The Federal Government is considering a new Seat-for-Debt arrangement to address outstanding debts owed by domestic airlines to aviation agencies, a senior source within the Ministry of Aviation and Aerospace Development has disclosed.
Under the proposed framework, airlines could allocate funds through a travel cash wallet in place of cash payments to the the Nigerian Civil Aviation Authority (NCAA), the Nigerian Airspace Management Agency (NAMA), the Federal Airports Authority of Nigeria (FAAN) and other government agencies towards settling their debt obligations.
The source said the initiative could provide the Government with a continuous debt-recovery mechanism while allowing airlines to preserve cash for critical operations, adding that “It is understood that the proposal is being considered as an alternative to aggressive enforcement measures that could disrupt airline services.”
Further consultations are expected to determine the participating airlines, eligible debts, allocation arrangements and the possibility of commencing with a controlled pilot programme.
At a meeting to discuss the proposal, an aviation expert, Dr Segun Oyebolu, explained that the issue of existing debts owed to the various agencies could be addressed through a barter arrangement, which would allow the airlines to exchange their “perishable assets” in place of outright cash payments for the debts owed to the Ministry and its agencies.
Dr Oyebolu further explained that, in view of the cash-strapped situation of these various airlines, arising from higher-than-normal operating expenses, it would be better, more reasonable and more attractive for the airlines to begin paying the debts owed to the Government through a flexible seat-sale arrangement.
“In practical terms, the solution is based on each airline creating a centralised digital wallet equivalent to the amount owed to the various agencies as at the agreed date. This digital wallet, holding the equivalent of the agreed debt position, will become accessible to the Ministry or its designated distributor, QuickAir.
“It is from these wallets that the distribution platform of QuickAir Network will commence the distribution of these assigned stocks to large agencies, corporate organisations and interested government agencies, enabling them to access discounted flight tickets from these various airlines,” he said.
Dr Oyebolu also stated that, since about 70 per cent of domestic flight tickets are sold online, QuickAir will provide an enabling settlement engine that will ensure that, as customers of the airlines make payments online, the five per cent Ticket Sales Charge will be automatically remitted to the designated account of the NCAA, while 95 per cent of the sale will be remitted immediately to the airline.
In the United States, for instance, the measures often adopted have involved converting hundreds of millions of dollars of debt into equity, alongside new financing.
Simply put, the Seat-for-Debt arrangement is essentially a debt-settlement mechanism in which an airline uses the value of future flight tickets/seats to offset money it owes to government aviation agencies, rather than paying the debt entirely in cash.
Experts said the proposal is potentially quite innovative, but is better described as a ticket-revenue-based debt-settlement mechanism rather than a conventional international debt-restructuring model.
The Federal Government is reportedly considering this arrangement to recover outstanding debts owed by domestic airlines to aviation agencies.
Linus Aleke
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