AMCON’s intervention in Arik, Aero: achievements, challenges and prospects

For many years, safety within the Nigerian aviation industry has remained a major source of concern for the travelling public as a result of air crashes that often lead to loss of precious lives due to poor corporate governance, negligence and financial profligacy. MIKE OCHONMA, BusinessDay’s transport editor takes a look at the move by the Federal Government under the aegis of Asset Management Company of Nigeria (AMCON) to restore air travellers confidence through the Arik and Aero takeover.

 Apart from being the fastest means of moving passengers and freight from one place to another, and the excitement and fun of flying that comes with flying, movement by air within the Nigerian airspace can be a very daunting task.

Overtime, these challenges can be natural disasters  and mismanagement on the part of the operators of the airlines or lapses and pitfalls from the regulators, with the worst of it all being running into financial bankruptcy where airline companies finds it extremely difficult to meet financial obligations.

Some of the factors here if not all,  reminds industry stakeholders and market watchers of the misfortune that befall Aero and Arik airlines few years ago which left the Federal Government with no option but to mandate the AMCON to intervene and give the beleaguered airline a lease of life under a receiver manager model.

According to Ahmed Kuru, managing director and chief executive of AMCON, the organisation was statutorily created by the federal government to be a stabilising and revitalising tool in the Nigerian economy.

Towards achieving its mandate, AMCON purchased non-performing loans of about N181 billion from various banks. Over 90 percent of this was in the aviation sector. To place the companies in a position to recover and generate adequate cash flow, AMCON gave additional un-lending facilities in collaboration with the Central Bank of Nigeria (CBN) and the Bank of Industry (BoI) of almost N40billion on very good terms.

Unfortunately, despite this support given by AMCON, the beneficiaries could neither pay the old nor new loans, hence AMCON was compelled to appoint Receiver Managers over a lot of these companies, with the biggest being Arik and Aero.

AMCON’s intervention, through the instrumentality of Receiver Management was first to stabilise the operations of the airlines, put them in a position to generate positive cash flow, then resolve their debt situation or the sale of the companies/underlying assets.

Specifically, the intervention of AMCON in Arik and Aero were intended to be value adding and non-destructive. It is noteworthy that the corporation has adopted a similar approach to revitalise Peugeot Automobile of Nigeria (PAN), which today is back to operation and assembling vehicles for the road transport sector.

PAN Limited Kaduna through the intervention of AMCON is rolling out vehicles in large numbers for supply to different federal and state government’s institutions, the military hierarchy, financial organisations and the diplomatic community.

In terms of visible and practical achievements, at the point of intervening in Arik, the company was witnessing a high spate of flight cancellations of up to 40 percent, on-time performance (OTP), which measures the promptness of schedule flights had fallen to as low as 15 percent.

A further disclosure by the AMCON chief executive shows that, the staff, including pilots was owed salaries, in some cases for up to six months. As a result of this, staff morale was therefore understandably low. Several service providers including fuel marketers, maintenance and spare parts companies were withdrawing their services or were unwilling to extend credits.

All these scenarios created significant concerns at various governmental cycles for safety and the possible impact of the collapse of the company on the economy. According to AMCON’s sources, this position has been largely arrested.

Cancellations are down to 4 percent, on-time performance (OTP) is over 60 percent, and as revealed by the organisation, all outstanding salaries of current staff are fully paid up, suppliers are now being paid as at when due. This positive outlook has come at a cost to AMCON and could not have been achieved without with the support of the Central Bank of Nigeria and some local banks.

At Aero, AMCON has succeeded in ensuring that the airline remains a going concern, and with the strengthening of its management, the organisation has seen a refocus on the strengths and capabilities of the airline.

Furthermore, the Maintenance Repair and Overhaul (MRO) licence has been made active. The airline in February this year succeeded in completing a c-check on a Boeing 737; a huge feat with a potential for savings in foreign exchange demands by local airlines.

 From whatever angle it is viewed from and despite all the encumbrances, the intervention in the sector has ensured that Nigerians are offered choices, as there is enhanced positive competition leading to improved service offering, for the flying public.

As a major policy drive of the present administration, AMCON was able to save 3,000 direct jobs, and hundreds of indirect jobs in the airline industry.

However promising and result-driven this AMCON intervention has been, it has not come without some challenges. These include shareholder actions, lack of support by some trade creditors, some foreign lenders, and increased union demands. These were not unexpected and have been professionally and transparently handled.

The new Arik had to take bold decisions to downsize its operations, especially cutting down all the long haul flights, due to losses being sustained on these operations, and the lack of equity capital to absorb the losses.

Generally, there was the need to reassure the travelling public. Convinced that AMCON is an asset management company, not a consultancy firm to run airlines, it hired the services of professionals to do the job.

These professionals are the ones running the airlines. This was the cause of scepticism in some quarters earlier on, but today, the narrative has changed.

Although majority of air travellers and Nigerians are happy with the AMCON intervention that has seemingly restored sanity  to an extent in the operational procedures and processes of running the airlines, yet, a lot still needs to be done.

Above all, the aviation and transport sector requires solid capital to make it deliver for the good of the Nigerian people. It will require a measure of policy consistency and governmental support to thrive.

However, from industry, no matter the capital thrown at the sector, if corporate governance is not strengthened, it will still fail. The absence of governance or quality governance and sound financial risk management systems is at the heart of the failures that are common in the sector.