Airlines booked significant losses in currency depreciation, despite Nigeria and Egypt wiping the slate clean by paying off the bulk of the money they owed airlines in blocked funds. This hugely impacted small African airlines that often operate from a high-cost base, as they had to write off a big percentage of assumed revenues from sales in Nigeria and other African countries.
In one extreme case, one airline lost as much as 60 percent of accumulated funds to currency depreciation, industry sources revealed.
The International Air Transport Association (IATA) on June 2 released its latest report on blocked funds, indicating a 28 percent reduction in the amount of airline revenues blocked from repatriation by governments around the world.
As at the end of April, the bill of blocked funds had dropped to $1.8 billion, from just over $2.5 billion at the end of December 2023.
Most of the gains came from Nigeria paying off 98 percent of the hundreds of millions of dollars it owed, with only $19 million left pending in the system at the end of April. In June 2023, Nigeria owed airlines $850 million. IATA says even the remaining $19 million is due to the Central Bank of Nigeria’s ongoing verification of outstanding forward claims filed by the commercial banks.
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Egypt which also owed huge amounts, has cleared a big portion of accumulated airline funds.
“However, in both cases, airlines were adversely affected by the devaluation of the Egyptian Pound and the Nigerian Naira,” IATA says.
Following progress in Nigeria, Emirates, which suspended all services to the country in August 2022, has announced it will be reinstating flights starting October 2024.
“We commend the new Nigerian government and the Central Bank of Nigeria for their efforts to resolve this issue. Individual Nigerians and the economy will all benefit from reliable air connectivity for which access to revenues is critical. We are on the right path and urge the government to clear the residual $19 million and continue prioritising aviation,” said Willie Walsh, IATA’s Director General.
Even as he appreciated progress in Nigeria, Walsh, asked governments to address the barriers that prevent airlines from repatriating their revenues from ticket sales and other activities in accordance with international agreements and treaty obligations.
“The reduction in blocked funds is a positive development. The remaining $1.8 billion, however, is significant and must be urgently addressed. The efficient repatriation of airline revenues is guaranteed in bilateral agreements. Even more importantly, it is a pre-requisite for airlines—who operate on thin margins—to be able to provide economically critical connectivity. No business can operate long-term without access to rightfully earned revenues,” Walsh said.
Just eight countries account for 87 percent or $ 1.6 billion of the outstanding $1.8 billion global bill of blocked funds. Pakistan ($411m) and Bangladesh ($320m) lead the tally, owing a combined $731 million. Algeria ($286m), Central African Franc Zone ($151m), Ethiopia ($149m), Eritrea ($75m) and Zimbabwe ($69m), now owe airlines the most funds in Africa.
“Pakistan and Bangladesh must release the $731 million in blocked funds immediately to ensure airlines can continue providing essential air connectivity. In Bangladesh, the solution is in the hands of the Central Bank, which must prioritise aviation’s access to foreign exchange in line with international treaty obligations. The solution in Pakistan is finding efficient alternatives to the system of audit and tax exemption certificates, which cause long processing delays,” said Walsh.
Nigeria’s rapid clearance of its backlog has been praised as indicative of an understanding of the critical value of aviation to the economy, by President Bola Tinubu’s administration.
“This particular government understands the value of aviation to its country and it is now actively trying to look at the standard of the infrastructure, to match the cost with the quality of this infrastructure,” commented Kamil Al-Awadhi, IATA’s Regional Vice-President for the Middle East and Africa.