Equivocation of AMCON on Destruction of Arik Air

Faz Karim

One of the cardinal functions of government globally is to create jobs, encourage investment and provide incentives to businesses so that they would continue to provide jobs for the citizens.

Bearing this in mind, it is expected that government agencies must have as part of its responsibility, the ability to help government realise this objective. This becomes more important when such agency is a financial institution or subsidiary of government financial institution.

The Asset Management Corporation of Nigeria (AMCON), which is a subsidiary of the Central Bank of Nigeria (CBN) is expected to be obligatory to this responsibility, but contrary to expectation and what is global practice, AMCON has reneged on this critical function of government and its financial agencies.

One of its duties is to positively assist the economy of Nigeria in its major function of selling off non-performing loans of banks and assisting other businesses to grow, thus AMCON should be a stabilizing agency of the economy. However, what AMCON has been doing so far, from observation is that it has pitched its tent with the banks only and thrown other businesses to the doldrums. This has served as disincentive to foreign investment in the Nigerian economy and has negative impact on the exchange rate and loss of jobs. Surely, no economy of a nation can grow with the attitude of such an agency. So there is urgent need for government to take a second look at the method and operations of AMCON.

There has been tremendous loss of jobs in companies taken over by AMCON within the last six years. Most of these companies have gone under. This is because AMCON lacks the experience and competence to effectively manage these companies.

There is no better example than the forceful take over of Arik on February 9, 2017. It is a known fact all over the world that businesses operate on credit. In fact, all airlines operate on credit because as flights take off and land the airlines incur debts, which it settle as it operates. This is global practice.

In Nigeria, oil marketers that sell aviation fuel to international carriers on credit receive payment after many weeks. This is in accordance with global practice; so it is normal for airlines to owe.

When AMCON took over Arik Air, it failed to follow due process, as per global practices. It did not give even 24 hours notice and it did not take inventory of spares equipment etc. It happened in a commando style with large number of police officers who took over the company’s premises and barred the top management staff from having access. AMCON failed to work with the owners and top management, which is a recognised international practice.

The normal procedure for receivership is for AMCON to summon a meeting of all creditors. If the creditors agree they would appoint a receiver to take over the management of the company in conjunction with the owners.

In that case, it would not have been AMCON that would manage the company because it lacks the expertise and competence to run an airline.

Furthermore, that would have afforded the airline the opportunity of being managed in a transparent and professional manner. AMCON’s forceful take over the airline in a commando style has cast investment in Nigeria in bad light. It is indeed a very great disincentive.

Mind you, airline business is global; aircraft manufacturers, lessors, insurance companies, international airline associations, pilots, engineers, regulatory agencies monitor what happens to airlines in every country. What AMCON did in taking over Arik Air and the manner it did so must have affected the attitude of investors in investing in Nigeria. This is not only in aviation but other sectors of the economy.

It is similar to what happened when Richard Branson made caustic remarks about investing in Nigeria aviation. It is indeed a set back for the aviation industry.

AMCON forcefully took over the company and drove away the top management and owners, except one of its top managers that was deployed to Aero Contractors—what an irony. What progress have they made since then? Airline business is a catalyst to economic development of any country; that is why government supports airlines and enhances their growth. UK recently deployed additional sum of 500 million pounds to support ailing businesses. All over the world, when a company is in financial distress, government intervenes by putting somebody there to take charge of the company’s finances. But AMCON took over the company even when it knew it would not be able to effectively manage it. German government gave Lufthansa nine billion Euros, France gave Air France seven billion Euros to help them overcome the challenging times with overall purpose to stimulate the economy.

Today only 600 workers are active in Arik Air, from about 3, 200 highly trained and well-motivated workforce, which means that since AMCON took over on February 9, 2017 the airline has lost 2, 600 direct workers. AMCON’s claim that the airline did not train its workforce is most untrue. Since AMCON took over most of the highly trained workforce are now working in British Airways, Virgin Atlantic Airways, some airlines in the Middle East, RwandAir, Ugandan airline and US airlines.

Airlines face financial distress but many of them get the support of their host countries and survive. Jet Airways faced similar problem sometime ago and Indian government gave the airline $300 million intervention fund and took control of its finance department. When I was in Arik Air our salaries were nothing near what AMCON is paying its inexperienced staff.

