The International Air Transport Association is finally making headway in resolving the issue of blocked funds, which has left airlines flying into certain African countries owed millions of dollars.
Wind the clock back to late 2017 and governments across Africa had blocked nearly $1 billion in payments due to global carriers. The likes of Nigeria, Sudan, Angola and Mozambique were amongst the worst offenders, their economies hard hit by the slump in the price of oil and other commodities.
“These countries were overly dependent on natural resources for a substantial portion of their revenue, and they were dependent on imported products to sustain their own economies,” said Raphael Kuuchi, IATA vice president for Africa. “For many countries the question was: Do I import food for my citizens, or do I give my money to airlines?”
But progress is being made. Both Nigeria and Egypt have cleared all blocked funds, while Angola has reduced the amount it owes to airlines to around $250 million, from $580 million.
“There is definitely still a lot of work to be done. During my last visit to Angola, I received assurance that the government was going to clear the remainder of the blocked funds by the end of August,” said Kuuchi. “From just under $1 billion, today we stand at around $500 million in funds blocked across Africa.”
That includes $180 million still locked up in Sudan, $100 million in Zimbabwe, $40 million each for Algeria and Ethiopia, $29 million in Libya, and $11 million in both Mozambique and the Central African Republic.
While the airline association wouldn’t provide precise figures of how much was owed to specific airlines, funds are typically withheld or released in proportion to the frequency and capacity of flights into the country. With multiple daily frequencies to Harare and Victoria Falls, cash-strapped South African Airways is said to be owed some $60 million by Zimbabwe, while London-listed Fastjet is due around $1.75 million.
Without the cash to fund day-to-day operations, “those airlines which are operating on small margins with cash-flow constraints are most affected,” said Chris Zweigenthal, CEO of the Airlines Association of Southern Africa. “We have supported IATA’s work in [unblocking funds]… It is important that a coordinated effort is undertaken to ensure there are no mixed messages to governments.”
The progress thus far is thanks to a number of factors.
Along with a rise in commodity prices improving foreign exchange earnings for countries, carriers have used the ‘stick’ of reduced capacity and frequencies to spur action.
“Some airlines have gone ahead and cut back, because they could not continue to sustain operations without getting funds out of the country. But governments are now realizing that air transport is critical to their economies,” said Kuuchi.
Education and diplomacy have also been part of the solution, with IATA highlighting that withholding funds doesn’t only affect foreign carriers.
“We had to point out that even their own airlines flying into foreign airports incur costs in foreign currency,” said Kuuchi. “If they have to maintain aircraft outside their country, they need foreign currency. If they need spare parts, they need foreign currency.”
While significant progress has been made, what will happen if – or should that be when – the oil price drops? Will the currency taps be turned off again?
“That is absolutely a consideration,” admitted Kuuchi. “But with countries like Nigeria and Egypt, where blocked funds have been cleared, we have put measures in place with the central bank and government to ensure consistent payment of funds to the airline sector in the future.”
It’s by no means solely an issue for Africa, though. According to IATA, airline funds remain blocked in 16 countries around the world. That includes Venezuela, which has blocked nearly $3.78 billion, while Bangladesh is holding onto $95 million owed to airlines.
The issue was also highlighted at IATA’s Annual General Meeting held in Sydney in June.
“The connectivity provided by aviation is vital to economic growth and development,” said Alexandre de Juniac, IATA’s Director General and CEO. “But airlines need to have confidence that they will be able to repatriate their revenues in order to bring these benefits to markets.”