Arik Air, Aero Contractors battle for survival

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By Chinelo Obogo            [email protected]

Asset Management Corporation of Nigeria (AMCON) has of late been in the eye of the storm over its management of Arik Air and the 69-year-old Aero Contractors. Five years after both airlines were taken over by the Federal Government over its huge debt, they have continued to struggle financially making stakeholders fear for their survival.

Unions blast AMCON over management of Arik Air, Aero Contractors

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During a press conference in Lagos last Monday, the Air Transport Employees(NUATE) and the Air Transport Senior Staff Services Association of Nigeria (ATSSSAN), alleged that there are plans to liquidate Aero Contractors and dispose of its assets. It also accused the management of the airline of planning to cut down its staff strength by 40 percent without first negotiating terms of redundancy despite its inability to complete redundancy payment of those it asked to stay home since 2016.

While the management of Aero Contractors was still grappling with the unions, last Tuesday, the Federal Inland Revenue Service (FIRS) sealed some offices belonging to the airline due it its non-remittance of about N350 million in taxes.

Daily Sun gathered that after a debt review by FIRS, the offices of the airline’s managing director, finance, legal and human resource department were sealed. The tax agency had written to the management of the airline several times over its old and new debt but the airline didn’t respond to any of its letters. The debt consists of remittances before and after the airline was taken over by AMCON and placed under receivership.

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On Arik Air, the unions accused the management under AMCON of signing a lease agreement with the House of 5A, a lessor that they claim was chased out of Aero Contractors. They alleged that there is evidence of collusion between the management of Aero and Arik Air and that it can say authoritatively that, like in Aero, the House of 5A’s have been gifted Arik’s lucrative routes of Lagos/Abuja/Lagos, Abuja/Port Harcourt/Abuja, and Abuja/Kano/Abuja based on the released schedule. They warned that Arik will soon run into ‘financial bad weather’ as to be unable to pay salaries.

Arik Air

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One of the major decisions Arik Air took which caused its finances to nosedive was the purchase of two A340-500 aircraft with $268 million which became commercially unviable by the time the airline took delivery of the planes. At that time, the value of the naira had crashed and the airline was unable to repay the lease as the aircraft could not generate enough revenue to offset its operational cost.

The airline kept struggling and its finances was in the red. In February 2017, AMCON took over and Mr. Kamilu Omokhide was appointed as its Receiver Manager with the responsibility to turn its fortunes around.  At its peak, the airline had over 30 serviceable aircraft in its fleet with about 3,000 workforce. But by December 2017 when AMCON took over, it was already down. Arik Air itself which had about 10 aircraft at the time AMCON took over is now down to five, and its workforce has been downsized as well.

At the time AMCON took over, the didn’t have operational funds, its insurance premium had expired and it was neck deep in foreign and local debts to the tune of about N300 billion with a backlog of unpaid salaries and charges. The receiver manager said in an interview earlier in the year that, in order to recover the debts from Arik Air, it injected over N375 billion into it and established another carrier, NG Eagle, which it hoped would run along with Arik Air. The agency planned that after recovery of its debts, it might sell NG Eagle to private investors or through the stock exchange.

However, five years after, the establishment of NG Eagle seem not to be feasible after the Association of Nigerian Aviation Professionals, (ANAP) and the Nigerian union of pensioners (NUP) wrote a petition to the House of Representatives Committee on Aviation to prevail on the Nigeria Civil Aviation Authority (NCAA) not to issue air operator’s certificate (AOC) to NG Eagle due to the debts owed the aviation agencies.

To resolve the issue, the committee headed by Nnolim Nnaji summoned AMCON, the Receiver Manager, heads of aviation agencies and the unions and at the meeting, Omokhide claimed that Arik’s debt to the agencies and other creditors would likely be classified as bad debts.

But the unions rejected his proposition, insisting that the majority of the debts owed the agencies were statutory taxes which include ticket sales task (TST) and passenger service charge (PSC) which Arik collected on behalf of the agencies from travelers. At the moment, Arik is not yet above the water and its debt profile has not lessened and there are calls for the airline to be liquidated in order for its creditors to be repaid. Aero Contractors is facing the same challenge and the opinion of observers is that  AMCON seems helpless because it doesn’t have the expertise to manage airlines.

