Aviation funds: Pill that fails to cure

 

Nigerian carriers are on life support and one hopes that they would continue to weather the storm. This, however, raises some posers about the N120 billion intervention funds that was given to them. WOLE SHADARE writes

 

Intervention funds

 

Aero Contractors, IRS, Chanchangi, Virgin Nigeria/Air Nigeria are some of the airlines that benefited from the N120 billion aviation intervention funds from government.

While others that partook in the largesse are wobbling and grappling with tough economic reality, the later have ceased to operate, leading to insinuation that the bail out made no impact on their businesses.

The cessation of operations, albeit temporarily by Aero, among others, shows that rather than resuscitate the dwindling fortunes of the carriers, the survival pill looked like poison, as virtually all of them are in intensive ward.

Virtually all the airlines received the funds to rescue their operations, but since then, five of them, Chanchangi, Air Nigeria owned by business mogul, Jimoh Ibrahim, Kabo Air and IRS Airlines have ceased operations, leaving a backlog of unpaid debts in their trails.

Ailing signs

 

A source that pleaded anonymity said that government was worried that despite the assistance to the carriers, they are showing signs of bankruptcy. Investigation by WoleshadareNews reveals that the airlines have not applied the intervention funds judiciously, which made the status quo persist.

The Central Bank of Nigeria (CBN) said out of the N120 billion intervention funds injected into the sector, only N39.5 billion had been recovered, while the balance of N81.2 billion was still outstanding.

The apex bank admitted that some of the 10 airlines that benefitted from the fund were now moribund or had folded up, which, according to him, was against the reasons behind the release of the fund.

 

Contrasting fortune

 

Air Nigeria, IRS and Chanchangi Airlines have already folded up. Aero Contractors penultimate week suspended operations. Nobody knows the fate of the carrier. Not a few believe that the airline’s present crisis might lead to its extinction.

The  airline is seriously indebted to the tune of over N40 billion. The Asset Management Corporation of Nigeria (AMCOM) had taken over the firm with the loss-making carrier almost lifeless. Arik, Dana, Kabo, Overland, First Nation and Odenegene were still in operation on the strength of the intervention. Air Nigeria, re-christened from Virgin Nigeria, was the highest beneficiary, receiving N35.5 billion, which was supposed to be monitored by the CBN as well as the Bank of Industry (BoI).

Other airlines that had benefited included Aero, which received N20 billion, Arik Air got N15 billion, Kabo Air got N6.66 billion, IRS and Chanchangi Airlines got N3.4 billion each. Some of the least beneficiaries included Dana Air, which accessed N618 million, Caverton Helicopters got N1.348 billion, Overland Airways got N805 million and FirstNation Airways got N271.7 million.

 

Airlines cry out

 

The carriers themselves claim that their problem is beyond intervention. At a forum held recently, the Managing Director of Arik Air, Chris Ndulue and the Chairman of IRS Airlines, Ishaku Rabiu, maintained that the industry was being crippled by high operating costs. The CBN had said the responsibility of monitoring the utilisation of the fund by the beneficiaries was that of the Bank of Industry, being the facilitator of the loans to them.

But Mr. John Nnorom, who served as Finance Director of the defunct Air Nigeria, alleged that the diversion of the fund meant for the airline to other ventures led to the collapse of the airline. He said: “The N34.5 billion drawn from the fund by the airline was diverted to other personal business by the owner, Jimoh Ibrahim.

“The very moment the N34.5 billion intervention funds was paid into the airline’s account through the United Bank for Africa, it disappeared into one of the private accounts of the owner without any amount from the fund injected into the airline, paving the way for its eventual collapse.”

To say the truth, Nigerian carriers are hemorrhaging and are faced with issues ranging from high cost of aviation fuel, import duties, high charges among others.

 

Call for more help

 

Airline operators in Nigeria, early this year, told the Senate Committee on Aviation that unless the federal government promptly pumped intervention fundss into the aviation sector, all domestic airlines operating in the country will die.

The operators stated this during an emergency interactive session convened by the Senate Committee on Aviation.

Speaking on behalf of Airline Operators’ Association of Nigeria, the Chief Executive Officer (CEO) of Arik Airline, Mr. Chris Ndule, said the economic state of the aviation industry had largely deteriorated. “The economic situation as it is today, is suffocating us out of operation,” he said.

Ndule said some other airlines, besides Aero Contractors, would collapse unless the Federal Government promptly intervened in the aviation sector.

He listed high interest rate of 24 per cent on bank loans, worsening exchange rate and multiple charges from various regulatory agencies as the factors militating against sustenance of aviation business in Nigeria.

“There are a lot of economic indicators that have made business more difficult, which are now manifesting in the inability of the airlines to continue to operate,” he said, explaining that the airlines were operating in an industry that had very little (profit) margin.

He said: “If you have to borrow money and you have to pay 24 per cent and you don’t make a margin of 24 per cent, it means that you will find it very difficult to pay back the debt. And there is a limit to what you can do in terms of being able to manage the debt.

These fundamentals are the things we need to address. “The last time we were here (the Senate), the Central Bank of Nigeria (CBN) was here (too) and it was the CBN that made it clear to everybody that the intervention funds earlier granted, was not for the airlines.

In effect, what this meant was that the loans we took from some banks were transferred to the Bank of Industry and there was a reduction in the interest rate. To that extent, there was a little trickle down effect on the airlines.”

To ease the pressure of the fund on the airlines, the government had agreed on interest rates of between two and seven per cent, while the airlines had the grace to repay the loans between 10 and 15 years. Shortly after accessing the huge cash, most of the airlines suddenly shut down.

The situation has also put the Asset Management Corporation of Nigeria (AMCON) in serious dilemma as to how to recover its funds. Conclusion They do not have a workable business plan.

Give each airline N500 billion, they will still collapse, with the type of plans they have. This is where I blame the Nigeria Civil Aviation Agency (NCAA).

If the CBN can determine who appoints a bank’s managing director and board, as a regulator, I see no reason why NCAA cannot do that in a more sensitive industry such as aviation.

 

Conclusion

They do not have a workable business plan. Give each airline N500 billion, they will still collapse, with the type of plans they have. This is where I blame the Nigeria Civil Aviation Agency (NCAA). If the CBN can determine who appoints a bank’s managing director and board, as a regulator, I see no reason why it cannot, in a more sensitive industry like aviation. More so when they’re not prudent in their spending. Rather than ploughing it back into the business, they spend their proceeds on other matters.

 

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