AMCON: How not to revive distressed airline, recover debts
Not many stakeholders warmed up to the Asset Management Corporation of Nigeria’s (AMCON) takeover of the management and operations of financially-distressed local airlines in 2016. And seven years after, AMCON has not only failed to upturn the fortune of the airlines, it has also from their ashes birthed a stillbirth carrier, and fresh chaos in the industry, WOLE OYEBADE writes.
Ousted Chairman of Arik Air, Johnson Arumemi-Ikide, made a failed attempt to reclaim the airline’s headquarters this week, creating a fresh controversy in the battle for the soul of the local carrier.
The attempted return by Arumemi-Ikide was in lieu of a recent Federal High Court ruling that faulted the Asset Management Corporation of Nigeria (AMCON) on transparency, transfer of Arik’s asset to float a new airline, and barring of Arumemi-Ikide and co. from the Arik Air it took over in 2017.
While AMCON has vowed to appeal the ruling, neutrals and stakeholders alike, said the fresh row between the founder of Arik and the current holders, signposts AMCON’s poor handling of aviation businesses.
They said though political interference casts a heavy shadow on activities of Arik and Aero Contractors (both under receiverships), awful business decisions, and overall poor performances of the airlines have raised questions on competency of the ‘undertaker’ turned airline operator.
Recall that AMCON, the special debt recovery vehicle of the Federal Government, made its entry into the aviation sector with the takeover of Aero Contractors in 2016.
Barely six months later, it took over Arik in February 2017 as part of measures to “save” the airline from “imminent collapse”. AMCON had cited gross mismanagement by the owners of Arik, and non-performing loans (NPLs) of over N300 billion.
Inherited in the lot is the sum of N9.6 billion and $2.3 million (totalling N10.85 billion), being five per cent ticket and cargo sales charge that Arik owed to aviation agencies before AMCON took over, and yet unpaid till date.
Six years down the line, it was learnt that Arik remains a hard sell, given the level of rot, debt and hard-to-recover liquidity, which AMCON pumped in to keep the carrier on life support.
Buoyed by what to do with the airline, the Federal Government, through AMCON, decided on a new carrier, NG Eagle, from some viable assets of Arik. About four Boeing 737 airplanes that once belonged to Arik have been stripped, and rebranded into NG Eagle’s livery in 2021.
NG Eagle exit strategy: A bad business
If upturning Arik’s fortunes was difficult, flying NG Eagle could only be harder. AMCON’s controversial exit strategy from the operations of embattled Arik ran into a conflict of interest, with the National Assembly (NASS) ordering the Nigerian Civil Aviation Authority (NCAA) to withhold its air operator certificate (AOC). The consequence is attendant losses on three grounded aircraft, insurance premium, staff salaries and other operating costs.
Aviation stakeholders rued the estimated loss of $53 million (N22.06 billion) of national resources and called for a probe of both the business decision and lawmakers’ meddling in strict regulatory affairs of local aviation.
NASS had, in February 2022, said the new start-up airline would not see the light of the day until Arik offsets outstanding debts to the tune of N10.8 billion.
The lawmakers, at a joint oversight function to Lagos Airport, said AMCON which currently owns the two airlines should show better commitment to asset recovery, and offset the outstanding debt to aviation agencies and federal coffers.
The Joint House Committees on Aviation then ordered the NCAA not to release AOC to NG Eagle till grey issues on debt and staff welfare were resolved at Arik Air.
Findings showed that the new airline did submit a bid for AOC and Air Transport Licence on December 5, 2019, and scaled through the hurdles with manuals checked, flight tests conducted and simulations successfully carried out by the NCAA.
However, an unsigned AOC certificate with number: NGE/AOC/09-21/001, dated September 21, 2021, was issued to the airline. The airline was granted passenger, cargo, scheduled and charter flight operations, and the AOC was to expire on September 20, 2023.
A source in the new airline said the last lap of approval was actually stalled for “political reasons”, rather than technical doubts.
“The issue speaks for itself in the NG Eagle matter. That is the AOC that was ready for issuance, and awaiting the Director-General’s signature before powers that be stopped it. That is how we ‘support’ ease of doing business in Nigeria! Because of the private interests of a few, we are killing our investments and running businesses aground. It is a shame that all those that know nothing about aviation are the ones dictating to the NCAA,” he said.
In its first seven months of inactivity, The Guardian learnt that the aborted airline incurred $1.66 million in staff salaries; expended $934,611 on insuring unused aircraft; $757,954 on engine lease and shipment; $525,386 on procurement; $298,605 on contracted services and $121,829 on information technology.
Other incurred costs are $113,699 on logistics, $25,588 on rent and $16,583 on repair and renovation of offices. Others are $36,000 on preservation maintenance, $757,620 on contracted engineering personnel; $2.4 million on heavy maintenance and a whopping $45.75 million in revenue losses as at March 2022.
