Legal Battles Imminent as AMCON Insists on Arik/Aero Merger Exit Plan

Chinedu Eze

The plan by the Asset Management Corporation of Nigeria (AMCON) to merge Arik Air and Aero Contractors airlines, which are under its receivership, in order to establish a national carrier, is likely to attract legal battles against AMCON, THISDAY has learnt.

The two airlines were taken over by AMCON due to their huge debt portfolio and while AMCON has 60 per cent ownership of Aero Contractors, it holds no shares in Arik Air, yet it took over its management on February 9, 2017 due to the airline indebtedness.

Under the Buhari administration, AMCON made a proposal to the federal government to merge these two airlines to establish a national carrier, but the then Minister of Aviation, Hadi Sirika, turned it down due to the debt exposure of the two airlines.

But the new Managing Director/Chief Executive Officer of AMCON, Gbenga Alade, said both Arik and Aero Contractors owe so much money that they may not be able to pay, confirming  that the corporation presented the idea of converting Arik and Aero Contractor to the former Aviation Minister but it was rejected.

Also, AMCON’s effort to establish another airline, NG Eagle from the ashes of Arik Air was thwarted by the former Minister, as the Federal High Court, sitting in Lagos, last year, gave AMCON 14 days to render Arik Air’s accounts since 2017 take-over and insisted that the attempt by the federal government agency to transfer the assets of Arik Air Limited to NG Eagle Airlines (third defendant) and Super Bravo Limited (fifth defendant) was not in the best interest of Arik Air. Despite the court order, AMCON failed to render the account.

But many industry observers, however, said that if the right things were done, the federal government may accept AMCON’s proposal to use the two airlines to establish a national carrier.

Member of the Airline Operators of Nigeria (AON) and the President of Topbrass Aviation Limited, Captain Roland Iyayi, told THISDAY that the two airlines can be merged to establish a national carrier because Arik and Aero Contractors are already national assets because AMCON has bought over their assets and liabilities, but he insisted that such plan could only work, if the government agencies would go into the details of the merger, noting that whether the original owners would support the merger or not would depend on the details of what AMCON would be ready to offer. According to him, on the face value, the idea might seem to be good but the details may make the whole process unattractive.

“Will AMCON be willing to fund the project adequately? The issue is not for the owners to decide because if you already owe and you don’t have the money to offset the debts, you don’t have a say. But the issue is, can AMCON get the people that will bring out the capital. AMCON has not efficiently funded the airlines to make them competitive. Can they do that now? These are two airlines in bankruptcy and you want to use them to create uncompetitive entity. Can they be merged? Yes; but it is important you understand the dynamics. They will offer Aero and Arik assets for mandatory sell and bring the two airlines together. Currently the two airlines are liabilities, so government has to inject funds to make them competitive. Let them come up with the details,” he said.

Also, another industry insider and major player who has followed the history of the two airlines, told THISDAY that the merger of the two airlines would be possible if AMCON decides to do so because for government, everything is possible, but involving legacy shareholders of the companies is very important for the plan to work.

The industry player said that if the merger arrangement works well to the agreement of everyone, then the legacy shareholders will not challenge it in court.

“But it will sound bad when family businesses are being taken over by government. So, for this to work, legacy shareholders must be carried along. They must give their consent and you have to let them know the benefits you will have for them. However, merging the airlines to establish a national carrier should be the best exit plan for AMCON,” he said.

He also said that the two airlines could be taken together but how they would be run would constitute another challenge, stressing that AMCON can only use the merger as exit strategy, as the agency did not manage the airlines well, especially Arik Air.

He said: “The plan is just exit strategy; not that you want to make any money. What will the owner of Arik Air gain? The company is already down. They took the company with many aircraft. Personally, I know about 17 serviceable aircraft but the company is now dilapidated, but if they merge the two companies, I think we should give them the benefit of the doubt, but I must say, Mr. Johnson (Arumemi-Ikhide, founder of Arik Air) has not been treated fairly. AMCON ran down the planes. They took an airline with assets with no money and ran it aground. AMCON must be held accountable. They have done irreversible damage to the airline; there is nothing Johnson can do now. Yes, when AMCON took over the airline, it had no money but it had plans. The company could not pay insurance and salaries, but the 17 aircraft they took over were serviceable. Where are they now?”

The insider said that merging the airlines would be the best exit plan for AMCON because there is no other way they can do away with the airlines, ‘which have become Albatross to the agency’.

“But when they merge the two airlines into one they should clean it up. All the creditors will come and take a haircut. They will sign document that they will not resort to court to contest the issues and assets and liabilities of the company will be assessed and they will invite Qatar Airways or Ethiopian Airlines as technical partners to manage it,” he said.

But a stakeholder who is close to the founding shareholders of Arik Air, told THISDAY that he does not understand how AMCON could be considering merging privately owned businesses and taking them over; that it is a way to cover the fraud the officials entrenched in the airline.

“That conversation has no value. They are just day dreaming. You want to take over privately owned business but you are asking people to come and invest in Nigeria. They want to use the merger to cover up the sleaze and fraud they carried out at Arik Air in the over seven years they managed the airline. If you check other countries, many of the major airlines you know had had bankruptcy and were supported by government and other institutions. This is an airline that had 19 serviceable aircraft and you took it over and destroyed everything. Now, you want to merge it with another airline to hide your atrocities,” the source told THISDAY.

He said that some airlines like Lufthansa, Alitalia, United Airlines, Ethiopian Airlines, Kenya Airways, South Africa Airways, Jet Airways of India went through Chapter 11 (bankruptcy) and were not taken over by the government of the countries they operated in but were supported to rise again.