Iberia Is Leaving, Others Might Follow

iberia

The much argued Forex policy of the federal government of Nigeria has once again taken its toll on Nigeria’s aviation industry. The news of Iberia PLC [, Spain’s flagship carrier stopping its flight operation to Nigeria is perhaps one of more to come.

The Genesis

Since the crash of the NGN against the USD by nearly 70% the Central Bank Of Nigeria, CBN put in place a dual Forex policy. The CBN inter-bank window and the parallel market. The CBN came up with a a list of over 40 items banned from accessing the inter bank Forex window. They were to source for USD in the parallel market.

While the CBN claimed it did not ban airlines from accessing Forex from the official window, many airlines complained of not getting access to Forex to repatriate funds to their HQ operations and pay for essential services rendered to them by their partners and suppliers. As a matter of fact, it was reported via a reliable source in the aviation industry that all carrier combined have a whopping NGN 90 billion trapped in their accounts with no Forex to get them out of the country.

The short term effect of the gruesome predicament airlines found themselves was to hike air fares by close 100% to 150% depending on the route for direct flights. A Lagos to London one way ticket that used to go for about NGN 250 000 was going for as high as NGN 550 000 to 750 000 depending on the week it is booked.

Analyst argued that Airlines were not just raising fares to make more profit or cover rising costs of doing business but hedging their the vicious Forex risks they have been exposed to. Many airlines were said to be accessing Forex through the Parallel market where USD 1 was exchanged for up to NGN 320 to 350.

What Happened to Iberia?

Iberia announced it was shutting operations in Nigeria because of slowing passenger traffic booking to fly to Madrid its main hub. It is easy to deduce that the unfavourable Forex policy coupled with a low passenger traffic is way too many a challenge to face.

iberia
Source: Iberia

With Iberia pulling out, some other legacy carriers who use their main hub as the connecting route to other countries might not pull out but have a high probability of announcing a reduction in the number of flights they operate in Nigeria.

Iberia PLC is owned by International Consolidated Airlines Group SA [LON: IAG], the company merged with British Airways in 2010. As a result of the merger, IAG has British Airways, Iberia, Aer Lingus, Vueling, IAG Cargo, Iberia Express, OpenSkies, Comair as its subsidiaries. The group’s 2015 operating revenue is estimated at GBP 20.3 billion.

Any Respite?

There seems to be no immediate solution to the Forex debacle that is giving everyone and especially international airlines migraines. The CBN has not changed its narrative that airlines are not affected by its Forex policy. The Nigerian parliament passed the 2016 budget pegging the Forex rate at 1 USD to NGN 197.

The situation might not get better if the there is no new move perhaps by the minister of aviation to rally policies and solutions that can protect airlines from getting caught up in the line of Forex fires. However, Nigeria’s adoption of Yuan as a second currency of trade might reduce the government’s demand for Forex. The excess of these might be shared to essential services including  the aviation sector. Moreover, the impasse in passing the 2016 budget has dislocated any means of interfacing with policy makers on what can be done to tame the situation.