Market News

 by Isaac Agber 

LAGOS – Behind Nigeria’s familiar aviation troubles of delayed flights, soaring fares and grounded aircraft lies a deeper financial problem threatening the survival of domestic airlines: they earn mainly in naira but pay most of their major bills in dollars.

Industry estimates indicate that almost 90 percent of airline operational costs are dollar-denominated, leaving local carriers dangerously exposed to naira depreciation and foreign exchange volatility.

Aircraft leases, spare parts, maintenance checks, engine overhauls, aviation insurance and some crew training are among the critical expenses that must be paid in foreign currency.

This means that whenever the naira loses value, airlines effectively pay more to operate the same aircraft, even when their fleet size, passenger numbers and revenues remain unchanged.

Aviation finance expert, Sam Onitilo, described the situation as a structural problem embedded in the balance sheets of Nigerian airlines.

According to him, the pressure goes beyond the widely discussed challenges of fuel prices, ticket fares and access to foreign exchange.

For an airline earning naira but required to make fixed dollar payments every month, he said, currency depreciation could quickly turn a manageable financial obligation into a crippling burden.

Onitilo estimated that an airline operating four narrow-body aircraft under operating leases could incur between $400,000 and $700,000 in monthly lease obligations.

For a medium-sized carrier operating six or seven aircraft, monthly lease commitments could therefore exceed $1 million before fuel, salaries, airport charges, maintenance and spare parts are factored in.

And lease payments are only the beginning.

Foreign lessors typically demand security deposits equivalent to one to three months’ rent, while maintenance reserves are also paid in dollars to cover future heavy maintenance, engine overhauls and component replacement.

These obligations can become particularly painful when an airline experiences a cash-flow squeeze.

Lease agreements can run for several years and are frequently governed by foreign jurisdictions. A default could trigger penalties, repossession or grounding of aircraft, potentially wiping out a significant portion of an airline’s capacity.

The Maintenance Drain

The dollar exposure continues after an airline secures an aircraft.

Nigeria has limited capacity for major aircraft maintenance, repair and overhaul. As a result, airlines routinely send aircraft, engines and components abroad for specialised work.

Major checks, engine overhauls and component repairs are often undertaken in Europe, the Middle East and other African aviation centres, including Ethiopia.

Industry estimates put Nigerian airlines’ annual spending on offshore maintenance and technical support at between $300 million and $400 million.

That represents a substantial foreign exchange drain from an industry already struggling to obtain dollars for its essential operations.

Even routine maintenance creates additional pressure.

Aircraft tyres, brakes, filters and other consumables are largely imported, while engine repairs or replacements can cost millions of dollars.

Nogie Meggison, former president of the Airline Operators of Nigeria, has previously highlighted the frequency of these expenses, noting that airlines must continuously replace tyres, deal with wear and tear and confront increasingly expensive engine repairs as aircraft age.

An executive of an international airline, who spoke anonymously, said the foreign exchange exposure was extensive.

“Most of the cost of operations comes from abroad,” the executive said, citing aircraft financing, maintenance, crew-related expenses and other obligations.

The exposure also extends to expatriate pilots, simulator sessions, type-rating programmes and recurrent training conducted overseas, which are commonly billed in dollars, euros or pounds.

When The Naira Falls

The vulnerability becomes particularly acute whenever the naira depreciates sharply or access to foreign exchange tightens.

During previous periods of severe forex shortages, some Nigerian airlines reportedly waited between six and 10 weeks to access dollars through official channels.

Others had to obtain foreign currency through more expensive alternative markets, while aircraft remained grounded because airlines could not secure the parts or technical services required to return them to operation.

West Link Airlines owner, Ibrahim Mshelia, summed up the problem during one such period.

“The high naira exchange value to the dollar and scarcity is a real issue. Parts and maintenance definitely have a share of the problems,” he said.

The foreign exchange challenge has now been compounded by another major cost shock — aviation fuel.

The Airline Operators of Nigeria (AON) has warned that the price of Jet A1 rose from about N900 per litre in late February 2026 to approximately N3,300 per litre within weeks.

The association described the increase as excessive, arguing that it was far above the roughly 30 percent increase in international crude prices during the same period.

AON President, Abdulmunaf Sarina, warned that airline revenues were no longer sufficient to cover fuel costs alone and disclosed that one carrier had grounded its entire operation since mid-March because of escalating aviation fuel prices.

For airlines already carrying substantial dollar obligations, the fuel shock has further squeezed cash flows.

Taxes Add To The Pressure

Airlines are also facing pressure from taxes, levies and charges.

Air Peace Chairman, Allen Onyema, has warned that the proposed reintroduction of a 7.5 percent VAT on aircraft, engines and spare parts could significantly increase the cost of operating and maintaining aircraft.

Operators argue that the additional cost could eventually be transferred to passengers, potentially pushing domestic economy- class fares towards N1 million on some routes.

Speaking at the 30th Annual Conference of the League of Airport and Aviation Correspondents in Lagos earlier this month, Onyema said Nigerian airlines contend with about 54 taxes, fees and charges across the aviation sector.

He warned that without government intervention, the industry faced serious sustainability challenges.

The problem is that airlines have limited capacity to pass every increase to passengers.

Higher fares may improve revenue per passenger but could also weaken demand, particularly on routes where passengers have cheaper alternatives such as road transportation.

Thus, airlines remain trapped between rising costs and limited pricing power.

A Local Leasing Solution

The Federal Government is increasingly exploring ways to reduce the industry’s exposure to foreign currency.

Minister of Aviation and Aerospace Development, Festus Keyamo, has identified expensive aircraft financing and currency volatility as major threats to the sustainability of African aviation.

One proposal is the establishment of a Nigeria Aircraft Leasing Company (NALC), designed to provide aircraft financing and leasing arrangements that could enable Nigerian carriers to acquire aircraft under more favourable conditions and potentially meet some obligations in local currency.

The proposal seeks to address one of the industry’s fundamental structural weaknesses: airlines generate most of their revenues in naira while significant portions of their expenses remain tied to hard currencies.

Keyamo has noted that the challenge extends beyond Nigeria, with African airlines generally earning revenues in depreciating local currencies while aircraft leases, maintenance reserves and insurance remain dollar-linked.

A domestic aircraft leasing framework could therefore reduce some exposure to exchange-rate fluctuations and make fleet acquisition more predictable.

But the effectiveness of such an intervention would depend heavily on its scale, funding structure and ability to provide competitive financing.

The Dollar Equation

For now, Nigerian domestic airlines remain caught in a difficult financial equation.

They sell tickets mainly in naira, but many of the bills that keep their aircraft in the sky arrive in dollars.

Every major naira depreciation therefore raises the cost of operating the same aircraft. Yet airlines cannot simply increase fares indefinitely because passengers are already struggling with high travel costs.

The result is a sector squeezed simultaneously by foreign exchange volatility, aircraft leasing obligations, offshore maintenance, expensive fuel, taxation and rising financing costs.

The aviation crisis, therefore, is not simply about delayed flights or expensive tickets.

It is fundamentally a currency mismatch.

The aircraft may take off from Lagos, Abuja, Port Harcourt or Kano. The passenger may pay in naira and the airline may be Nigerian- owned.

But much of the financial machinery keeping that aircraft in the sky operates in dollars.

Until that imbalance is addressed, every major naira depreciation will continue to transmit another shock into airline balance sheets — and passengers will ultimately bear much of the cost through higher fares, reduced capacity and, in the worst cases, grounded aircraft.