Legal tussle imminent as AMCON takes over Arik

When the federal government, through the Assets Management Corporation of Nigeria (AMCON), announced on Thursday that it had taken over the management of Nigeria’s largest domestic carrier, Arik Air, many industry watchers and members of the public were not astonished. In fact, they said the intervention was the most perfect and appropriate action to save the airline from going into extinction following its woeful performances in recent times.

Arik Air, which primed itself as the largest airline in the West and Central Africa, was registered in 2002 and commenced operation in 2006, clocking 10 years in October last year. As the airline was marking 10 years anniversary of its operation with over 20 million passengers ferried so far, it rolled out very ambitious plans to expand not only its fleet but the route structure.

The airline operates a fleet of 28 state-of-the art regional, medium haul and long haul aircraft, including two Airbus A330-200 and serving 18 destinations across Nigeria, as well as Accra (Ghana); Banjul (Gambia); Dakar (Senegal); Freetown (Sierra Leone); Monrovia (Liberia); Cotonou (Benin Republic); Abidjan (Cote d’Ivoire); Douala (Cameroon); Luanda (Angola); Libreville (Gabon); London Heathrow (UK); Johannesburg (South Africa) and New York JFK (USA). With more than 100 flights daily, the airline serves over 50 per cent of the domestic market.

However, trouble started for the airline when it started to default on its financial obligations, owing largely to the rising cost of operations, occasioned by the foreign exchange scarcity. Last year was particularly turbulent for the airline, with many industry watchers suggesting that the carrier might go the way of over 40 defunct Nigerian airlines.

Among the woes of the airline are frequent flight delays and cancellations without notifying the passengers, non-payment of staff salaries, unending confrontation with workers’ unions, indebtedness to aviation agencies like the Federal Airport Authority of Nigeria (FAAN), the Nigerian Airspace Management Agency (NAMA) and the Nigeria Civil Aviation Authority (NCAA); as well as indebtedness to fuel suppliers.

At several times last year, labour unions, including the Nigerian Air Transport Employees (NUATE), Air Transport Services Senior Staff Association (ATSSSAN), among others, picketed the airline over non-payment of staff salaries and indebtedness to aviation agencies. The airline is allegedly indebted to FAAN alone to the tune of over N10billion.

Many flights were delayed for hours without the passengers being provided with refreshment in accordance with the provisions of International Civil Aviation Organisation (ICAO) regulations. While flight delays are inevitable in civil aviation owing to weather condition or technical fault on the plane, the failure to communicate properly with the passengers has often been the problem. Out of over 19, 064 flights the airline operated last year, it delayed 10, 996, representing 57.6 per cent and cancelled 507 flights. Many officials of the airline have suffered physical assaults on several occasions at the airport.

On December 20 last year, the airline’s operation was shut down nationwide following a strike embarked upon by the workers’ union while many passengers were stranded nationwide. Also, towards the same yuletide period, the airline was fined N6m by the NCAA over abuse of passengers’ rights following its failure to bring their luggage from New York, United States, even after the regulatory agency had intervened.

With its rising debt profile, it was crystal clear that the government would intervene as it did for Aero Contractors in 2005. Twenty-four hours to AMCON’s intervention, there was commotion at the corporate headquarters of the airline, where aggrieved passengers were demanding for refunds on tickets bought sometimes ago without the flights operated. One of the aggrieved passengers claimed she bought tickets on behalf of a group in August last year, but the flight to Johannesburg, South Africa, was cancelled. At the same time, the Economic and Financial Crimes Commission (EFCC) operatives visited the office and reportedly invited the chairman, Sir Joseph Arumemi-Ikhide.

It was, therefore, very glaring that the airline was in serious straits in all fronts and AMCON had to strike. This was after obtaining a court order to take over the management of the airline.

In a statement announcing the takeover, AMCON said the airline would now be managed by Capt. Roy Ukpebo Ilegbodu, a veteran aviation expert, under the receivership of Mr. Oluseye Opasanya, a Senior Advocate of Nigeria (SAN).

