Arik Airline in productivity controversy six years after AMCON take-over
By Tobi Adetunji
In what appears to be synonymous to the divinerescue of the Biblical Prophet Jonah, the Asset Management Corporation of Nigeria (AMCON) took over Arik airline on the 9th of February, 2017 amidst discordance and cacophony of opinions, but undeniable indebtedness up to the tune of N300 billion by Arik Airline.
Investigations confirmed that Arik Air owed over N300 billion before the take-over. Its creditors include, aviation fuel suppliers, aircraft lessors, insurance companies and aviation agencies, among others.
The takeover was applauded by industry stakeholders because by then the number of serviceable aircrafts available for its local and international routes had reduced to four. The operations of the Airline believed to be the pride of Nigeria was characterised with incessant flight cancellation, flight delays, cannibalisation of spare parts, low morale of staff, incessant industrial action over salary arrears, ceisure of its aircrafts in London, New York and others over indebtedness. Few years after the takeover by AMCON, poor patronage by passengers continue to affect its operations, hence flight cancellation is still a major challenge despite the increase in fleet of serviceable aircraft from four to eight. The Airline has yet to reopen its international routes shut down following myriads of problems that had affected performance and satisfaction of customers. Today, several local airlines have been experiencing glut of passengers but the ills of the past continued to drain size of passengers. For instance, Lagos bound passengers at Nnamdi Azikiwe Airport yesterday protested over cancellation of Lagos flight. Rejection of the refund made the Airline to rescind its decision.
Hence, stakeholders in the aviation industry are beginning to ask questions about the allegations by the Founder Sir Joseph Arumemi-Ikhide that the action of AMCON was done with bad intention by the Federal Government. What has changed in Arik are the questions on the lips of stakeholders. What value has been added to regain the confidence of passengers? What is the current rating by international agencies? What is the size of its debt portfolio before and now? If Arik staff are adequately motivated, why was a staff caught begging a customer for money?
Arumemu-Ikhide had described his airline’s takeover as a bad signal to investors, accusing AMCON of cooking up debt figures to justify its action.
He lamented that it was wrong for an entrepreneur to labour and build a business only for the government to come and take it over. He also argued that contrary to the N146 billion AMCON claim, Arik Air’s indebtedness to the corporation, was N90 billion.
According to him, AMCON’s management had acknowledged N90 billion as the airline’s indebtedness to the government agency. He wondered where AMCON got the extra N56 billion it added to the earlier debt, which both parties had agreed on.
Arumeni-Ikhide said that besides the AMCON’s debt, his airline owed Zenith Bank N35 billion, Access Bank N7 billion and Ecobank N12 billion, bringing the debts to N140 billion respectively, while noting that there were some additional N10 billion debt owned by the Airline.
Speaking further on the debt profile, Arumemi-Ikhide blamed the airline’s huge debts to its international creditors on the depreciating value of the Naira.
He had said the projections and funding were calculated on N165/$ but from the middle of last year, the Naira went down to N305/$ at the official rate. This, he said, made it difficult to keep pace with the payment, especially with increase in the price of aviation fuel, which stretched the finances of airline operators.
He noted that it was good that AMCON suspended international flights, maintaining that if any aircraft belonging to any airline in which the government has interest in is flown abroad, creditors owed by the defunct Nigeria Airways Limited (NAL) might seize the aircraft.
“They may seize the aircraft in London because NAL owed a lot of money to many organisations. When we started flights to London the first challenge that we faced was to explain to them that Arik is a privately owned airline,” Arumemi-Ikhide said.
A former Chairman, Nigerian Aviation Safety Initiative (NASI), Captain Dung Rwang Pam, had described AMCON’s action on Arik Air as the best decision by government. According to him, the airlines’ ousted management did not demonstrate corporate governance in the day to day running of the business.
Pam said the decision could not have been taken at a better time than now, so as not to compromise the airline’s safety record. Arik Air, he alleged, failed to meet up with its obligations in many areas.
He, however, blamed the rot in the aviation sector on poor oversight duties of the Nigerian Civil Aviation Authority (NCAA) at ensuring rigorous economic audit.
President of Aviation Roundtable, Mr. Gbenga Olowo, who confirmed the challenges of domestic carriers, had said the hurdles should not have forced their management to taking wrong steps capable of leading to the collapse of such airlines.
Supporting AMCON’s decision, he had said the industry’s safety group had seen early signs of possible collapse if government did not take over the airline.
But, former Secretary Operators of Nigeria (AON), Captain Mohammed Joji, faulted the takeover of the airline saying such “brash” steps could serve as disincentive to foreign investors.
