The Federal Government on Tuesday provided a breakdown of how the new national carrier, Nigeria Air, would be funded, stating that it would provide $55m upfront grant in order to ensure the take-off of the airline this year.
The government also stated that it was not paying $300m for five per cent stake in the airline, adding that $300m was the entire cash flow funding requirement of the carrier for a three-year period.
Responding to social media questions raised about the national carrier, which was unveiled last week in London, the Minister of State for Aviation, Hadi Sirika, explained that the funding requirements for the airline were in stages.
He said, “The $8m represents start-up capital for offices, etc. that is required for the take-off. But $300m is the entire airline cash flow funding requirements (aircraft, operations and working capital) for three years (2018, 2019 and 2020). This funding can be in the form of equity or debt. The financial model estimates cash flow requirements as follows: 2018, $55m, $8m is included here; 2019, $100m; and 2020, $145m.
“In order to ensure the take-off of the airline in 2018, government will provide $55m upfront grant/viability gap funding to finance start-up capital and pay commitment fees for aircraft to be leased for initial operations and deposit for new aircraft, whose delivery will begin in 2021.
“The remaining financial injection by the government will be determined by the quantum of equity that the strategic equity partner will bring as a result of the PPP (public private partnership) competitive bidding process. This explanation clearly debunks the claim in the social media that the government is paying $300m for a five per cent equity share.”
Sirika noted that with the ongoing discussions, the cash flow requirement might be lower than $300m.
He said the cash flow estimates contained a 20 per cent buffer that was put in on the assumption that the airline might suffer an operating loss in its first year due to competition and the need to build a brand.
The minister stated, “As mentioned earlier, government’s contribution to equity will be in the form of an upfront grant/VGF. Government’s upfront grant/VGF contribution to equity will be funded through either a supplementary budgetary allocation or development financial institutions like AFREXIM Bank, AfDB (African Development Bank), ISDB (Islamic Development Bank), etc., who have indicated keen interest in funding the national carrier project because of its bankability and profitability profile.”
Source: Punch
