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Published On: Wed, Nov 8th, 2017

Airline business: Insurers scared of myriads of troubles

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By Etuka Sunday

Nigeria’s aviation sector is presently bedeviled by myriads of troubling issues thereby scaring away underwriters from covering the domestic airlines’ risks, NGOZI ONYEAKUSI reports
Poor regulation, lack of maintenance facilities, high cost of doing business, multiple charges by the various aviation agencies among other challenges in the aviation sector have contributed to its poor contribution to Nigeria’s gross domestic product (GDP).
Findings have shown that most underwriters are watching and pondering over the likely effect of this inappropriateness if they ever venture into the business. Their interest in the airlines, investigations revealed will be renewed if situation improves.
Naturally, aviation business is highly risky and capital intensive, now compounded by all the numerous challenges, insurance experts strongly argue that if not properly checked, will perpetually keep them away from the business.
It is regrettable to note that all efforts made to revamp the sector are being frustrated by people or groups who may not be favoured. Presently, the federal government has moved to concession the Lagos, Abuja, Kano and Port Harcourt airports.

Insurable aviation risks
Aviation insurance provides cover specifically for the operation of the aircraft and the risks involved therein.
The common types of insurance available for an aircraft owner include passenger liability insurance, hull/aircraft insurance and public liability insurance. Most aviation business in the insurance market is placed through brokers, so that the risks may be spread and the necessary capacity obtained. It is the duty of the broker acting on behalf of the insured to decide which underwriters to approach to insure the risk.

Aviation business woes
Apart from the aforementioned, aviation business is weighed down by lots of challenges ranging from poor claims administration, often caused by non confirmation of the actual boarded passengers with names in the manifest and incomplete documentation by claimants. Others include fraudulent claims, multiple claimants as well as cultural/religious inhibitions.
Similarly, some airlines are not adequately capitalized and this poses a threat to the business. Some only afford to pay premium at event of risk.
Sosoliso Airlines, for instance, sold one of its aircraft to settle claims when it had a fatal crash in 2005.
The management of Arik Air was taken over by the federal government through its debt management and recovering agency, the Asset Management Corporation of Nigeria (AMCON) in February, 2017 due to the airline’s huge indebtedness to the tune of N300 billion. Even Aero Contractors is presently partly owned by the government as a result of the firm’s inability to meet up serious financial obligations. These have continued to mar activities in the sector.

Efforts to revamp aviation sector
The Federal Government recently said it has resolved concession of Kano, Abuja, Lagos and Port Harcourt airports, as well as transaction advisers for the process, this is aimed tackling the menace of the sector.
The renovation of Abuja run way was accomplished by the Federal Government early this year.

Experts’ views
Reacting to the development, the President, Airline Operators of Nigeria (AON), Capt. Nogie Meggison, advocated the need to create a more conducive environment for domestic airlines to thrive.
Meggison said that Nigerian carriers were restricted to daylight operations in most airports in the country while airlines in other West African countries operate 24 hours.
Blaming the ugly development to multiple taxation/charges, the Chairman of Air Peace, Mr. Allen Onyema, lamented that multiple charges imposed on the airlines had kept many of them out of business.
“If these taxes are not reduced, more airlines will crumble. No airline can survive this regime of taxes. Currently, we pay about 37 charges.
“The taxes have been here before this government and that is why we are appealing to them to streamline the charges as a form of support to the airlines,” Onyema said.
On his part, the managing director, Risk Guard Africa, Dr. Yemi Soladoye, said: “Challenges in the aviation industry especially bordering on finance definitely interface with the insurance industry, you know all these aircraft are managed by human beings, when the pilot and crew are worried about collecting their salaries, when the aircraft are poorly maintained, have effect on the safety of the aircraft.
So it will end up affecting claims. Well, good aspect is that aviation is an international business, the underwriting; the rating and others are done at international level. Usually putting control especially to the safety of the aircraft and psychological balance of the pilot, human error and so on, there is much that can be done. So once there is problem in that and any other industry in that way, it will definitely affect insurance.”
Speaking on underwriters’ indifference as a result of these challenges, Soladoye maintained that it was not supposed to be pointed out unhealthy competition among insurers as the problem.
“It is not supposed to be like that, in Nigeria most underwriters only look at premium, they don’t look at risk even when risk profile is substandard you still see many underwriters wanting to go into that because first concern for them is survival, just to be in business”.
In his contribution, the managing director, Sterling Assurance Plc. Fatai Lawal said: “There is diversion from aviation business due to inadequate regulation in the sector. You know aviation sector is said to be poorly regulated now. A lot is happening there among the airline operators that led to AMCON’s take over Airk Air.”

Way forward
For aviation sector to rebound in order to contribution significantly to the nation’s Gross Domestic Product (GDP) and also create thousands of jobs, aviation experts and stakeholders said government political will, commitment and vision will come to play.
They believed that the myriads of problems plaguing sector would be solved if Nigeria limits the operations of foreign airlines to create opportunity for local airlines to flourish as well as modernise the airports through public private partnership.
Government as matter of urgency must give support to Nigerian airlines to ensure that they operate profitably and successfully.
International Air Transport Association (IATA) projects that enhanced intra Africa air connectivity and improved domestic services would generate about 17, 400 jobs and add about $128.2 million annually to Nigeria’s GDP.
This cannot be realized with the present infrastructure decay at airports and hostile operating environment threatening their existence.
Industry operators equally said for Nigeria to grow strong, indigenous airlines government must create opportunities for them to maximise the huge passenger market, which presently is exploited by international carriers.
The stakeholders argue that every country protect its own indigenous airlines, provides them incentives and also protect their interests. But on the contrary, Nigerian government gave foreign airlines unlimited opportunity to airlift Nigerian passengers without any kind of partnership with local carriers and government does not have any policy that would encourage foreign airlines to invest in the country, help train Nigerian personnel or even give Nigerians job opportunities in their international operations.

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