Rather than outright takeover, Joji had said that AMCON should have collaborated with the former Arik Air.
It’s pertinent to note, that before the February 9, 2017 takeover of Arik Air, AMCON had been working with the airline since 2011, when it sent some of its officials to collaborate with the airline to recover its huge debts.
However, barely weeks after AMCON took over the management of Arik Airlines, a lot of positive and cheery developments seemed to have returned at the airline.
The airline now managed by Capt. Roy Ukpebo Ilegbodu, under the receivership of Mr. Oluseye Opasanya, SAN, is confronted with a barrage of challenges created by the sacked Arik management, but have now been able to eventually surmount the problems to stabilize operations with the few aircraft on the fleet.
Unlike what obtained before the takeover, there are claims that average On-Time-Performance (OTP) of Arik Air to different destinations has improved; Nigerian banks that hitherto turned their backs to Arik now cooperate and support the new management; engagement with international and local creditors have also been successful; just as discussions with critical service providers and industry stakeholders have yielded the much desired positive results.
Arik, according to reports, has also paid the insurance premium, which was on the verge of expiring had AMCON not taken over on February 9, 2017. Arik has also commenced the payment of outstanding salaries, which has greatly boosted staff morale as well as performance. Arik is also in discussion with different creditors and stakeholders to recall a good number of aircraft into the fleet as soon as possible, which will increase the number of daily flights. Aside from that, a good number of affected passengers have been refunded while efforts are on to reach out to those yet to get their refund as a result of suspension of flights to some routes.
It’s also on record that AMCON since it took over Arik airline has injected not less than 1.5 billion into the airline and leverage on its capacity to accessing aircraft spare parts and Jet fuel respectively.
Let it be clearly and distinctly acknowledged the above claimed success recorded were yet to be ascertained by this Newspaper at the time of filling this report as all effort to reach Mr. Ola Bamiji of Arik airline and the Spokesperson of Nigerian Civic Aviation Authority Mr. Sam Adurogboye proved abortive.
In contrast, another school of thought has faulted the “commando takeover style” by AMCON as antithetical to its functional role. AMCON, which is a subsidiary of the Central Bank of Nigeria (CBN), is expected to be obligatory to this responsibility, but contrary to expectation and what is global practice, AMCON has reneged on this critical function of government and its financial agencies.
Claiming that it serves as disincentive to foreign investment in the Nigerian economy and has negative impact on the exchange rate and loss of jobs. Surely, no economy of a nation can grow with the attitude of such an agency. So there is urgent need for government to take a second look at the method and operations of AMCON.
There is no better example than the forceful takeover of Arik on February 9, 2017. It is a known fact all over the world that businesses operate on credit. In fact, all airlines operate on credit because as flights take off and land the airlines incur debts, which it settle as it operates. This is global practice.
In Nigeria, oil marketers that sell aviation fuel to international carriers on credit receive payment after many weeks. This is in accordance with global practice; so it is normal for airlines to owe.
Furthermore, that would have afforded the airline the opportunity of being managed in a transparent and professional manner. AMCON’s forceful take over of the airline in a commando style has cast investment in Nigeria in bad light. It is indeed a very great disincentive.
Today, it has been alleged only 600 workers are active in Arik Air, from about 3,200 highly trained and well-motivated workforce, which means that since AMCON took over on February 9, 2017 the airline has lost 2,600 direct workers. AMCON’s claim that the airline did not train its workforce is mostly untrue as argued in some quarters. Since AMCON took over most of the highly trained workforce are now working in British Airways, Virgin Atlantic Airways, and some airlines in the Middle East, Rwanda, Ugandan airline and US airlines.
Airlines face financial distress but many of them get the support of their host countries and survive. Jet Airways faced similar problem sometime ago and the Indian government gave the airline $300 million intervention fund and took control of its finance department.
Reacting to the issue, the Spokesperson Air transport services senior staff Associations Comrades Danjuma had revealed that, “The takeover by AMCON has been a long time, and the management have carried on with the former Arik Staff. Except during the pandemic when they were ask to stay home.”
According to him, the only development is that there are insinuation that Arik airline want to take over Nigeria Eagle, there are also insinuation that the work force may switch over to Eagle.
He however said there were a lot hurdles to cross which include debt settling and acquisition of operationalization certification.
What is clear, from the available information is that keen observation of Arik airline cum success will either justify or state otherwise, on this basis further result can be drawn or critique as the case may be.
The needs of passengers must be met.AMCON needs to focus on recruiting qualified hands to improve the services of Arik Air.Inability to secure the confidence of passengers require re-engineering.
