The Nigerian Government Signs the Cape Town Treaty
The Nigerian Federal Government has adopted the Cape Town Convention (CTC) Practice Directions, which is expected to transform airline operations and provide a significant boost to the nation’s aviation.
On September 12, 2024, the Chief Judge of the Federal High Court, Justice John Terhemba Tsoho, officially signed the CTC Practice Directions during a stakeholders’ meeting of the Presidential Enabling Business Environment Council (PEBEC) at the Presidential Villa in Abuja. Nigeria’s Vice President Kashim Shettima. Chaired the meeting.
The Cape Town Convention treaty aims to minimize risks for aircraft creditors and lower borrowing costs for debtors by increasing legal certainty. This structure makes it easier for airlines to obtain credit facilities for purchasing newer, more fuel-efficient aircraft. Nigerian airlines that adopt the Convention treaty could benefit from substantial discounts on export credit premiums, providing a crucial opportunity for the nation’s aviation industry to upgrade its fleet and access more favorable financing solutions.
In 2023, Nigeria’s air transport industry, which includes airlines and their supply chains, contributed $600 million to the country’s GDP, accounting for 0.4 percent. The sector also supported approximately 241,000 jobs, according to reports from Business Day, a leading Nigerian business publication.
Nigeria’s signing of the Cape Town Treaty marks a significant step in improving its aviation financing infrastructure, including air traffic control systems and maintenance facilities. Nigerian airlines, which often rely on leasing aircraft due to the high costs of outright purchases, will benefit from more favorable dry leasing terms facilitated by the treaty. This allows airlines to acquire modern aircraft with better fuel efficiency, enhanced safety features, lower maintenance costs, and reduced upfront expenses, thereby improving their operational capacity. The improved leasing terms and reduced risks for investors mean that airlines can expand their fleets more readily. This expansion could lead to increased competition in the domestic market, resulting in more frequent flights and better coverage of key routes within Nigeria. Airlines can also use newly leased aircraft to introduce new domestic routes, improving connectivity between Nigerian cities and underserved areas. This growth will facilitate more efficient travel for business, tourism, and freight transport. Access to more efficient and affordable leasing options will lower operating costs for airlines, potentially leading to more competitive ticket pricing. This change would make air travel more accessible to the average Nigerian traveler and boost demand for domestic flights. Additionally, the treaty may encourage new airlines to enter the Nigerian market, increasing competition and driving innovation. It will allow new players to take advantage of better leasing conditions to launch airlines with lower startup costs, adding diversity to the market. All these factors contribute to an economic ripple effect for the most populous Black nation in the world.
More than 70 countries have ratified the Cape Town Convention treaty, which benefits their aviation sectors by attracting investment and enhancing leasing opportunities.
The Benefits for Nigerian Airlines include:
- Access to Better Financing: This improves Nigeria’s access to international financing and leasing markets, enabling airlines to lease or purchase aircraft more affordably.
- Attracting Foreign Investment: The treaty is likely to attract foreign lessors and financiers, enhancing Nigeria’s standing in global aviation.
- Lower Risk for Investors: It reduces risks for investors and leasing companies, making Nigeria a more attractive destination for aircraft leasing deals.
Festus Keyamo, Nigeria’s Minister of Aviation and Aerospace Development, represented by Anastasia Gbem, highlighted that this agreement aligns with the Ministry’s strategic goal of enhancing local airlines and fostering confidence among international investors. This is a crucial step for advancing Nigeria’s aviation supply chain. Additionally, Olusegun Omoseye, the Chief Executive Officer of the National Insurance Commission of Nigeria, emphasized that the new regulations play a vital role in driving growth within Nigeria’s aviation sector and boosting the country’s overall economy. This is a critical development for the aviation supply chain.
Challenges ahead
Dr. Jumoke Oduwole, Special Adviser to the President on the Presidential Enabling Business Environment Council (PEBEC) and Investment, acknowledged the bureaucratic hurdles and challenges impacting Nigeria’s aviation sector. She stated, “Nigerians have been seeing a high cost of flight tickets lately; there are several factors, including foreign exchange and others, but there are also some regulatory and bureaucratic challenges.”
Implementation Issues
Nigeria might need help to fully integrate the Cape Town Treaty’s provisions into its legal framework. This could involve updating existing aviation and financial laws or establishing clear guidelines to ensure transparency and compliance with the treaty.
Compliance with Global Standards
Previously, some Nigerian operators breached the globally recognized Cape Town Convention, which regulates aircraft leasing. In response, the Aviation Working Group warned that Nigeria could face blocklisting unless laws were enacted to prevent further violations. This means aligning with international standards for aircraft leasing, financing, and safety could be challenging. Nigeria will need to ensure that its regulatory bodies and airlines meet the requirements set by global aviation organizations to gain full benefits from the treaty.
Potential Risks for Airlines
While the treaty offers better leasing terms, it may increase reliance on leased aircraft rather than owning them. Over time, this could affect the financial health of domestic airlines, especially if they struggle with long-term sustainability.
These challenges will need to be carefully addressed to maximize the benefits of the Cape Town Treaty for Nigeria’s aviation sector. Several African countries that have adopted the Cape Town Treaty, such as South Africa and Ethiopia, have seen improvements in their aviation sectors. These countries have benefited from better leasing options, attracting more foreign investors and growing their fleets. By signing the treaty, Nigeria aligns itself with global standards, creating an opportunity for similar growth. However, the country will need to ensure proper implementation to fully capitalize on these benefits and compete with other emerging markets in the aviation industry.
Future Outlook for Nigeria’s Aviation Sector Post Cape Town Treaty
Nigeria’s signing of the Cape Town Treaty signals a positive future for its aviation industry. With improved access to aircraft leasing and better financing options, Nigerian airlines are poised for fleet expansion, modernization, and enhanced competitiveness. This could lead to more affordable air travel, new domestic routes, and increased foreign investment. However, the success of these benefits depends on the effective implementation of the treaty’s provisions and Nigeria’s ability to align with global aviation standards. If managed well, Nigeria could emerge as a regional aviation hub, driving growth in tourism, trade, and overall economic development.
