Government takeover of ailing Arik Air is generating controversy even as some undercurrents suggest that there could be more to it than the purported rescue mission of the Asset Management Corporation of Nigeria.
Arik air was until recently, the pride of the Nigerian aviation industry; and frequent travellers who patronised the airline did so with some air of dignity and sense of security. But in the months preceding its February 9 takeover by the Assent management Corporation of Nigeria, AMCON, the airline was in the news, most often for the wrong reasons. This was due largely to the frequent cancellation of flights and long delays, sometimes, unexplained, even as their passengers groaned to high heavens. Arik was largely patronised by the elite of the Nigerian society.
Arik Airline
There was every sign of distress around the airline, yet expectations were high that a possible government intervention could come its way given the prime position the airline occupies in the Nigerian aviation industry. That is why the takeover doesn’t seem to have gone down well with some stakeholders. As a result of some contentious issues, particularly, debt figures, and what some stakeholders view as a hostile takeover of the airline by the government, Joseph Arumemi-Ikhide, chairman of the airline has threatened to challenge the takeover by AMCON in court.
As part of its rescue plan, the management of Arik was said to have scheduled a meeting with officials of Afreximbank in Cairo, Egypt in its quest for massive capital injection to refinance its operations, which has been adversely affected by the foreign exchange crisis. But the takeover, like a plot, came a week earlier.
“Yes, the government may have good intentions, but was the takeover the best approach; Did government show concern for the plight of Arik, given the pivotal role it plays in the nation’s aviation industry?”, one stakeholder asked, suggesting that what government should have done is to find out from Arik, what their challenges were. Subsequently, the government should have given the airline a bailout fund or asked that they take a soft loan that would be guaranteed by the government at a low-interest rate. Not a few Nigerians are worried about the takeover because the same AMCON had earlier taken over Aero Contractors that was in a similar distress position. By the time they took over Aero Contractors, the airline had about nine aircraft but by last year when it shut down for three months, the airline had only two operational aircraft, leaving the impression that it does not have the competence to manage or revive an ailing airline.
Although TELL could not confirm the claim, a government source told the magazine that the idea of AMCON takeover of Arik was initiated before President Muhammadu Buhari left the country for London on medical vacation but the president was said to have expressed reservation for the takeover of a private company by the government. The magazine was told that clandestine moves by some top government officials and their allies in the private sector have been on to ground Arik preparatory to the floating of a new national carrier. The idea of a new national carrier first came up in the last administration but was later shut down in view of superior argument that government has no track record of successfully managing any business, least in the aviation industry. The fresh move, according to sources, is a precursor to a grand plan to merge Arik with Aero to achieve the national carrier objective of a particular interest group in the presidency.
Aviation sources contend that much as the management of Arik may have had their shortcomings, the government seems to have gotten it wrong in the takeover of Arik. It has treated those shortcomings in isolation of the harsh business environment under which the airline and other businesses in the country operate. For instance, airline businesses are heavily dependent on foreign exchange for their operations; and the scarcity of it in recent times is telling on airlines. They depend on it for the procurement of spare parts and servicing of their planes, payment of their expatriate staff, some of who are pilots and engineers, as well as the settlement of sundry charges imposed by regulatory agencies in the aviation sector among others.
By 2014, airlines were getting a dollar for less than N170 but since 2016 when the Central Bank of Nigeria, CBN, floated the naira, they now get it at N315 to a dollar, leaving a heavy financial burden on the airlines. Even when the airlines have the naira equivalent of what they are supposed to spend, the shortage of dollars due to a shortfall in oil production and fall in prices at the international market seem to have compounded their woes. Another major challenge is the fact that aviation fuel, otherwise known as Jet A1 has been scarce in the last one year, again, due to the high exchange rate. In the last one year, airlines in Nigeria have been buying the product, which aviation experts say constitutes about 30 per cent of the total cost of operating a flight at a very high cost of between N250 and N270 per litre, forcing foreign airlines operating in the country to refuel in either neighbouring Ghana or Libreville in Gabon even though Nigeria is the hub of aviation fuel in Africa.
Arik is said to be owing to its German technical partners, Lufthansa Technik, about $20 million for which they withdrew their services due to Arik’s inability to meet its obligations to the partners. In view of the challenge of getting foreign exchange, which Arik contended with over time, there are questions as to how AMCON is going to raise the required foreign exchange to revive the airline. According to AMCON, it will take about N10 billion for Arik to resume full operations, covering its local and international routes. The corporation has claimed that it discovered deep rooted rots at the airline.
