The Nigerian aviation sector stands at the precipice of a financial abyss. What began as concerning currency fluctuations has evolved into an existential threat that industry experts have been warning about for years. At its core lies a brutal financial equation: operating costs primarily in dollars against revenues collected in an increasingly devalued Naira.
Sindy Foster, Principal Managing Partner at Avaero Capital Partners, has been sounding the alarm on this brewing crisis for several years. According to Foster, the financial mathematics underpinning Nigerian aviation operations have become virtually impossible to balance.
When Planning Meets Reality
Airlines typically develop business plans spanning five to ten years, incorporating anticipated costs and projected foreign exchange rates. An airline that created its business plan in 2021, when the exchange rate hovered around NGN 441 to the dollar, could hardly have predicted the Naira would plummet to NGN 1500 per dollar by 2024.
This represents a more than three-fold increase in the local currency required to meet dollar-denominated obligations. For every dollar of expenditure, airlines must now generate three times the originally projected Naira revenue – a devastating multiplication that has blown apart even the most conservatively structured business models.
The consequences are severe and cascading. As Foster points out, when airlines cannot afford maintenance, their operational fleet shrinks. Fewer aircraft means less revenue generation capacity, which further compounds the financial strain.
The Domestic Market Squeeze
The crisis manifests differently across market segments. Domestic travel in Nigeria exhibits high price elasticity – when fares increase, passenger numbers drop significantly. This creates a chokepoint for local carriers who cannot simply pass increased costs to consumers without triggering a demand collapse.
International travel follows different dynamics. Foster notes these journeys are relatively price inelastic – travelers may downgrade from direct to indirect routes or switch cabin classes, but they generally still make their trips (subject to visa access – which will be the subject of another article). Worsening economic conditions lead to more ‘japa’. This has allowed international carriers some breathing room to adjust pricing strategies, though even they face growing pressures.
The situation creates a textbook perfect storm: skyrocketing costs meeting inflexible revenue ceilings.
The Dollar Dependency Trap
Perhaps most alarming is Foster’s assessment that 70-90% of airline operating costs remain dollar-denominated. This includes aircraft leases, maintenance contracts, spare parts, simulator training, and various international service agreements.
The math becomes brutally simple. If an airline scheduled maintenance in 2021, the Naira cost to complete that same maintenance today has tripled. Airlines that ordered new aircraft two years ago now face payments requiring three times the local currency originally budgeted.
Yet revenue growth has not kept pace. It cannot.
Foster explains that even if airlines manage to raise fares incrementally, they cannot triple prices without decimating demand. The gap between costs and revenue thus widens relentlessly, creating a financial chasm impossible to bridge through conventional operational adjustments.
Beyond Airlines: A Sector-Wide Crisis
The financial contagion spreads far beyond the airlines themselves. As carriers struggle, their ability to pay airports, regulatory agencies, ground handlers, catering companies, and other service providers diminishes. The entire aviation ecosystem faces revenue contraction.
Travel agencies, already dealing with their own margin pressures, find themselves caught between struggling airlines and price-sensitive customers. The ripple effects touch every corner of Nigeria’s air transport infrastructure.
“Reduced revenue for airlines will lead to reduced revenue for airports, agencies and service providers,” Foster notes, highlighting the interconnected nature of the industry’s financial health.
Dollar Scarcity Compounds the Problem
Beyond mere exchange rate challenges lies an equally troubling reality: the physical scarcity of dollars in the Nigerian economy. Even when airlines accumulate sufficient Naira, they often cannot access the equivalent dollars needed for international payments.
Each delay in securing foreign currency increases costs further, as the Naira continues its decline. According to Foster, this has effectively doubled some bills in real terms between 2022 and 2024 – a devastating escalation for an industry already operating on thin margins.
Maintenance slots get missed. Aircraft remain grounded. Revenue disappears.
The Path Forward
Foster suggests the crisis will persist until two fundamental conditions change: first, more operational requirements must be available locally in Naira; second, the national currency must stabilize against major international currencies.
Nigerian airlines have long advocated for investment in local Maintenance, Repair, and Overhaul (MRO) facilities and domestic leasing companies. Such infrastructure would allow more costs to be denominated in local currency, reducing dollar dependency.
These calls for strategic investment have largely gone unheeded. Foster’s assessment is stark: continued inaction threatens the very survival of Nigeria’s aviation sector.
“The math is no longer mathing,” as Foster bluntly puts it.
Without structural changes to address dollar dependency, Nigeria risks watching its airlines – and the broader aviation ecosystem they support – spiral into financial collapse. The warning bells have been ringing for years. The question remains whether policymakers will respond before it’s too late.
For an industry so vital to Nigeria’s economic connectivity and development, the stakes could hardly be higher. The financial equations that once sustained the sector have fundamentally broken down, and only systematic intervention can rebalance them.
Disclaimer: The insights shared in this article are for information purposes only and do not constitute strategic advice. Aviation markets and circumstances vary, and decisions should be based on your organisation’s specific context. For tailored consultancy and guidance, please contact info@avaerocapital.com.
