How sharp practices by airline owners ruined Arik, Aero, others-AMCON CEO

• Faults Banks for aiding over-invoicing, others

Sharp practices by airline owners such as over invoicing, unwholesome practice have led to the precarious situation of airline business in Nigeria especially for purchase of airplanes according to the Assets Management Corporation of Nigeria (AMCON).

The Chief Executive Officer of AMCON, Ahmed Kuru who was represented by Group Head ,Asset Management, the Mr Tajudeen Ahmed said that was the case with Arik Air and Aero which almost led to the death of the two carriers before government intervened.

He alleged that former management of Arik engaged in over invoicing of planes purchased by the airline owners who decided to take their profit upfront to the detriment of the business which according to him led to over N500 billion debts that stifled the carrier’s operations.

Kuru who spoke at the Aviation Leadership CEOs Roundtable with theme, “Aircraft Financing: Issues and Challenges of AMCON”, organized by Publisher of Aviators Africa, Mr. Toni Ukachukwu held in Lagos at the weekend carpeted Banks for not understanding the intricacies of aviation or aircraft financing.

He faulted Banks for allowing airline owners get away with such practices, explaining that when aircraft purchases are over invoiced, the collateral the bank is holding is deficient, nothing that it is only a matter of time before the business collapses.

To manage an airline in Nigeria, the realities of investment he said is huge but noted that the profit margin is very small.

To him, airline survival requires discipline, honour and transparency as well as sound corporate governance on the part of the owners.

His words, “Arik before the take0ver were complicit in aircraft maintenance by not maintaining the planes when they were due for maintenance. But under the current team, AMCON has overhauled over eight B737 engines and carried out more than 15 checks with many in the shops as we speak”.

“There was also issue of over invoicing of planes purchased by the airline owners who decided to take their profit upfront to the detriment of the business. Again, the banks do not understand the business and let airline owners get away with such practices because when the aircraft is over invoiced, the collateral the bank is holding is deficient. It will be only a matter of time before the business collapses”, he added.

Kuru reiterated that financing aviation is also challenged by the huge interest regime, adding that everything needed to run profitable airlines are imported.

According to him, lack of corporate governance in the sector has done an incalculable damage because the operators like to apply one-man ownership system, stating that critical decisions are taken by one man which cannot be questioned or challenged by a board like a case of organized environment.

The AMCON chief expressed frustration that convincing in Banks to invest in aviation is extremely difficult, urging the Central Bank of Nigeria (CBN) to consider incentives that will encourage banks to fund the aviation in Nigeria because of the its critical position to the economy.

“The apex Bank should encourage the commercial banks to go into aviation. The government should create the enabling environment that would enable airlines set up a leasing company in a well tenured manner. The government can consider loan term credit”.

“It is therefore not surprising to some of us when I take a look at what we call Nigeria aviation burial ground. You will be greeted with a long list of many airlines with many of them whose lifespan do not exceed ten years talking about ADC, Chanchangi, Bellview, Sosoliso, African Trust Air, Harco, Kabo, Okada, Albarka, Slok, Virgin Nigeria, Afrijet, Dawood Air. The list is endless”.

Aviation entrepreneur and an aircraft pilot, Alex Nwuba who spoke on aircraft utilization said most airports in Nigeria close at 6pm, saying,  “You will never get the utilization you require. That is a double tragedy because often times you see airlines operating oversized aircraft using load factors.

“We tend to use load factors that are untenable and today, we have the very popular B737 with 50 to 60 passenger market”.