The Guardian gathered that one of the three idle aircraft acquired for the aborted operations will be due for another C-Check by May, estimated to cost $2 million.
It was learnt recently that AMCOM has sold the airline to a new operator, House of 5As, a hitherto local aircraft leasing company.
How not to float an airline
By design or default, the sale and alleged offloading of NG Eagle to a new owner came at a time Justice Ambrose Lewis Alagoa of the Federal High Court, Lagos, nullified the asset stripping exercise by AMCON.
The court gave AMCON 14 days to render Arik Air’s accounts since the 2017 takeover, adding that the agency’s attempt to transfer assets of Arik Air Limited to NG Eagle Airlines (third defendant) and Super Bravo Limited (fifth defendant) was not in the best interest of Arik Air.
The Court granted some of the prayers of the plaintiffs, Arumemi-Ikhide and his wife, Mary Arumemi Ikhide, ordering the defendants (AMCON) to render accounts and/or deliver returns to the Corporate Affairs Commission covering the entire period of receivership over Arik Air Limited within 14 days of making the order.
Arumemi Ikhide and his wife earlier prayed to the court in December 2021 that the duty imposed on the first defendant (Kamilu Alaba Omokhide) by section 553 of the CAMA 202O to act in the best interest of Arik Air Limited as a whole includes the duty to act in the best of the plaintiffs (Arumemi and Mary Ikhide) as members of Arik Air Limited. The plaintiffs claimed that the transfer of Arik Air Limited assets to NG Eagle (third defendant) and Super Bravo Limited (fifth defendant) “was done in bad faith and a violation of Omokhide’s (first defendant) the fiduciary duty to Arik Air Limited as imposed by section 553 of the CAMA 2020”.
Reacting to the judgment, AMCON said it would appeal the judgment, stating that the judgment, clearly and without equivocation, affirmed that AMCON was competent and empowered to appoint the Receiver/Manager of Arik, that the appointment by AMCON was proper, and that the continued operations of Arik are not affected.
“Put simply: the judgment does not affect the operations of Arik or the powers of the Receiver/Manager to superintend the affairs of Arik.
“The public should bear in mind that the issues under appeal have no bearing on the continued operation of Arik as a company in Receivership – as the Court has already affirmed the Receivership”, the statement read in part.
Dealing a bad hand badly
Aviation stakeholders said the contrived waste of commonwealth should not go unpunished under a serious administration, nor should anyone be surprised at the malfeasance where the lawmakers freely meddle with aviation affairs.
Aviation consultant, Sunday Olumegbon said it was most unfortunate that the clear-cut technical business of air transport has been reduced to a “street fight between two camps.”
“That is what you will get when the likes of AMCON come into the business that they know next to nothing about. I know that Aero Contractors a couple of years ago showed some prospects under AMCON. But did that flash of brilliance last? No! You cannot build something on nothing and expect it to stand.
“My point is that AMCON has no business running two or three airlines. Aviation is too sophisticated for the trial and error of an undertaker. This festering brawl over ownership is very bad for the image of the airline, and only AMCON should be blamed for it,” Olumegbon said.
Former Commandant of the Lagos Airport in the 90s, Group Capt. John Ojikutu (rtd) said the lawmakers were blameworthy of age-long “dangerous” interference that threw a spanner in the works of the air transport business.
“The interference of those in the NASS is getting too dangerous to be ignored, especially the interference in the regulators’ oversight functions that are the exclusive functions of a designated authority. The fifth and sixth Assembly got entangled in the N19.5 billion and N200 billion government intervention funds for government agencies and private operators in 2007 and 2012, respectively. Then, there was no economic recession and it explains why we are where we are today.
“Yet, the manner in which the aviation committees of the present Legislative House are getting involved in the economic regulations’ oversight, especially on the service charges, than the responsible authority, leaves much to be desired. The committees are taking us back to the era of self-regulation in the 80s and 90s. Who will save us from ourselves?” Ojikutu inquired.
President of the Aviation Safety Round Table Initiative (ASRTI), a think-tank group of the sector, Gbenga Olowo, said it was criminal and self-indicting that the NCAA issued an unsigned, invalid AOC and allowed interference by non-aviators, and state actors that are not recognised by the international civil aviation guidelines.
Olowo said: “Clearly, due diligence on the side of private investors is lacking. NASS oversight from time to time has helped a lot and this one should not be an exception but escalated to the hallowed chambers.
“We’ve said it repeatedly that AMCON cannot run airline business. Since the turnaround process of Arik, the airline has grown worse. Its (AMCON’s) priority is debt-recovery rather than airline repackaging for the market. A simple solution to Arik by AMCON would have been to set the debt aside (a la U.S. Chapter 11), pump funds to rebrand the airline and put it on the market where the original owner of Arik is given the first right of refusal,” Olowo said.