The federal government is considering a “debt-for-seat” arrangement that would allow domestic airlines to settle outstanding obligations to aviation agencies by allocating future seat inventory rather than making immediate cash payments.

The proposal comes amid the Federal Government’s broader efforts to address the financial difficulties facing domestic airlines.

In April, President Bola Tinubu approved a 30 per cent waiver of about N25 billion in airlines’ debts to aviation agencies following discussions with industry stakeholders.

A breakdown of the debt profile, airline by airline, could not be independently obtained due to invoicing challenges and ongoing reconciliation efforts.

A proposal presented to the Ministry of Aviation and Aerospace Development and obtained by The Nation from QuickAir Networks Limited offers an alternative approach to resolving the persistent indebtedness of domestic carriers to government agencies.

QuickAir’s proposal, cited by The Nation, seeks to recover debts through future airline inventory while allowing carriers to preserve their immediate cash flow.

A presentation to officials of the Ministry of Aviation and Aerospace Development and representatives of aviation agencies indicates that the proposed arrangement would allow airlines to exchange their “perishable assets” to offset part of their outstanding debts.

The proposed mechanism is also designed to prevent airlines from accumulating fresh debts while existing obligations are being settled.

Under the proposal, each participating airline would establish a centralised digital wallet equivalent to its verified debt to the relevant government agencies.

The proposal indicates that the wallet would be made accessible to the ministry or its designated distributor, QuickAir, which would then distribute the allocated seat inventory to large agencies, corporate organisations and interested government institutions.

The proposal indicates that the beneficiaries would be able to purchase discounted tickets from the participating airlines, with the proceeds used to gradually offset their debts to government.

The proposal is contained in a report presented by Dr. Segun Oyebolu, an aviation technology leader.

Oyebolu has been involved in several aviation technology projects.

He was part of the team that designed the current International Air Transport Association (IATA) Billing and Settlement Plan.

He explained that the arrangement would provide airlines with an alternative to outright cash payments.

“The issue of existing debts owed to the various agencies can be repaid via a more favourable arrangement that allows the airlines to exchange their ‘perishable assets’ in place of outright cash payment for the debts owed to the Ministry and its agencies,” he said.

Oyebolu said the arrangement would be particularly attractive to airlines facing cash-flow challenges because of increased operating costs.

Dr Oyebolu explained, “In view of the cash-poor situation of various airlines arising from higher than normal operating expenses, it is a better, more reasonable as well as an attractive option for airlines to start paying the debts owed to the government via a flexible seat-sale arrangement.”

He added: In practical terms, the solution is based on each of the airlines creating a centralised digital wallet in the amount owed to the various agencies as at 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 distribution of these assigned stocks to large agencies, corporate and interested governmental agencies to access discounted flight tickets of these airlines.”

Oyebolu said the debt-for-seat arrangement will be of little value if accumulation of fresh debts is allowed.

To address the issue, Oyebolu proposed a “pay-as-you-issue” system under which charges due to the government would be deducted automatically as airlines sell tickets.

According to him, about 70 per cent of domestic flight tickets are sold online, providing an opportunity for an automated settlement system.

“Under this arrangement, 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 airlines make payments online, the five per cent Ticket Sales Charges will be automatically remitted to the designated account of the Nigeria Civil Aviation Authority, while 95 per cent of the sales shall be remitted immediately to the airline.”

He said the settlement engine works in microseconds such that no visible delay in remission of funds will take place to hamper airline operations.

Oyebolu said the system would not disrupt airline operations because of the speed of the settlement process.

He further revealed that QuickAir has demonstrated its existing ticket distribution and settlement infrastructure.

Oyebolu conducted a route search on the platform, producing results from all 14 active domestic airlines, before displaying the accounting backend showing transactions, revenue generated, and other relevant data.

He said QuickAir is ready to deploy the infrastructure and commence the debt recovery process once the affected airlines under the Airlines Operators of Nigeria umbrella agree to the implementation.

QuickAir management has, however, highlighted the financial implications of the proposed arrangement, emphasising that making money is not its immediate motivation.

“We are willing to work with the Ministry and will be pleased by whatever the Minister deems fit as fair for assisting the country to solve this intractable problem.”

Chairman of QuickAir Networks Limited, Suleiman Ibrahim, thanked the Minister of Aviation and Aerospace Development, the Permanent Secretary, ministry directors, and agency representatives for the opportunity to present the solution.

Ibrahim stressed the company’s determination to help resolve the financial disputes between the government and domestic airlines. The proposed system is expected to undergo further consideration and stakeholder consultations before possible implementation. (The Nation)