•Airlines bleed, to meet Keyamo as operational cost swells by 127%
By Chinelo Obogo and Adewale Sanyaolu
The federal government is currently under fire for unveiling a new policy that mandates helicopter operators to pay $300 for each landing.
The players on their part are kicking against the move, describing it as wrong-headed, insensitive and destructive.
The chopper operators, being part of the Airline Operators of Nigeria (AON), said they were currently bleeding and cannot accommodate further exploitative charges. They hinted of meeting with the Minister of Aviation and Aerospace Development, Mr Festus Keyamo, before deciding on their next line of action.
Industry experts who analysed the new rule, insisted that the policy imposes an unreasonable financial burden on the operators which would translate to a staggering 127% increase in operational costs with a tax hike of about 45% on a conservative estimate.
A recent memo signed by the Minister of Aviation and Aerospace Development, Festus Keyamo, requires helicopter operators to pay a $300 landing fee per flight at all designated landing zones in Nigeria, including airports, helipads, airstrips, floating storage and offloading (FSO) units and oil industry infrastructure. The memo empowers NAEBI Dynamic Concept Limited to exclusively collect these fees, emphasises strict compliance and threatens “appropriate sanctions” for noncompliance.
The memo read: “It is imperative that all operators and stakeholders fully comply with this mandate by granting total access to Messrs NAEBI Dynamc Concept Limited for the collection of the levy, effective immediately. Noncompliance with this directive will constitute a breach of this mandate and will be met with appropriate sanctions.”
Chief Executive Officer of Top Brass Aviation Limited, Roland Iyayi, told Daily Sun that the additional cost threatens the viability of the helicopter industry and would potentially impact the oil and gas sector that relies on these services. He said beyond the landing fee, existing taxes such as value added tax and the Nigerian Civil Aviation Authority (NCAA) charges bring the total tax burden to 42.5% for operators, even before factoring in corporate tax.
Iyayi said a similar attempt was made by the previous Minister of Aviation, Hadi Sirika but faced strong resistance and that the AONwould meet with Keyamo when he returns from the Dominican Republic for a reevaluation of the policy to ensure the continued viability of helicopter operations in Nigeria.
“It is something that does not make sense. First of all, the government has said that you cannot earn naira in Nigeria and you cannot pay in naira, yet an agency of the government is asking people to pay in dollars. Let me give a breakdown on the cost of operating a helicopter. In a Chevron contract where you have an operator that is asked to provide a single engine helicopter like the 407, the monthly standing charge, whether the company uses you or not, is $350,000 a month.
When they use you, there is an hourly charge of $1500. Assuming they do 100 hours a month, that would equate $150,000. If you add the $150,000 to $350,000, that brings it $500,000. The same operator provides five of these helicopters to Chevron and in a day, Chevron does 70 landings with the five helicopters. If you multiply 70 landings by $300 fee per landing, which is $21,000 a day. If you multiply $21,000 by 28 days in a month, that is $588,000 which the helicopter operators have to pay as charges alone from a contract of $2.5 million.
“In this $2.5 million, the operators would still pay VAT of 7.5%, there is withholding tax of five percent, and there is one percent development tax, the total within $2.5 million that encumbered with federal government taxes is 13.5%. Then add five percent of NCAA charter sales charge, which is 22.5%. If you now add the $588,000 and look at the percentage to the $2.5 million, which is 20%. If you add the 22.5%, that is 42.5% is what you are asking them to pay back to you as taxes. They still pay landing and parking charges to the Federal Airport Authority of Nigeria (FAAN) and the Nigerian Airspace Management Agency (NAMA) and that is a standard charge. When you look at this, you are asking an operator to pay 42.5% of their earnings as taxes before the corporate tax, how much of that amount left would cover all the other operational costs they would have to undertake and you think helicopter operations would remain viable.
“The immediate past minister of aviation, Hadi Sirika, tried to implement this policy but it was vehemently opposed, so it is not true that the current minister inherited the process. The Airline Operators of Nigeria (AON) is waiting for the minister of aviation to return so that we can meet with him on the issue because if the helicopter operators suspend their operations because of this, the oil and gas sector would come to a screeching halt. So, something has to give,” he said.
Former chairman, Society of Petroleum Engineers (SPE), Nigeria Council, Mr. Joe Nwakwue, warns that new charges on helicopter services could significantly decrease oil production in Nigeria as the country is already producing 500,000 barrels less oil per day than it has the capacity for.
Mr. Nwakwue told Daily Sun that the new fees will force oil and gas companies to reduce production even further because helicopters are essential for many operations, and the increased cost may make some activities financially unsustainable. The petroleum engineer said no oil service company would be ready to absorb this cost as this would eventually be passed on to the project promoters who would in turn push it on to the end product. He worries that a decision such as this makes the country less competitive and further casts a doubt on government’s policy on the ease of doing business.
“We are already dealing with a high cost environment, so adding this to it means a higher cost of operation which will definitely impact the bottom line. A business that has a medium to long term investment plan may be forced to reduce the level of investments when they begin to observe inconsistencies in government policies,” he said.