LAGOS (Reuters) - Nigeria's airline industry owes banks and the government as much as $2 billion after funding rapid expansion with short-term loans, leaving some firms struggling, industry and financial sources say.
The airline industry in Africa's most populous nation has seen explosive growth in recent years, with older domestic names such as Aero, Chanchangi and IRS fighting competition from new players like Arik, Dana and the recently renamed Virgin Nigeria.
The expansion has given Nigerians a wider choice of airlines, many of them flying with new and recently refurbished aircraft, and helped reverse the country's dismal reputation for air safety in the wake of a spate of crashes five years ago.
But as rivals fought to win market share while credit was easy to secure before the global financial crisis, some used short-term bank loans to buy and order aircraft, funds they have borrowed at very high rates, industry sources said.
"It's a high cost business, highly leveraged and susceptible to sudden shocks," Central Bank Governor Lamido Sanusi told Reuters earlier this month, days after extending an intervention fund to help airlines restructure loans.
"Many airlines in Nigeria have borrowed money from Nigerian banks at very high rates of interest and for relatively short tenors, compounding other problems they have," he said.
Sanusi said the extension of the 500 billion naira fund, originally meant to stimulate credit to the manufacturing and power sectors, was as much to protect the country's lenders by helping them refinance some of their airline exposure.
Nigeria's banking industry is itself still recovering from a $4 billion bailout last year.
"One particular airline owes a single bank 117 billion naira. That's a lot. If it crystallises it would wipe out the capital of that bank," Sanusi said.
"The loan is performing, but if this airline were to default, I'd have to come and bail out this bank".
Industry sources said the sector owed banks and government agencies -- to whom carriers pay taxes, landing and overnight parking charges -- around 300 billion naira.
The Economic and Financial Crimes Commission (EFCC), Nigeria's anti-corruption agency, said it was investigating the non-payment of more than 4 billion naira in charges owed to the government by domestic airlines.
"We are looking at infractions on why these airlines have failed to remit due charges collected from their passengers to the government," EFCC spokesman Femi Babafemi said, adding one airline alone owed 80-90 percent of the money.
