Airlines and Contentious Issue of Unpaid Debts

An Arik aircraft

The recent drama by the aviation union which picketed Arik Air operations brings to the fore the contentious issue of debt payment by airlines to aviation agencies. Chinedu Eze writes that the animosity between airport service providers and airlines has been growing over the years

Few years ago aviation agencies, especially the Federal Airports Authority of Nigeria (FAAN), the Nigerian Civil Aviation Authority (NCAA) and the Nigerian Airspace Management Agency (NAMA), issued threats to make airlines pay their debts. That tradition is now back with gusto, looking at what the labour union did to Arik last week.

Before now other strategies were used to make airlines pay their debts. For example, agencies like NAMA would simply refuse to give airlines startup for the take off of their flights and that would force them to pay their debts. But sometimes the airlines would place calls to the Presidency or the Ministry of Aviation and the agency would be ordered to rescind its decision.

So, over the years the debts to the agencies had continued to accumulate and there was a time FAAN claimed the airlines owed it over N20 billion and there was also a time when NAMA devised a method of only giving airlines that did not owe it startup, while NCAA would threaten to ground the airline before it would pay its debt.

Controversy

The seed of the current discord with aviation agencies was sowed about six years ago when aviation ministry met with the airlines where it was resolved that the payment of old debts be put on hold while the airlines should pay new debts as they are accumulated. This resolution was vehemently protested by aviation unions. Despite that window given to the airlines, new debts continued to accumulate and later formed part of the old debts.

About three years ago, FAAN adopted pay as you go for passenger service charge, which forced the airlines to purchase ticket of N1000 per passenger in advance. So far that has continued to work. But the agency could not apply that policy to landing and parking charges.

Also, about three years ago, NCAA began to have problems with airlines following delays in the payment of their 5 per cent charges per ticket. It is estimated that the debts accruing from the charges are over N10 billion.

But it has to be noted however, that airlines all over the world owe airport facilities service providers, handling companies, food suppliers and others. Such debts are always paid in arrears, but the challenge with the Nigerian airlines is that they seemed not to be willing to pay their debts.

Over Charges

The Executive Chairman of Airline Operators of Nigeria (AON), Captain Nogie Meggison, recently said airlines pay too many charges and they also pay VAT and when put together the airlines are overcharged, which makes Nigeria a very harsh operational environment.

“We are just asking for removal of unnecessary taxation and multiple billings so that we can face the real charges.

Because in trying to pay all these five per cent, two per cent, this levy and that one, it ends up being bulky on the passengers, and we all need to think about Nigeria right now and that is why we the airlines are thinking more for Nigeria. The charges include VAT, customs duties, FAAN charges, landing, parking, navigation; terminal service charge (TSA).

“We need to really look at them. For example, I pay you TSA; meanwhile, you are not even providing any service to the passenger, and I need to still pay the service to transport my passengers on the airside to the aircraft and I am paying you for that service or I am paying you N2.50k to pass fuel through the hydro system and the hydro system is not in use. And we know there is no hydro system in this airport for the past 10 years. So all those things need to be taken out. If you are not providing the services then don’t bill for it because right now everybody needs to tighten his belt,” Meggison said.

Arik Debt

After the picketing of Arik operations on April 20, the airline suspended operations that day. The union had argued that Arik owed FAAN N12.5 billion but by the following day, after a meeting with Arik management, it turned out that neither the union nor FAAN knew actually what Arik owed the agency.

FAAN and Arik had met several times to reconcile their debts. As the biggest indigenous operator with about 120 flights daily, Arik should be paying FAAN huge amount of money in charges. What Arik with about 27 operational aircraft pays should almost be the total sum paid by other airlines.

Arik said since it started operation in 2006 it had paid FAAN the sum of N18.5 billion by end of February this year, but FAAN acknowledged only N11. 4 billion as at June last year and said that although there was extra fund in its balance sheet, about N7 billion, its bankers did not attribute the extra fund to Arik or any other creditor. Although it was Arik that explained this, since last week this position has not been refuted by the agency.

