Africa: AMCON blames airlines’ failure on sharp practices
Sharp practices by airline owners such as over-invoicing in the course of purchasing aircraft and other unwholesome practices have been identified as responsible for the short lifespan of private airline investment in the country.
Disclosing this in Lagos yesterday, the Chief Executive Officer, Assets Management Corporation of Nigeria (AMCON), Ahmed Kuru, said that was the case with Arik Air and Aero Contractors, which almost led to the death of the two carriers before government intervened.
Kuru, who spoke at the Aviation Leadership CEOs Roundtable with theme, “Aircraft Financing: Issues and Challenges of AMCON,” alleged that the 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.
Represented by Group Head, Asset Management, AMCON, Mr. Tajudeen Ahmed, he lamented that the situation led to the over N500 billion debts that stifled the carrier’s operations.
The roundtable was organised by Publisher of Aviators Africa, Mr. Toni Ukachukwu. The AMCON boss 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 becomes deficient, noting that it is only a matter of time before the business collapses.
He said to manage an airline in Nigeria, the realities of investment were huge amid very little profit margin, adding that airline survival required discipline, honour and transparency as well as sound corporate governance on the part of owners. His words: “Arik before the takeover was 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 hold ing is deficient. It will be only a matter of time before the business collapses.”
Kuru reiterated that financing aviation was also challenged by the huge interest regime, adding that everything needed to run profitable airlines was 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 organised environment.
The AMCON chief expressed frustration that convincing banks to invest in aviation was extremely difficult, urging the Central Bank of Nigeria (CBN) to consider incentives that will encourage banks to fund aviation business in Nigeria because of its critical position to the economy. He said: “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 did not exceed 10 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 pilot, Alex Nwuba, who spoke on aircraft utilization, said most airports in Nigeria closed at 6p.m., saying “you will never get the utilisation 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.”
By Wole Shadare