Airline financing in Africa: A daunting challenge
African airlines face a daunting challenge in meeting their future fleet financing requirements. On the one hand, Boeing, the US aircraft manufacturer, forecasts that African carriers will require 620 new commercial jet aircraft between 2009 and 2028 worth a total of US $70 billion.
On the other, the International Air Transport Association (IATA) predicts that African carriers will collectively lose US$500 million in 2009, with the financial prognosis not improving significantly thereafter. Africa is not alone. Worldwide, commercial airline losses are expected to reach US$11 billion in 2009.
“The global airline industry is in crisis and our first look at 2010 shows that losses will continue,” says IATA Director General and CEO, Giovanni Bisignani. He adds: “Smaller airlines have not been able to build up their cash reserves. They rely on the banks that are still lending. As cash flow gets squeezed with falling yields and rising costs, we could see some casualties in the coming months. Cash is king.”
Christian Folly-Kossi, Secretary General of the African Airlines Association (AFRAA), contends that the future of African airlines will remain bleak as long as the African skies are dominated by foreign carriers, the Yamoussoukro Decision is not implemented and there is insufficient co-operation between the continent’s carriers.
IATA urges airlines to cut costs, manage capacity and conserve cash. Equally, it says that airports and air navigation service providers should reduce their charges and Governments must stop “crazy” taxation. “Airlines – unlike car manufacturers and banks – are not asking for bailouts. But we need Government action,” says Bisignani.
Perhaps the real question is whether some airlines in Africa genuinely need a bailout or whether they should revisit and revamp their business models.
– By Nick Fadugba
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