Categories: AFRICABusiness

Nigeria’s Asset Management Company Starts New Airline to Recover Arik’s Debts

The Asset Management Corporation of Nigeria (AMCON) has said that in order to recover its huge debts from Arik Air, it injected over N375 billion in the airline and established another carrier, NG Eagle, which in the future would run along with Arik Air.

AMCON stated that it sustained Arik Air operations since it took it over in 2017, in order to stabilise the aviation industry and save jobs.

It added that after recovery of its debts, it might sell NG Eagle to private investors or through the stock exchange if the government does not take it over.

Arik Air Receiver Manager, Mr. Kamilu Omokide, in exclusive interview with THISDAY, said: “AMCON came into Arik in February 2017, during the economic recession. At that time, Arik did not have operational funds.

“The workers faced an uncertain future. All the aircraft were grounded because their insurance premium had expired; that at a time the airline did not operate because of insurance.

“Before AMCON came, Lufthansa, which provided technical service to the airline, had walked away. The airline was no more creditworthy to the extent that fuel suppliers shunned the airline.

“It was only MRS that allowed credit to the airline and it had a maximum of N33 million. This was too small for an airline of that size of Arik. So there was no fuel to operate the flights.”

Omokide, who was seconded to Arik by AMCON, said the airline would be operated along with NG Eagle, at least till the end of 2021, adding that with the support of AMCON, plans have been concluded to acquire three aircraft for Arik through wet leasing.

He said: “Arik does not plan to get out of business. It will operate side-by-side with NG Eagle for a while. We have been able to access wet leases and we have been able to run them very professionally. AMCON is not taking all the planes. We have a plan to bring three more planes with the support of AMCON on wet lease, ACMI.

“We are not rushing to kill Arik. We cannot pull all of our aircraft from Arik. Arik will be sustained throughout this year. Arik has a very big space at its headquarters that can take in four airlines on a good arrangement where costs can be shared.

“So Arik has huge facility, it has good workers who are experienced and we have been training staff since AMCON took over, something that was rare in the past. In fact, we have exposed the workers to all kinds of training. Our pilots are some of the best in the industry. Experience is very important,” he added.

He said Arik Air would have gone under without the intervention of AMCON in 2017, noting that the corporation adopted a different strategy in Arik, otherwise, it would have closed the company and sold the assets.

However, he said because of the sensitive nature of the aviation industry and the critical role of the sector as a catalyst to the nation’s economy, it decided to sustain the airline’s operations.

He stated that when AMCON took over, many of the aircraft in the fleet of the airline were overseas on mandatory maintenance because there was no money to bring them back.

He added that creditors were closing in on the airline, with flight cancellation as high as 40 per cent to the extent that passengers mobbed the headquarters of the airline demanding refund of their fares.

“So, the decision of AMCON to intervene was nationally imperative in order to save the airline because of the critical role it was playing; to stabilise the industry and to rescue our funds. AMCON realised that it would take a lot of stabilisation and decided to take its own planes and move them to NG Eagle,” he said.

According to him, Arik has goodwill, good staff and fantastic pilots but without AMCON’s intervention, they would have killed the airline.

“Currently we are doing very well with operational expenses. So, AMCON exercised its right to take its own planes to NG Eagle and possibly to other airlines,” Omokide said.

He said NG Eagle would be a formidable airline, which would eventually be sold to either government or other investors.

According to him, AMCON will treat the NG Eagle as a private sector initiative.

“If the government decides to buy it that will be good or we go for the private sector option or we sell it through the stock exchange,” he added.

Omokide said AMCON might not repair all the aircraft it inherited.

He, however, said the corporation had identified the ones it would repair, and it would either sell the Airbus A340-500 or convert them to cargo planes.

“We do not think we can repair all the planes we met on the ground. We have identified the ones we can repair and sell the other. We plan to sell the A340-500 or convert it to cargo planes. One of the two A340-500 is being preserved. So we are looking at options of cargo,” he said.

THISDAY investigations also revealed that one of the major factors that led to the bankruptcy of Arik was that the airline used $268 million to buy two A340-500, but the aircraft came into Nigeria when it was commercially obsolete.

“Acquisition of A340-500 at that whooping sum was a single most important error. Another of the mistakes was the zeal to commence international operations to London, New York and Johannesburg.

“But at the end of the day, they could not charge fares that were comparable to what other major carriers charged on the routes. It was a strategic error. The aircraft (Airbus A340-500) was a killer. It could not generate enough revenue to offset its operational cost. That was due to a lack of corporate governance. Airbus A330 was also leased at a very high-cost rate. They were very expensive leases that Arik became unable to pay,” an insider told THISDAY.

The informed source also told THISDAY that what AMCON met on the ground when it took Arik over in 2017 was a company that was struggling.

“AMCON gave Arik Air $150 million between 2012-2015. All the aeroplanes in the fleet were already mortgaged when AMCON came in in 2017. The aeroplanes were at midlife, but there was no financial reserve for their maintenance.

“Arik was a phenomenal opportunity. With the right concept and corporate governance, it should have been competing with Ethiopia Airlines if it was properly run and with the right partnership for connectivity. People that travel from Nigeria are more than those that travel from South Africa. So Arik was a lost opportunity for Nigeria,” a source said.

However, a former senior Arik Air official had said the debt the airline owed AMCON was exaggerated and that it left about 10 airworthy aircraft when the government agency took over the airline.

Chinedu Eze