Again, some stakeholders are of the view that a good bailout strategy would have been the type Buhari gave to the states of the federation in 2016 with which they offset some of their liabilities. Another is that of former President of the United States, Barrack Obama when he rescued some companies, including those in the auto industry, from the crisis that engulfed it between 2008 and 2010. All the benefitting organisations had to do was pay a single digit interest rate.
In September 2016, the Senate shut down a motion, ‘The Looming Crisis in Nigeria’s Aviation Industry’, presented by Senator Samuel Anyanwu in which he argued that the Senate should approve a bailout fund for airline operators in view of the impact of the economic recession on their businesses. “A couple of weeks ago, Aero Contractors, Medview, First Nation, Arik Air and some other airlines suspended their operations as a result of poor economic activities and other surrounding factors affecting the industry,” Anyanwu told the Senate. But his observation was rejected.
Similarly, the House of Representatives raised the alarm over what it viewed as the precarious state of the aviation sector, largely compounded by the economic downturn. Istifanus Gyang had ‘Under Matters of National Importance’, informed the House that private airlines and indeed, the aviation industry are at risk of imminent collapse as characterised by “sudden stoppage, discontinuance and suspension of operations by major players in the industry including Aero Contractors, First Nation, and Arik Air.” But the House rather threatened to probe the N350 billion aviation bailout funds granted under the administration of former President Goodluck Jonathan; how it was disbursed and utilised.
At the peak of its success story, Arik, now gasping for breath, had about 30 aircraft in its fleet, the largest in Nigeria’s aviation business, accounting for nearly 60 per cent of the air transport business in the country. Its dominance of the market spread to West and Central Africa. It operated 18 domestic and 11 international destinations, including Johannesburg, London, Dubai and New York with a monthly revenue, estimated at N7 billion. The airline is also a major employer of labour in the Nigerian economy. At the inception, it was the pride of Nigeria, in the absence of a national carrier, competing favourably with its counterparts in the international market.
But a downturn set in, turning the once vibrant enterprise to one in distress. As at the time of takeover by AMCON, Arik staff were owed seven months salaries. That was not all. Out of the 30 planes in its fleet, only nine were operational. On the assumption of office, the new management of Arik, headed by Captain Roy Ukpebo Ilegbodu as chief executive officer, under the receivership of Oluseye Opasanya, a Senior Advocate of Nigeria, SAN, disclosed that 21 of the aircraft in the fleet of Arik have either been grounded or have gone for C-Check. Some of the planes were stuck due to financial constraints.
At a meeting of the Senate Committee on Banking, Insurance and other Financial Institutions, AMCON managing director, Ahmed Karu said the debt profile of Arik stood at N352.5 billion out of which the airline was indebted to AMCON alone to the tune of N146 billion as at December 2016 due to mounting interest and unpaid principal. But the magazine gathered that for Arik, that is still contentious. He recounted that in 2011, the corporation acquired Arik’s non-performing loan from Union Bank, N71 billion and Keystone Bank N14 billion. Karu also disclosed that the airline was indebted to Standard Chartered Bank, Zenith Bank, Ecobank and Access Bank to the tune of N165 billion in addition to the foreign component of its huge debt portfolio. He further accused Arik of not abiding by the settlement plan of the agreement reached with the creditors, despite what he described as “leniency and good faith demonstrated by AMCON throughout the negotiation.”
Further to that, he stated that AMCON has paid N9.0 billion on behalf of Arik, while total recoveries from Arik was N4.6 billion. But total repayment by Arik in the last 12 month, Karu said is N50 million. No doubt, Arik was heavily indebted. One aviation stakeholder told the magazine that the situation was so precarious that if AMCON had not taken over the airline, it would have been only a matter of days before the airline suspends operation. One of its immediate challenges was the scarcity and high cost of aviation fuel, which some of its suppliers could no longer deliver on credit as a result of rising exchange rate. Another airline operator said AMCON will do well to revive the airline in the shortest possible time in view of the critical role of Arik in the country’s aviation sector, especially in the domestic segment.
Arik commenced operation on 30th October 2006 as a privately and wholly Nigerian owned commercial airline with a commitment to the people of Nigeria to deliver new standards in aviation. The investment opportunity in the Nigerian aviation industry came up when in 2002, Nigeria’s national carrier, Nigeria Airways was liquidated.
But while the intrigues and the under currents linger, many Nigerians can’t wait to see Arik revived and returned to normal operations. How AMCON goes about it remains to be seen.
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