Stakeholders: NCAA Must Seek Additional Funding to Stem Financial Crisis

Chinedu Eze

Industry stakeholders have called on the Nigeria Civil Aviation Authority (NCAA) to seek for additional revenue streams that will boost its finances and avert any form of financial crisis.

According to them additional sources of income will continue to stabilise NCAA, even when airlines face disruptions due to operational challenges and are unable to meet up with their financial obligations to the agency.

The industry observers are of the view that as the industry grows and airline operations expand, NCAA will spend more money on skilled manpower remuneration, technical training and engagement of more personnel to carry out its regulatory functions.

The stakeholders noted that inflation and high exchange rate have undermined profitability of airlines which now grapple with taut operational funds, prompting them to struggle to keep their obligation with the regulatory authority.

Besides the 5 per cent Ticket Sales and Cargo Sales Charge, which the airlines pay to NCAA, and shared among four other aviation agencies, other fees and taxes airlines pay to the regulatory authority are regulatory and administrative fees. These include fixed fees for direct regulatory services and certification.

But these revenues that accrue to NCAA are not enough because while the agency’s expenses continue to expand as it recruits more personnel, trains and retrains its workforce, the agency struggles to meet its fiscal obligations.

The stakeholders observed that the funding of NCAA reached a crisis point during the Middle East crisis when airlines were not able to pay their five per cent Ticket Sales Charge and Cargo Sales Charge due to the sudden increase in the cost of aviation fuel, which peaked at N3, 500 from pre-war price of N900 per litre, thus plugging NCAA into financial catastrophe.

To make matters worse, the National Assembly is currently reviewing the sharing of 5 per cent Ticket Sales Charge among five aviation agencies, including NCAA and the Nigeria Airspace Management Agency (NAMA) and it plans to reduce NCAA’s share from 56 to 40 per cent and increase NAMA’s from 22 to 40 per cent.

Industry experts fear that with the planned reduction in NCAA revenue, the agency may not be able to effectively carry out its regulatory functions in the industry and this may lead to breach of safety standards.

The Chief Executive Officer and Accountable Manager of Aero Contractors, Captain Ado Sanusi, said it would be precarious for NCAA to continue to depend on airlines financial obligations and has therefore suggested other ways the regulatory authority could boost its revenue beyond what it earns from the airlines.

Sanusi noted that for over two decades NCAA and NAMA have been funded through a single, undifferentiated instrument: the five per cent Ticket Sales Charge (TSC) and Cargo Sales Charge (CSC) levied on every ticket sold by domestic airlines.

“This has produced chronic crises: airlines defaulting on remittances, “No-Pay-No-Service” sanctions against carriers, inspectors owed allowances for months, and an open dispute now before the National Assembly over how the five per cent pool should be re-shared between NAMA and NCAA. This is not a sharing-formula problem; it is a structural design failure, and re-slicing the same inadequate pie will not resolve it,” he explained.

Sanusi said that for these two agencies to secure enough funding to sustain their operations and services, NAMA should be commercialised on the NAV CANADA model (Canada equivalence of NAMA) — a cost-recovery, not-for-profit ANSP (Air Navigation Services Provider) funded entirely by direct charges to the airlines it serves, governed by a board on which airlines hold seats, including the chairmanship.

He also stated that NCAA should be funded principally from federal budgetary allocation, supplemented only by a flat, uniform, per-passenger Safety Oversight Contribution, never a percentage of ticket price, dedicated to closing the pay gap between regulatory inspectors and the industry they oversee.

According to Sanusi, “International practice is not uniform on who pays a regulator: the UK’s CAA (Civil Aviation Authority) and Australia’s CASA (Civil Aviation Safety Authority) are substantially industry-funded, while Transport Canada’s regulatory arm and the EU’s EASA (European Aviation Safety Agency) rely materially on government appropriation.”

The Aero Contractors CEO further explained that under the extant sharing formula, the five per cent TSC/CSC pool collected by airlines and administered through the Central Bank of Nigeria is divided among five agencies with fundamentally different mandates and cost structures: NCAA (56 per cent), NAMA (22 per cent), Nigeria Meteorological Agency (NiMet) (nine per cent), Nigeria College of Aviation Technology, Zaria (NCAT) (five-seven per cent), and National Safety Investigation Bureau (NSIB) (six-eight per cent, depending on source).

Sanusi said, both sides (NCAA and NAMA) are, narrowly, correct that they need more money, “which is the point: a single levy cannot fund a capital-intensive commercial operator and a sovereign regulator without one starving the other whenever traffic falls or the formula is renegotiated. The dispute is a symptom; the disease is the shared levy itself.”

He, therefore suggested that instead of sharing one revenue that cannot be enough for both agencies in addition to the other three, alternative sources of revenue should be sought.

“No two countries fund their aviation parastatals identically. The examples of Canada, the EU, the UK and Australia show a consistent discipline:  that air navigation service provision is treated as a commercial, cost-recovery function billed directly to its users, while safety regulation is a distinct, protected function whose funding source is chosen to preserve independence and technical capacity, never left to compete with a commercial operator for the same pool,” Sanusi said.

A former Director General of NCAA, Captain Musa Nuhu, spoke to THISDAY in a telephone interview and argued that seeking alternative funding might go against the rule because NCAA is a regulator, not service provider like NAMA and the Federal Airports Authority of Nigeria (FAAN); although he did not rule out government funding.

He also warned against reducing the 56 per cent NCAA currently receives from the 5 per cent Ticket Sales Charge, saying that such reduction would affect the quality of the agency’s personnel and regulation efficiency and emphasised that as regulator, the technical personnel of NCAA should be more knowledgeable and more experienced than those that work for airlines and other agencies.

Nuhu also said that as service provider, NAMA could be commercialised.

The former Director General also criticised the remittances NCAA pay to the federal government, saying that government ought not collect the agency’s revenues because it is not an organisation that charges for its services but makes money from cost recovery. Instead, government ought to support the agency through subvention.

“There is significant growth in the aviation industry in the last 10 years and because of this growth, there is need for NCAA to organise more training, engage more technical personnel in order to sustain that growth and these need more money.

“According to the International Civil Aviation Organisation (ICAO), Standard and Recommended Practices (SARPS), NCAA personnel is supposed to be better paid, more knowledgeable and coupled with the exponential growth in the industry, NCAA needs more resources,” he said.

NAMA insider told THISDAY that the most capital-intensive infrastructure in the aviation industry is airspace management, which includes provision of Communication, Navigation and Surveillance facilities.

“NAMA spends huge amount of money every day to maintain its navigational aids, to maintains its radars, Doppler Very High Frequency Omnidirectional Radio Range (DVOR), Distance Measuring Equipment (DME), which are not only located at different airports but at different other locations in Nigeria to ensure that the aircraft in the air is guided safely from take-off to landing.

“This equipment operate 24 hours and NAMA spends humongous amount of money on diesel to operate the installations both inside and outside the airports. We embark on training regularly to update our technical personnel and most of our infrastructure need regular modernisation. So, we really need more money to sustain the critical service we provide for safe flight operations,” the source said.