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Economic Downturn: More Airlines May Close Shop

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There is an indication that more Nigerian airlines may close shop as the current economic downturn has hampered airlines operations.

Industry experts have expressed concern that the forex scarcity is taking a huge toll on the aviation sector because virtually everything done in the airline business requires foreign exchange, except the purchase of aviation fuel.

Investigation has revealed that already Nigerian airlines have lost over 45 percent of their passenger traffic while the value of their ticket has also nosedived.

An operator on Wednesday explained why the air transport sector is fairing badly under the present economic morass. He expressed doubt about the possibility of the airlines to survive, if the recession continues in the next six months.

“I doubt whether Nigerian airlines will survive the next six months if naira does not gain value and continues to lose against the dollar. Practically, let us look at the popular aircraft many Nigerian airlines use: Boeing B737. Average number of seats on that aircraft is 120 and if the fare for Lagos to Abuja flight is N25, 000 the airline will generate N3million for every flight.

“At the exchange rate of N400 for $1 dollar that N3million will be $7, 500. But 18 months ago, naira was exchanging N165 for $1 and the value of the same N3million $18, 750. Then during that period aviation fuel was costing N110 per litre and today it costs N220 per litre and the fuel volume for that one hour flight from Lagos to Abuja is 3000, including endurance fuel.

“About 18 months ago 3000 litres of fuel would cost N330, 000, but at the present price, it costs N660, 000. You have to note that airfares have not changed. It is just around that N25, 000. So the fuel price increased by 100 per cent while the value of the dollar has increased by over 200 percent.”

He also noted that as the value of naira has plunged, airlines still pay their expatriate workforce in dollars and these include pilots, engineers and others that are providing technical services and some Nigerian pilots that insist they be paid in dollars.

“So you can see that we spend more money in naira for far less number of dollars and this means that it is only for $7, 500 that a flight leaves Lagos to Abuja and vice versa,” he said.

The operator also disclosed that when an airline leases aircraft, the average calculation is that the airline will pay the lessor about $12, 500 per hour of the aircraft operation and, according to him, the amount could come down to $12,500 when the airline is making a bulk lease of the aircraft of over 200 hours.

So what this means is that while the Nigerian airline earns $7500 per one hour flight, it pays the lessor $12, 500 for one hour and incurs a loss of $5000 in each flight.

“This shows clearly that these airlines will not survive if the recession period is prolonged. So pilots, engineers, aircraft maintenance, insurance, spare parts and training are paid in dollars. This is a sector that is dollarized. So how can anybody survive this? This is simply a matter of postponing the evil day,’ the operator said.

In addition to the above, the airline pays for landing and parking, enroute and navigation charges to the Nigeria Airspace Management Agency (NAMA) and other miscellaneous expenses.

In a recent interview with the Minister of State for Aviation, Senator Hadi Sirika, he promised that government would facilitate the establishment of aircraft maintenance facility in Nigeria and also a leasing company so that Nigerian airlines could lease aircraft at cheaper cost and also maintain their aircraft locally. The cost of maintenance for C-Check begins from $600, 000 to over $1 million.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd

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The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins

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Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020

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Revenue of OPEC Members to Drop to 18 Year Low in 2020

The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.

EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.

If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.

The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.

It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.

It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.

“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”

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