Experts speak on way forward

Aviation expert, John Ojikutu, who spoke to Daily Sun on the way forward for Arik Air, said right from the day the airline was taken over by AMCON, it was obvious from the record of its balance that it will not take less than 30 years for the new management of the airline to liquidate its debt of N300bn if it makes net profit of N10bn annually.

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He said AMCON has no experience in commercial airlines management and therefore cannot get the experience from airlines like Arik nor from Aero that just changed its foreign technical management to inexperienced Nigeria Board management. 

He said the idea is not only to collect debts but applying the necessary and deserved corporate aviation management. He insisted that most of these new airlines do not have the business plans needed in commercial aviation rather they all are recycling the business plans of past and defunct airlines with different fleet.

“Right from the day Arik was taken over by AMCON, it was obvious from the record of its balance sheet that it would not take less than 30 years for the new management of the airline to liquidate its debt of N300 billion if it makes net profit of N10 billion annually. I suggested at the time of the taking over that both local and foreign debts of the two airlines be assessed; invite foreign and local investors and technical partners willing to take over and let them pay initial offer to settle the airlines debts before any consideration for their designation as flag carriers.

“The fall of Aero Contractors was not surprising to me because it happened not too long after the British technical partners disengaged itself from the country. I remember saying in my book that the airline would not last longer than five years after the departure of the technical partners. Two years after the departure of the technical partners, it went for government intervention funds.

“Similarly, Arik that was less than four years in operations went for same intervention funds so also did Air Nigeria that collapsed within a year after the collection. All these give one the impression that the funds were not meant for the operations of the airlines but for a different purpose; otherwise why would all these airlines that collected the funds nosedive at the same time and have no signs of recovering; Aero, Arik, Air Nigeria, Chachangi, etc.

“AMCON has no experience in commercial airlines management and, therefore, cannot get the experience from new airlines like Arik nor from Aero that just changed its foreign technical management to inexperienced Nigeria Board management. The idea is not only to collect debts but applying the necessary and deserved corporate aviation management. Most of these new airlines do not have the business plans needed in commercial aviation. Rather, they all recycle the business plans of past and defunct airlines with different fleet.

“The investors will be interested in its assets too; where are the over 20 aircraft in the airline’s fleet  or what has happened to them? AMCON should account for them all without which the airline is as good as gone with the wind.”

However, the Chairman of the National Association of Aircraft Pilots and Engineers (NAAPE), Arik chapter, Mudi Muhammad, rejected the calls by a section of the industry for the airline to be liquidated. In a chat with Daily Sun, he insists that the management of AMCON under the receiver manager is doing its best to ensure that the airline is stable and does not go bankrupt. He says that since AMCON took over the management of the airline, workers have been paid very regularly and that it was only during the peak of the COVID -19 pandemic when the industry shut down that their workers were receiving 15 per  cent salary. He insists that even though the airline does not have the number of aircraft it used to have, it still has five serviceable aircraft which is very active.

“The current management of Arik Air is doing its best to ensure that the airline is on the path of recovery. I can tell you for a fact that for a long while now, salaries are being paid regularly unlike in the past. Except during covid when the entire industry was on lockdown, we have been receiving our salary monthly. It is not fair for anyone to say the company should be liquidated because this current management is putting in its best.

“They inherited a struggling company and they are trying to ensure that our operations are not hampered and workers earn what they are supposed to earn. Workers themselves are putting in their best to ensure that the company stays afloat.

“About the most recent lease, when we learned about it, we made enquires and we were told that the aircraft will be flying our unused routes. They are not taking over our lucrative routes so there is no cause for alarm. I don’t know all the terms of the contract, but what I can tell you is that the company is going to pay for every service that Arik renders,” he said.

Aero Contractors respond

Aero Contractors described the allegations levelled against it by the unions as mischievous and unfounded and blamed its staff who they say know the challenges airlines are facing in the current operating environment but are always in a haste to compromise confidential information to the public and make it an issue of discussion.

The airline said: “All the allegations about the Managing Director of High 5A’s and Charles Arumemi Johnson are unfounded. Charles is a very competent staff of Arik Air owned by AMCON, which equally owns Aero Contractors; therefore there is no conflict of interest. He is instrument to the recently launched Aero portal which has given the site a face lift and made more user friendly compared to the previous website.

“On the High 5A’s, every partnership was done with the aim of improving the revenues of the airline, particularly in relation to our unserviceable equipments and ensuring standard customer service. The question is what was our revenue before, during and after the exit of High 5As? They should please respond.”