In the statement, AMCON said the move would give respite to the airline “currently immersed in heavy financial debt burden threatening to permanently ground it.”

Some of the woes of the airline as listed by AMCON include the inability to pay salaries, which makes its workforce the most unmotivated in the aviation sector; defaults in lease payments and insurance; constant flight delays; flight cancellations without explanations; luggage pilfering and outright disappearances. Others are poor safety measures; inability to meet financial obligations; constant loggerhead with aviation unions; constant fracas between members of staff and irate passengers; non-remittance of workers’ taxes to relevant bodies, among others.

“Going by the history of the short lifespan of airlines in Nigeria, it is obvious that Arik is headed for extinction if nothing drastic is done quickly to save the strategic carrier, the aviation sector and thousands of jobs that would be lost if it dies,” AMCON stated. It added that the new move would enable the airline to go back to “regular and undisrupted operations, protect jobs and restore confidence of investors and passengers in the airline.

AMCON added, “As a matter of fact, Arik Airline has been in a precarious situation, largely attributable to its heavy financial debt burden, bad corporate governance, erratic operational challenges and other issues that required immediate intervention in order to guarantee the continued survival of the airline. Yesterday, (Wednesday), Arik temporarily suspended its flight operations to the John F. Kennedy International Airport, New York, United States, claiming that the two Airbus A330200 aircraft dedicated to the route had been taken to France for C check at the same time. Equally, more than eight aircraft are currently grounded at the tarmac, making it difficult to meet their routine commercial flights.

“During the last yuletide season, passengers were stranded in airports all over the country due to Arik’s incessant flight delays and cancellations, which negatively affected the preference they enjoy from passengers. You are all living examples of this.”

There are indications that the federal government would be injecting some money as a form of lifeline to mitigate the airline’s humongous indebtedness.

A source said, “The injection of funds would definitely come after the new management has studied the book of the airline to determine how much it actually owes.”

The minister of state for aviation, Senator Hadi Siriki, endorsed the intervention, pledging support for the new management to revive the airline.

“We believe that this appointment is timely and will stabilise the operations of the airline. This will enhance the long term economic value of Arik Air and revitalise the airline’s ailing operations, as well as sustain safety standards in view of Arik Air’s pivotal role in the Nigerian aviation sector,” the minister said.

Experts say the takeover of Arik could be a prelude to the establishment of a national carrier by the government, which now has majority share in the airline. Other industry watchers see the takeover as a bad omen for the industry as it also exposes the poor corporate governance in some of these airlines, with owner-manager syndrome being the hindrance.

However, others blame the challenges of Arik Air on a weak regulatory system. According to them, the regulatory authorities have failed woefully to constantly check the books of the airline to ascertain its solvency. Also contributing to the misfortune of the airline was the high cost of operation occasioned by the foreign exchange scarcity requiring sound corporate governance and innovativeness to weather the storm.

Could this be the end of Arik Air? This is a question agitating the minds of experts as its huge indebtedness is put at N200bn. According to Ilegbodu, who was appointed the technical consultant for the airline, from 28 aircraft, it now has 10 currently being used for operations.

Will the government convert the airline to a national carrier as being insinuated? Definitely, according to our findings, there is more to the takeover. This action is expected to generate a legal tussle as the airline’s management has indicated, but the strength of its case obviously would depend on its ability to liquidate all the debts being owed foreign and local partners.

The deputy managing director of the airline, Capt. Ado Sanusi, said the management had complied with the court order authorising AMCON’s takeover to enable the operations of the airline continue, but it would challenge the decision to the highest authority.

“We were served with the court order this morning (Thursday). Arik Air will comply with the order. The airline has the right to challenge the order, and we will challenge it. We might disagree on certain issues, but we have agreed that Arik Air operations should continue and not be paralysed. We will make our position known to our various stakeholders and partners. We will challenge this order to the highest level,” he said.