Wednesday, 8 March 2017

NIGERIA: Arik Air Being Forced Into Receivership

2016 marked the 10th anniversary of Arik Airline. The airline rose from the ashes of the defunct national carrier, Nigeria Airways, and efforts to create another one in partnership with Richard Branson’s Virgin Atlantic.

When Joseph Arumemi-Ikhide saw this vacuum, he thought he could fill it. According to information on Arik’s website, he bought a Hawker jet aircraft. “Colleagues and contacts in the gas and oil industry started using the Hawker jet to fly themselves around Nigeria,”

continues the report. “So, another jet was acquired and, before long, a corporate jet business was launched. The next step was to find the right people and the right aircraft to build an airline that would set new standards and change the face of aviation in Africa. Arik Air was born — an airline with whom “Nigeria and the rest of Africa would be proud to fly.”

The company’s growth was rapid. By the end of 2012, Arik Air had successfully flown over 10 million passengers in less than six years of operation across a network of 41 domestic and international routes. It was operating an average of 120 flights daily from its two hubs at Murtala Mohammed International Airport, Lagos, and Nnamdi Azikiwe International Airport, Abuja, Nigeria.

At the peak of its growth, Arik was the darling of many Nigerians. It commanded 55% of the airline load in the country.

However, it is said that success breeds complacency and complacency often leads to failure. Soon, the airline’s management took the wrong turn, somehow. And the centre could not hold any longer.

Delays in flight departure and outright cancellation soon became the hallmark of the airline.

One after the other, all the core values of the airline were gradually compromised; safety and reliability; honesty and integrity; and respect for the dignity of our customers, fellow colleagues and our communities became hollowed and mere rhetoric.

Last Thursday, the Federal Government of Nigeria, through the Asset Management Corporation of Nigeria (AMCON), announced a takeover of Arik Air to prevent it going bust.

Akin to the euphemism “too big to fail” that gained currency from the act of Government bailout of US and European banks in the years following the subprime loans bust of 2008, Nigeria’s biggest national carrier, Arik Air, is being forced into receivership because it will be too costly to allow it to fail with a whopping N300 billion debt overhang.

Like other similar interventions by AMCON, especially in the banking sector, this one too is aimed to “instill sanity” in the country’s aviation sector and to prevent a major catastrophe.

Before now, AMCON intervened to save Aero Contractors, another airline on the verge of total collapse, with greater relief to the aviation industry.

Similar interventions by AMCON in the banking industry have helped brought stability in the financial sector of the country.

Since its establishment in 2010 AMCON has acquired about 13,774 Non-Performing Loans (NPLs) worth N3.6 trillion from 22 commercial banks, in the process saving our banking system, while its provision of financial accommodation of N2.2billion protected about N4.7trillion of depositors’ funds and interbank takings as well as saved approximately 14,000 jobs.

AMCON has, through these interventions in the past, helped a lot of businesses bounce back and hit the path of recovery. In one of his numerous interactions with the media, the Managing Director of AMCON, Mr. Ahmed Kuru, has underscored the raison d’ĂȘtre of his organization’s interventions thus:

“We don’t want any business to suffer because of their debts.

We are not out to kill businesses but to encourage them to grow by following the global best practices in debt reconciliations and settlements. Our desire is to recover the money for the nation through painless processes.”

News reports have it that the beleaguered airline was indebted to the tune of over N300bn, with AMCON alone owing N135bn; while its obligations to aviation fuel suppliers, insurance firms, aircraft maintenance organizations, the Federal Government and the various aviation agencies, as well as food vendors, made up the balance.

This was a clearly precarious situation that pointed to the fast deterioration of the Arik Air services on both its domestic and international routes.

A passenger reported his experience with Arik services in the following words:
“To fly Arik often means never getting off the ground. I was at Enugu airport when I was told my flight was cancelled. The man beside me at the check-in desk just shook his head – all his flights had been cancelled for the past two days.

“Customer service at Arik Air is at times non-existent. When the airline cancels a flight, most of the time its ground staff flee rather than deal with the fallout from irate passengers.”

As the company’s troubles mounted at the end of last year, 70% of its international flights were delayed.”

“The firm’s staff bears the brunt for an airline that even by Nigerian standards is a byword for utter dysfunction. Last month the company was forced to issue a plea for passengers not to attack its employees.”

Indeed, hardly will you find a frequent flyer of domestic flights in Nigeria without a bitter and hard-to-forget experience of flying on Arik.

Nothing explains this recurrent unfortunate experience by Arik customers better than lack of strict adherence to the tenets of corporate governance by its management.

Its poor services became a far cry from the airline’s sublime objective “to operate above and beyond the highest standards of safety and security and to offer a superior level of customer service and to deliver on all promises made to our guests.”

Early this year the patience of Arik passengers was pushed to its limit. A video that went viral on the Internet on January 5 depicted the customer liaison manager of Arik being assaulted by a group of aggrieved passengers whose flight to Johannesburg was cancelled three times.

The management of the airline was quick to blame frequent flight cancellation on aviation fuel shortages in the country. Although that could be true to some extent, there are other failings from the management of the airlines that became noticeable — such as the strikes embarked by its staffs or the shutting down of the airline offices throughout the country by a couple of unions that brought untold hardship on its passengers last December.

Many other serious failings of the management of Arik were reeled out by AMCON in the wake of the takeover of the airline by the corporation. They include, among others, poor corporate governance, demotivated pilots, poor safety measures, which is unacceptable in aviation business and the Airline inability to meet its financial obligations.

Arik management may attempt to contest the takeover, as the Deputy Managing Director, Captain Ado Sunusi, is reported to have said, but in the reckoning of stakeholders, the Arik takeover by AMCON is a welcome intervention. As clearly stated, AMCON intervened to afford Arik the opportunity to go back to regular and undisrupted operations, avoid job losses, protect investors and stakeholders’ funds as well as ensure safety and stability in the already challenged aviation sector.

What can be a better option for Arik than this? In all honesty can the management of Arik afford its blooming debt burden? What has become evident is that the Buhari administration has seen positive results in these takeovers by AMCON and has been inclined to encourage it to the delight of Nigerians. Surely, AMCON is in good hands of its Managing Director and his team enjoying his experience and expertise as a thorough-bred banker and risk management guru. I have two pieces of advices to all stakeholders.

The first is for all stakeholders in this unfolding event to manage their expectations of AMCON’s takeover—we should not expect magical turnaround of Arik in a month or two. The rot in Arik that have seen it plummeting from commanding of 30 aircrafts in its heydays to just 9 today cannot be purified in few months’ time.

The second is for all to put their sentiments aside and cooperate with the new managers and the receivers in their efforts to see to it that Arik navigates out of the current turbulent weather to a steady cruising level that will eventually land it into safer rebirth.
– Hassan contributed this piece from Abuja