David Minty is the Head of Aviation for Africa at Investec Bank, South Africa, which
provides finance support to the aviation industry in Africa. As expectation of industry
recovery from the impact of COVID-19 builds up, he offers insights on how to approach the
tremendous challenges of poor financing in aviation industry in Africa, in this exclusive
interview with Aviation & Allied Business Journal.
David Minty Head of Aviation for Africa, Investec Bank, South Africa
Q: The aviation industry is seeking recovery from the devastating impact of the COVID-19; what has been your experience so far in the aviation financing sector in Africa?
A: We have seen the State-owned airlines receiving some form of support from their governments but have seen very limited assistance for privately owned airlines. Our concern is that a prolonged lag in vaccine roll out in Africa will slow the recovery of international travel into Africa, where a number of markets have a tourism focus.
Q: There have been fervent calls on States and finance institutions in Africa to provide financing support to African airlines which have yielded limited response, how could governments get more involved in supporting aviation financing in Africa?
A: We appreciate that most African governments have fiscal constraints and cannot afford wide ranging support for all airlines as developed economy countries have been able to offer. We would think support measures can take various forms such as reducing fuel, airport and passenger taxes or providing payment holidays or providing longer payment terms for such items, which could provide some level of assistance to all airlines, while also helping to stimulate passenger demand.
A very practical consideration relates to COVID-19 entry testing requirements where a standardized approach to testing is adopted, specifically with reference to using lower cost antigen or lateral flow tests as opposed to expensive PCR testing, this would also help to stimulate passenger demand.
Q: As the aviation industry struggles towards recovery, what role do you think the institutions such as Investec could play to drive recovery in Africa’s aviation industry?
A: A number of commercial bank lenders such as ourselves have remained open to considering aviation financing in Africa, the places where we have seen the best result has been where the commercial lenders have provided support alongside other key stakeholders, including governments, shareholders, lessors, export agencies, etc. where the risk has been appropriately shared amongst all parties.
Q: What do you see as the major impediment in financing African airlines start-up and expansion in the region?
A: The main aspects we consider for financing airlines is a well-considered strategic plan, strong and experienced airline management, and strong levels of shareholder support. One would need all three aspects in place to consider financing an airline.
Q: The Single African Air Transport Market (SAATM) and the African Continental Free Trade Area (AfCFTA) are vital frameworks capable of driving tremendous growth and development in aviation and economy in Africa; how is Investec poised to support participation of aviation in these frameworks?
A: SAATM will facilitate growth in the African aviation sector, allowing airlines to build scale and improve their profitability, which in turn makes airlines more bankable to all commercial lenders including Investec, and lessors.
Q: Africa is seen as the last frontier of aviation development with huge potentials, do you think building substantially increased local aviation financing capacity in Africa is the key to realizing Africa’s aviation and economic objectives faster, and how can this be achieved?
A: Correct, we see a large opportunity for passenger growth in Africa, driven by high GDP growth rates and low passenger penetration. The key for us is how this potential can be tapped across 54 countries which each have their own governance and views on the aviation sector future.
The key is for initiatives such as SAATM, market deregulation, reduced taxes, etc. to gain traction to allow African airlines to efficiently operate outside their home market, which allows airlines to gain scale and in turn reduce ticket prices and increase passenger numbers.
Q: There is renewed emphasis on the untapped cargo airlines market and undeveloped cargo infrastructure in Africa; would you be attracted to supporting new and existing African airlines and operators striving to develop air cargo in Africa?
A: We do see great scope for growth in the cargo market in Africa and have experience in financing cargo aircraft in Africa with existing operators.
Q: As recovery is eagerly awaited in the aviation and economy, what is your expectation in terms of aviation finance over the next 10 years?
A: Specifically with respect to Africa we see large potential for growth in the whole aviation industry and would see a matched increase in demand for related financing. We do also note that growth in the sector will not just relate to airlines but also to other related sectors such as airport infrastructure, roads, hotels etc.
Q: Would you say you have learnt any lesson from the disruption of the COVID-19 pandemic in the aviation industry, and how prepared are you for future volatility in the market?
A: Yes, we have learnt lessons, which comes back to our key principals of backing a strong management team with a solid business plan who have the backing of shareholders who have the means and are supportive of the aviation sector on a long-term basis.
We have also seen that it is important that all client stakeholders need to work together to achieve results in volatile markets, one cannot have key stakeholders pulling in different directions.