AMCON’s takeover of Arik

ARIK Air, a foremost airline with about 55 per cent share of the air transport market in Nigeria, has fallen on bad times. The Assets Management Corporation of Nigeria (AMCON) recently sacked the management of the airline and replaced it with another team led by Captain Roy Ukpebo Ilegbodu under the receivership of Mr. Oluseye Opasanya (SAN). For a while, there had been indications of the airline operator’s inability to meet its financial obligations: there were reports of strike by staff of the airline owing to a backlog of unpaid salaries and wages and repeated cases of flight delays and outright cancellations. The beleaguered but systemically important airline is reeling under a heavy burden of debt owed to AMCON, local and foreign creditors.

AMCON became a major creditor to Arik Air in 2011 when it took over some toxic assets arising from alleged past unpaid loans owed to some local banks by Arik Air and some companies owned by its Executive Chairman, Chief  Johnson Arumemi-Ikhide.  The takeover by AMCON was sequel to  the alleged refusal of the airline to keep its own part of the obligations under the loan arrangement: it allegedly refused to service its loans, in addition to failing to cooperate with the internal monitoring manager appointed by AMCON.  Naturally, the ousted Arik management has vowed to challenge its takeover by appealing the Federal High Court ruling which sanctioned it.

But beyond the propriety or otherwise of the timing of the takeover of the airline is the veritable issue of AMCON’s history of incompetence. As pointed out by some commentators, AMCON took over Aero Contractors with seven aircraft, but now the airline reportedly has only two aircraft. Indeed, there is palpable fear in the aviation industry that the takeover may signal the demise of Arik Air because of AMCON’s perceived ineptitude. For instance, AMCON reportedly claimed that Arik needed just N10  billion to resolve its issues and become healthy without carrying out any audit. This is most strange. Indeed, many do not share AMCON’s optimism that it can oversee the process of Arik’s restoration to a healthy and vibrant carrier in a matter of months because its antecedents do not reflect such presumptuous feats.

However, while the takeover might have taken the ousted management of Arik Air by surprise, it certainly brought this unwholesome situation upon itself by failing to entrench good corporate governance in its operations. For instance, the number of expatriates on the payroll of the airline is said to be superfluous and this has come with a heavy financial burden.

Nonetheless, the point should be made that  apart from the absence of corporate governance and  reckless  penchant of some Nigerian business owners to treat loans and advances as profits that could be applied to private uses, the harsh conditions of  doing  business in Nigeria are hugely responsible for many airlines’ woes. Indeed, there would appear to be factors within the Nigerian environment that kill the airlines because the mortality rate has been intolerably high. Issues of serious concern to many operators are those of cost permanently outstripping income, tax overburden and infrastructure deficit which reduces  revenue as well as  the alleged  non-implementation of approved policies that could enhance performance.

The death rate of airlines in the country points out two things: the business environment is so hostile that the carriers are suffocated too easily, and it is also a reflection of regulatory failure in the aviation industry. It is therefore evident that urgent reform is required in the air transport sector in Nigeria. In the immediate period, however, AMCON should endeavour to prove its critics wrong regarding the alleged incompetent handling of distressed airlines. And the only way to do this is by ensuring that Arik Air does not go under. AMCON should stabilise it quickly and return it to the path of profitability.