As stated earlier, FAAN and Arik held several meetings to reconcile the debts. About two years ago, they met with the Senate Committee on Aviation headed by Senator Hope Uzodimma before FAAN later took Arik to court.

The Managing Director of Arik, Chris Ndulue, explained at a press conference a day after the picketing: “At that meeting, what happened was that when we submitted our report, FAAN, which initiated the meeting, told the Senate Committee that they were not ready, that they needed two weeks. I think members of that Senate Committee are still alive you can verify. And they asked for two weeks. After two weeks, we came back and when they were asked some questions, they said they needed four weeks again. After one month we wrote to remind them that we were ready and since then we never heard anything from them. They didn’t show up but we kept on paying them and we have been reminding them that we needed to reconcile this account, we like to pay for services rendered if they are genuine and if they are acting according to the law.”

Former Permanent Secretary of the then Ministry of Aviation, Binta Bello, had attempted to reconcile the Arik and FAAN debt and a mode of reconciliation was set up. Later Arik brought in PricewaterhouseCoopers to reconcile the debt but this failed because FAAN allegedly could not get its documents right.

PricewaterhouseCoopers was said to have put up a procedure, which worked very well in NCAA.

“Where we gave them all the payments that we have made, you will now recognise all the payments and then from there, they will now bring their bills, then we will now look at the bills whether they are right or wrong and then from there we can now do the arithmetic,” Ndulue explained.

Court Procedure

Ndulue also narrated that in October 2015, “FAAN commenced suit against Arik Air before the Federal High Court Lagos and the suit is pending. In the suit with number FHC/CS /1558/2015, commenced by FAAN, FAAN was claiming that Arik Air is indebted to it. Together with the claim, FAAN filed an application to arrest some aircraft of Arik. When the matter came up in court for them to move the application, they were unable to satisfy the court on why it should grant the application. On subsequent adjourned dates of the matter, particularly on the third of February 2016, FAAN informed the court that they were no longer minded to move their application on the grounds that they did not want to disrupt the operations of Arik Air.

“Subsequently, FAAN filed another application in court because when they have filed their motion exparte we filed applications before the court in which we showed the court that contrary to the allegations they had made, Arik had made payments in excess of N16 billion to FAAN and that the claim of FAAN was not supported by documents. Without prejudice to the matter which is pending in court I will not go into the merits of that. After we filed that application, FAAN now filed a motion in court by which they wanted the case referred to a special referee, which is like an audit firm.”

Arik explained that FAAN in the last instance wanted to take the matter to the Attorney General of the Federation, which was the situation before the picketing of Arik operations by the union. But the bone of contention, however, is that while FAAN claims that Arik is owing huge debts, the agency does not know exactly what the airline owes it and the airline is insisting that the debt claimed by FAAN must be transparent and clear with comprehensive data as obtained in other parts of the world where it operates, so that it would not pay debts juggled together at the whims of the agency.

Reconciling NCAA Debts

Last Wednesday, the Director-General of Nigerian Civil Aviation Authority (NCAA), Capt. Muhtar Usman, held a closed door meeting with airline operators under the aegis of Airline Operators of Nigeria (AON).

The meeting was convened to reconcile debts the airlines owed aviation agencies, estimated to be about N20 billion.

At the meeting were Chairman of Arik, Sir Joseph Arumemi-Ikhide, Managing Directors of Medview, Alhaji Muneer Bankole, Aero Contractors’ boss, Capt. Fola Akinkuotu, Executive Chairman, Airline Operators of Nigeria (AON), Capt. Noggie Meggison, Dana’s boss, Jacky Hathiramani, former Secretary-General of AON, Mohammed Joji, among other airline operators.

The Director General of NCAA was said to have discussed with the airlines how they could reconcile their debts and offset them and the airlines agreed to pay up within two weeks.

Unlike in other operating environments, there are indications that many airlines would wish not to pay their debts; in the same vein, the aviation agencies have not found a perfect way to document their debts transparently so that it will not lead to contestation. Industry watchers believe that FAAN, for example, should automate all the processes of debt documentation and not arbitrarily release figures that would be questioned. On the other hand, airlines must know that as they incur debts they must pay for services without which it would be impossible for them to operate.