One year after its take over of Arik Air, the Assets Management Company of Nigeria, AMCON, is thinking of selling what was once the Nigerian aviation sector’s blue-eyed boy. Since its take over of the company in the last one-year, things have looked up for the airline. But only slightly, says a source in AMCON who spoke with The Business Eye on grounds of anonymity. “The airline may be sold ultimately to another investor who will be able to pay up the accumulated debts because the agency cannot recover all the debts. The more it tries, the more they keep increasing. The agency is currently looking for a serious buyer.” The source said.
AMCON’s Head of Corporate Communications, Jude Nwauzor, while not ruling out the possibility of a sale, says the agency is pleased that some progress has been made in the airlines fortunes. “Now the airline’s flight cancellations were down to 4 per cent, one year after the takeover just as its flights are on time more than 60 per cent of the time. Also, all owed salaries of current staff are fully paid, suppliers are now being paid as at when due.”
Nwauzor credits these improvements to the support of the Central Bank of Nigeria and other local banks.
Arik Air came to the nation’s aviation space with a mission to re-define air transport business in Nigeria. Buoyed by enviable resources, including technically sound air crew team and other operational assets, the airline rode the skies with a lot of promises as air travellers see a new hope in its innovative service delivery, particularly promptness in its scheduled flights.
But then, the confidence of air passengers in the company’s capacity to become the reference brand in commercial air travels in the country waned a few years after, following its inability to sustain its offerings.
Like other brands before it, it seemed Arik Airline rode into the ‘turbulent storms’ of mismanagement and nose-dived into mismanagement abyss that could neither support its present plans nor guarantee its future sustainable growth. Asphyxiated by a plethora of challenges, the airline’s situation became so precarious that it had to seek bailout funds, which as events turned out later to show, it could not pay back.
The culminating crisis that led to AMCON’s takeover of the once highly rated airline was informed by a court order delivered on February 8, 2017. Before then, the owners of the airline were alleged to have mismanaged it such that it could no longer fulfill its financial obligations to creditors, amongst other constraints. The airline was enmeshed in a lot of crises including, erratic operations, inability to pay staff salaries for over months and inconsistent aircraft maintenance culture, all attributable to its corporate governance challenges.
The intervention of AMCON was greeted with glee in the industry, and pundits said it was timely because the airline’s monthly insurance policy was to expire two days after the takeover, a situation that would have grounded the airline permanently.
At the time of AMCON’s intervention, the airline’s debt burden was put at over N387 billion.
Available documents on its debt portfolio showed that Arik was owing N418.89 million on insurance of its aircraft; N4.586 billion unremitted pension funds; N28.34 billion indebtedness to Zenith Bank; N9.45 billion to Access Bank and N632.5 million to Amadeus Marketing Nigeria.
Also included in the debt, is the N3.8 million liability to Marriot and Best Western Hotel; diversion of N2 billion for conversion of two passenger aircraft to cargo facilities; N300 billion owed various aviation ancillary service providers such as ground handlers, fuel suppliers, aircraft service engineers, among others.
Since AMCON took over the airline, the corporation has injected N1.5 billion into the airline, an investment that is clearly not enough to keep the airline at its former pace of controlling over 55 per cent of the nation’s air transport market. The new management under receivership, headed by Captain Roy Ukpebo Ilegbodu, is currently running partial operations with nine serviceable aircraft out of the airline’s fleet size of 28 aircraft. “With nine aircraft, we have been able to sustain regular flight schedules on the very busy local routes such as Lagos – Abuja, Lagos – Port Harcourt, and Lagos – Kano. We are hoping that as the airline’s financial situation improves, more aircraft will be revived and deployed to operate more routes.”
A former regular customer of the airline, Ikechi Uko, told Business Eye that he observed some improvements in the airline’s flight schedules and OTP, but that he was not sure that the improvements were primarily due to AMCON’s intervention.
“People say they (Arik Air) have improved; flight cancellations have reduced with fewer delays. But I’m not sure whether this is the work of AMCON or not,” he said.
A cursory appraisal of the airline’s operations showed that on local routes it is doing fairly well as there have been some improvements due, largely, to the fact that the airline has cut down its fleet, leaving nine for a few viable routes, although with reduced frequency.
However, the airline has stopped flying long hauls, especially international routes such as New York and the UK because it doesn’t have the capacity to fly the routes any longer.
But for industry analysts like Ikechi Uko and John Ojikutu, the airline has lost its position on international routes with many attendant economic woes to the country, having been relegated to a local airline.
Going by World Bank analytics on international air traffic, Nigeria’s international air routes are highly viable. A 2015 report published by the World Bank indicates that ticket purchases to and from Nigeria during the year, amounted, approximately, to 3.3 billion United States Dollars.
This, however, represents 0.48 per cent of world’s air transportation revenue to global GDP; it constitutes a sizable market in Nigeria, which is currently being enjoyed by foreign international airlines. The absence of Arik on these routes denies Nigeria the economic benefit of this huge market share, which keeps increasing with exchange rates of foreign currencies.
Nwauzor, said that the financial position of the company had not improved, adding that even if the original owners of the airline were given 25 years, they would still not be able to pay the debts. According to him, AMCON’s intervention through the instrumentality of Receiver Management is to stabilize the airline’s operations, put it in a position to generate positive cash flow, and then resolve its debt situation through either the owner paying the debts or the sale of the company or its underlining assets. “Specifically, our intervention in
Arik was intended to be value adding and non-destructive and that is the reason behind the stability at Arik today. At the point of intervening in Arik, the company was witnessing a high spate of flight cancellations of up to 40 per cent, on-time performance (OTP), which measures the promptness of scheduled flights had fallen to as low as 15 per cent,” Nwauzor said. In addition to this, “staff, including pilots, was owed salaries, in some cases for up to six months. Staff morale was understandably low. Several service providers including fuel marketers, maintenance, and spare part companies were withdrawing services or were unwilling to extend credits. There were indeed significant concerns at various governmental cycles for safety and the possible impact of the collapse of the company on the economy”, Nwauzor recalled.
According to Nwauzor “The new management in Arik had to take bold decisions to downsize its operations, especially cutting down all the long haul flights, due to the losses being sustained on those operations, and the lack of equity capital to absorb the losses. This very strategic business decision affected the two routes you singled out. But business decisions are evaluated from time to time and I am sure Arik management is looking at all the options and the best approach if they decide to go back to those routes.”
Part of this revaluation of the business decision is the rumoured sale plan by AMCON, which Nwauzor says he “cannot at this moment comment on.” But he does admit that the agency’s “ transactional advisers are looking at all the options that would enable a meaningful exit.”
The spokesman’s position aligns with that of the corporation’s Managing Director, Ahmed Kuru, who said recently at an event in Lagos that the agency had no intention of venturing into airline business or taking over any airlines. “So, AMCON will be willing to exit the firms if the owners of the companies pay the debts owed. Where this does not happen, the Corporation will seek to strengthen the intervened companies and undertake a responsible exit in a manner that reinforces the sector.” Kuru said.
Industry analysts believe that whatever option is taken by AMCON on the ailing airline in the long run, the issue requiring urgent consideration in the nation’s aviation sector bothers on improving the operating environment through various fiscal incentives in order to improve indigenous airlines’ competitiveness and attract new investments into the sector.