Fidelity Bank MD explains aviation funding and interest rates
Commercial banks cannot lend to Nigerian airlines at single-digit interest rates because they borrow funds at about twenty percent. Managing Director and Chief Executive Officer of Fidelity Bank, Dr. Nneka Onyeali-Ikpe, explained this cost-of-funds barrier during a session at the FAAN National Aviation Conference (FNAC). She said the industry needs cheaper capital; however, the reality of commercial banking economics makes such lending impossible.
“Commercial financing by commercial banks… it’s absolutely impossible to lend at nine percent when your deposit cost is twenty,” Dr. Onyeali-Ikpe said.
“It is just not possible for banks to lend at single digits. The industry needs to borrow at single-digit rates to keep up with the kind of expense they have to deal with… their assets are very huge.”
You just heard the kind of figures, and those figures are real. If they have to borrow that kind of money, they need 10 to 15 years to pay back, even longer.”
Her remark highlights a structural challenge. Airlines operate with massive capital demands. Therefore, they require long-tenor financing at manageable interest rates.
Meanwhile, banks face high deposit costs and cannot bridge that gap without incurring heavy losses. She explained that the financial spread collapses when banks borrow at twenty percent and then attempt to lend at nine percent.
The MD referenced the scale of industry financing. She noted that aircraft acquisitions can reach $60 million per unit, and fleet expansion pushes financing commitments into hundreds of millions of dollars. In addition, airlines must cover maintenance, crew, insurance, and regulatory compliance. These realities make single-digit interest rates desirable, yet those rates remain unattainable without specialised structures.
Dr. Onyeali-Ikpe said banks must protect their balance sheets. Therefore, the aviation sector must not rely on commercial banks alone for long-term funding. “If commercial banks attempt to provide single-digit interest rates from their balance sheets, the spread simply wouldn’t favour the bank. That’s the truth,” she said. “This is why we need a combination of specialised financial institutions, government support, and innovative funding structures.”
Funding Solutions Outside Single-Digit Interest Rates
Given the constraints of commercial banking, alternate funding arrangements have emerged as critical solutions. Dr. Onyeali-Ikpe identified dry lease agreements as a “game changer” for airlines.
“The dry lease arrangement has been approved for Air Peace,” she explained. “With a dry lease, you save over 30% of costs compared to a wet lease, where the lessor provides crew, maintenance, and insurance, which is more expensive. For airlines to qualify, they must meet specific criteria, including insurance and regulatory compliance. It’s a tall order, but it’s the easiest way to put aircraft in the hands of airlines.”
Fidelity Bank is also exploring international funding avenues. “Through our Fidelity Bank London, we’re exploring funds from DFIs in Europe, where borrowing rates are as low as 3-4%. Once we secure these funds, we can structure them to benefit Nigerian airlines, providing another viable alternative to high-interest local financing,” Dr. Onyeali-Ikpe said.
Government-backed guarantees like the National Credit Guarantee Company (NCGC) scheme, provide additional relief. “The NCGC guarantee scheme covers 60% of bank lending to SMEs. Applying this to aviation could ease the burden on banks and make low-interest borrowing more feasible,” she noted.
Therefore, she urged policymakers to consider such adjustments as part of a broader sector reform strategy.
Industry Requires Structural Support
The demand for long-tenor, low-cost funding continues to rise as Nigerian airlines expand fleet capacity and passenger numbers grow. However, high deposit costs remain the strongest barrier to single-digit interest rates. Therefore, the sector must adopt a blended approach involving government intervention, specialist institutions, and innovative lease structures.
Dr. Onyeali-Ikpe concluded that aviation remains a high-value industry requiring stable financial planning. She said: “In the interest of the country, the airlines need to borrow at single-digit rates. But the reality is that commercial banks cannot lend at nine percent from their balance sheets. That is why we need a combination of specialised financing institutions, government support, and innovative structures to keep the industry moving forward.”
