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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.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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