart came less than two weeks after the second-largest carrier, Aero Contractors Ltd, suspended its scheduled services and told staff to take indefinite leave in order to avoid sanctions for using only one aircraft.

Arik, which flies domestically as well as to Europe and the U.S., kept its planes on the ground Tuesday, pending the approval of its new insurance company by the regulator Naicom. The initial insurer had been unable to source foreign exchange to remit premiums to a reinsurance company in Europe, the carrier’s deputy managing director, Ado Sanusi, said.

A fall in global oil prices from the level of 2014 that cut government revenue in one of Africa’s top crude producers prompted the Central Bank of Nigeria to peg its naira currency to the dollar for 15 months in a bid to conserve reserves and cap price increases. The move, which caused a scarcity of dollars, crippled imports and prevented airlines from remitting money abroad. Although the authorities allowed the naira to float on June 20, foreign investors who exited the country haven’t returned yet. The currency has lost more than a third of its value since the devaluation. It gained 0.1 percent at 315.50 per dollar at 10.11 a.m. in Lagos.

“The current scarcity of aviation fuel has impacted on the operations of airlines in the country,” Arik said in a statement Wednesday.

Domestic carriers including Arik, Air Peace, Dana Air and Medview have cancelled or delayed flights for months as oil marketers reduced jet fuel imports because of dollar shortages. International carriers such as United Airlines and Madrid-based Iberia announced their exit from Nigeria this year as they struggled to move revenue out of the country. Others, including British Airways, Turkish Airlines and South African Airways, said their revenue was trapped in Nigeria and travel had declined because of the downturn in the economy.

Unlikely Bailout

“The airlines are carrying a lot of debt and if their problems continue, if there will be anyone remaining, it will be about two,” John Ojikutu, an analyst from Centurion Aviation Consultancy, said of domestic carriers. “Let government support them if government has that money now,’’ he said in a phone interview from Lagos. The chances of such a bailout are slim given the nation’s economic troubles, he said.

Nigeria’s gross domestic product contracted by 2.1 percent in the three months through June from a year earlier, while inflation accelerated to 17.1 percent in July, the highest rate since October 2005. The economy is on track to shrink 1.8 percent this year, according to the International Monetary Fund.

Nigerian airlines asked for financial support from the government last week, the Lagos-based ThisDay newspaper reported, citing Arik’s managing director, Chris Ndulue.

“I don’t know about funding on the part of the government, I am not aware of any developments as regards to this,” State Minister of Aviation Hadi Sirika said through his spokesman in a phone interview Thursday from Abuja, the capital.

“There is nothing the ministry can do in terms of aviation fuel and foreign exchange shortages that airline operators are facing,” as the petroleum sector is deregulated, he said. The airlines can apply for licenses to import their own fuel, the minister said.

To contact the reporters on this story: Emele Onu in Lagos at eonu1@bloomberg.net, Tope Alake in Lagos at talake@bloomberg.net. To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, Sophie Mongalvy, Michael Gunn