Our salaries were nothing near what they are paying their Chief Operating Officer, Chief Financial Officer, Chairman of their so-called Technical Board. These are the people they put together to deceive the government that they have good team running the airline. Suffice it to say that some of these people midwifed the demise of Nigeria Airways Limited (NAL). It should be noted that while paying these heavy salaries and allowances and estacodes to the executive staff, most of the aircraft are grounded and most staff are being paid a part of their salaries. There is massive inflation of contracts and misappropriation of funds. No doubt some officials of AMCON have benefitted immensely from the Arik take over, but it left the airline in ruins.

AMCON took over Arik Air with 17 airworthy aircraft; in addition, two aircraft just needed minor maintenance of maximum six hours to fix.

Also three aircraft were ferried for checks overseas. Rather than fix the aircraft and maintain them properly, AMCON cannibalised some Boeing 737 Next Generation aircraft. They have the heart to cannibalise such aircraft! Most of the other aircraft like Bombardier CRJ 900 are parked without maintenance and also Bombardier Q400. The few Arik aircraft that still operate are supplemented with wet leased aircraft from Mongolia and Value Jet of Tunisia, which they obtained through some questionable deals.

Some of the engines of the Arik aircraft have been removed and sent to remote workshops overseas under questionable deals.
Suffice it to say that AMCON claimed that it intervened to save Arik from huge debts but in almost five years of operation, AMCON has failed to service any of the debts it claimed it inherited. Furthermore, the mortgage on the Bombardier aircraft was not serviced and AMCON used the aircraft before parking them due to lack of maintenance.

Arik Air did not borrow money from Union Bank Plc. The bank guaranteed Arik loan from HSBC London but in 2010 CBN changed its policy and changed the guarantee into debts and treated it as on balance sheet asset. The guarantee was changed to local currency with high interest rate without any discussion with management of Arik Air. Before that action was taken, Arik was effectively servicing that loan to the satisfaction of HSBC, London.

AMCON stated that Arik Air owed FAAN. It should be noted that FAAN took Arik Air to court, when Arik had already paid N18 billion to FAAN, excluding fuel surcharge. During the court proceedings, Arik produced documents to back its claim; a letter from FAAN admitted that Arik had paid N11 billion. FAAN’s counsel was shocked when Arik lawyer produced evidence of that payment and therefore requested for an adjournment to enable FAAN to look into their books. During subsequent sitting in court, FAAN said that its financial department was razed by fire and requested for more time. The next meeting would have occurred after AMCON take-over of Arik.

There are documents that showed all the payments made by Arik to FAAN through banks worth over N18 billion. Also there are documents to show payment of final surcharge of about N2.6 billion made to FAAN.

An agreement was reached with NCAA for about N1.6 billion debts and the decision was that it should be paid in installments. This document was signed by officials of NCAA, Arik consultants who participated in the reconciliation and Arik Air officials.

So AMCON should realise that all its activities are being watched all over the world and decisions of investors are based on taking over companies forcefully from their owners. One of the ways government can revive the economy of Nigeria is to check the excesses of AMCON.

AMCON has romped into the finances of Arik Air and those in charge have feathered their nests, leaving the airline in a state of wreck.

AMCON should take a census on the number of Nigerians that lost their jobs in the number of companies it took over. Then it would know how much it has contributed to the growing unemployment in Nigeria. To worsen the unemployment situation in the airline AMCON wet leased two aircraft from Mongolia- that is the aircraft, plus non-Nigerian pilots and non-Nigerian crew. A dry lease would have saved a lot of jobs for Nigerians.

Presently Arik, which is being operated by AMCON has only three of the 17 Arik aircraft it took over. These are being supplemented by wet leased aircraft from Mongolia and Value Jet. Arik presently operates an average of 36 flights daily. All West Coast destinations have been shut down. It is the same that goes for a lot of domestic routes. Frequency of routes being operated has been drastically reduced.
It is surprising that the public is being treated to a drama among labour unions in the aviation industry. No doubt, this is being perpetrated by AMCON officials who are benefitting tremendously from AMCON’s stay in Arik. Nigeria has great potential for aviation growth in Africa but it is being scuttled by several forces for personal gains.

In spite of several requests for financial accountability of the sum of about N700 billion, comprising of the sum of N375 billion it claimed to have invested in the airline and the sum of N336 billion revenue it generated since it took over the airline, AMCON has refused to do so.

Mr Faz Karim is a former Vice-President of Arik Air. He is based in Europe