Five questions to understand airline restrictions on income repatriation

By Maher Hajbi
Posted on Wednesday, 31 August 2022 15:15

Abuja airport, Nigeria © Adam Abubashal/Anadolu Agency via AFP

Slowed down by the soaring price of kerosene and social movements, air traffic is going through a new turbulence zone on the continent due to restrictions on capital transfers.

1 – Why has the repatriation of funds stalled?

International airlines convert revenues made from marketing airline tickets in local currency into dollars to facilitate the transfer of profits to their home countries. While this may look simple on paper, it has been very difficult to achieve this in Africa in recent times. This is due to the restrictions on capital repatriation that some African states – which, faced with an unprecedented foreign exchange reserve crisis are temporarily vetoing any outflow of currency – have recently imposed.

2- Which countries and companies are concerned?

Nigeria is at the heart of this affair, which is shaking the African sky. According to the International Air Transport Association (Iata), Abuja has been syphoning off $465m (€466.3m) of foreign airlines’ cash for several months, including more than $85m belonging to Emirates.

Undermined by “circumstances beyond its control”, the Emirates carrier has decided to “suspend all flights to and from Nigeria, effective 1 September 2022, to mitigate losses and the impact on its operational costs.”

In fact, this embargo on capital repatriation has also been implemented by Zimbabwe ($100m), Algeria ($96m), Eritrea ($79m) and Ethiopia ($75m). Last May, Ethiopian Airlines and Kenya Airways were forced to suspend operations in Malawi due to a lack of cash flow. According to Iata data, nearly $1bn of airline revenue is stranded in 20 countries around the world.

3- What is Iata’s position?

“Disappointed”, the International Air Transport Association renewed its warnings, following those from last June, so that blocked funds could be repatriated to the central banks of the countries concerned.

On Twitter, Iata is firm: “Air carriers will not be able to operate flights unless they are in possession of the revenue from ticket sales.”

In this tense context, the organisation also deplores the impact of the embargo on remittances. “The loss of links is damaging to the economy, investor confidence, and has an impact on jobs and people’s lives,” says Iata, for whom Abuja must give special priority to release capital to prevent the situation from becoming worse.

4- Is there a risk of sanctions?

“No,” a manager of an African airline, whose Paris office he heads, told us. “The amounts in question are not contentious enough to lead to legal recourse,” says the air transport specialist, who finds it difficult to see Nigeria or the countries affected by the freeze on international carriers’ revenues being sanctioned.

According to our official, “Iata, the only body that regulates the airline sector, can only play a mediation role between airlines and states”.

Without legal mechanisms to force a country to repatriate capital, the International Air Transport Association intervenes to defend the interests of airlines. This situation is reminiscent of the previous crises between Emirates and Angola (in 2017) and between Air France, Lufthansa and numerous airlines and Venezuela (in 2012), which, affected at the time by a serious economic crisis, blocked a sum of $4.1bn.

5- What are the scenarios for a rapid exit from the crisis?

In a statement to CNN, Hadi Sirika, the Nigerian minister of aviation, reaffirmed Nigeria’s “capacity, willingness and fairness” to resolve such disputes.

A few days later, the Central Bank of Nigeria (CBN) released on 26 August the sum of $265m – while the total funds held in the country amount to $465m – to alleviate the crisis and prevent international airlines from deserting the Lagos and Abuja airports.

For now, the Dubai-based airline, which promised to “reassess” its decision “in case of positive developments regarding the blocked cash”, has not yet made a decision.

For his part, our air transport specialist, who believes that “a compromise will always end up taking place for this type of procedural blockage”, sees it as “an act of goodwill” likely to “unblock the situation”, despite the risk of recurrence.

Kamil Al-Awadhi, Iata’s regional vice president for Africa and the Middle East, said that “other states that block the repatriation of foreign airline profits are encouraged to follow Nigeria’s example and release the revenues they withhold.” Otherwise, “airlines cannot afford to serve these countries”.

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