September 15, (THEWILL) – The matter between Asset Management Corporation of Nigeria (AMCON) and Arik Air Limited is needlessly taking up public space and attracting attention. But the facts of the matter reveal a straight, one could even say simple solution: a transparent, yes transparent, commitment of Arik Air owners to honour obligations as and when due. Call it a matter of integrity and one would be quite right. It is necessary to consider some background facts to the case.
Arik Air was founded in 2004 by Chief Johnson Arumemi-Ikhide and began operations two years later with a great deal of expectation that it could be the private sector answer to the badly-managed-to-death national airline, the Nigeria Airways. Indeed, the performance of the airline in its early days showed great promise. Research indicates that by August 2006 it began international flights to the Caribbean island of Trinidad and Tobago as well as to Amsterdam. By December 2008, it was flying passengers to London, and the following year to Johannesburg and JFK in New York. By mid-2014, Arik Air was flying to Dubai. It recorded its 5 millionth passengers on 6 August 2010 and its 10 millionth only two years after in September 2012. Both were on the Lagos-Johannesburg route. At the height of its glory, Arik Air was flying 55 percent of domestic flights in Nigeria as well as transcontinental routes to London and New York, according to the April 2017 edition of Financier Worldwide Magazine. For an airline that came into existence in under a decade, these were undeniable achievements. But only on the face of it.
Leadership mantra holds that a nation rises, thrives, or fails on its leadership. So also does a business enterprise. By 2016, Arik had overextended itself beyond the capability of its management in expenditure, operation, and sundry aspects of running an airline in the peculiar Nigerian environment.
It is received wisdom that it is better and safer to learn to crawl before one walks. Put differently, anyone who climbs a tree from the top will have nowhere to go but down. With the benefit of hindsight, and as insiders to the management of Arik Air reveal, the company’s executive chairman, Chief Johnson Arumemi-Ikhide, ran the airline in a manner that could not but bring disastrous repercussions that would attract the intervention of the Federal Government through AMCON. Worse still, gross mismanagement has driven the company into receivership.
Financier Worldwide Magazine reported that ‘toward the end of 2016, when its troubles began to really take hold, 70 percent of its international flights were delayed. Such was the state of ill feeling around the company’s operations that in January Arik was forced to issue a plea for passengers not to attack its employees when delays and cancellations were announced. The airline currently has around 30 aircraft, but only 10 were in operation at the beginning of February ’.
Burdened by about N280 billion debt to banks and service providers, AMCON took over the airline on 9 February 2017 as a statutory responsibility under its enabling Act. AMCON reportedly said in a statement that “Arik Airline has been in a precarious situation largely attributable to its heavy financial debt burden, and bad corporate governance…that required immediate intervention”. As Nigeria’s official ‘bad debt bank,’ the corporation assumed Arik debts to the tune of nearly N280 billion and appointed a management team to stabilise the operations of the airline.
It should be stated that AMCOM has a wide-ranging mandate that includes powers to acquire eligible bank assets from eligible financial institutions, hold, manage, realise and dispose of eligible bank assets (including the collection of interest, principal and capital due and the taking over of collateral securing such assets). AMCON remit also involves the realisation of eligible bank assets that the Corporation has acquired, including managing and disposing of assets acquired with the proceeds from managing or disposing of eligible bank assets acquired by it, taking all steps necessary or expedient to protect, enhance or realise the value of the eligible bank assets that they acquired.
The indebtedness in naira and foreign currencies of Arik kept snowballing to, as of the date it was put in receivership, the hefty total sum of N297,301,356,316.41. In what should be Nigeria’s flagship airline, the details of how this huge sum came about are as embarrassingly many as are varied.
In a 16-point itemisation of incontestable managerial failing, AMCON noted in its post-receivership analysis that the airline did not have adequate cash to operate for even one week, only 8 of its 30 planes were functional (with a couple of them due for C checks), and it owed foreign business partners and service providers including the sum of EURO 2.4 million to SAMCO Aircraft Maintenance Limited. Aviation fuel suppliers were owed resulting in the frequent cancellation of flights and in turn, multi-dimensional inconvenience to passengers. Insurance policy for airplanes lapsed and leases on some planes were outstanding for months. The 2015-2019 audited report by PWC, which is posted on the airline’s website, is a testament to the affairs of Arik Air.
It is trite in corporate governance that the human resource is the most important asset to an organisation. The Chief Johnson Arumemi-Ikhide-led management did not seem to subscribe to this ‘management truth’. Personnel matters were generally treated with levity. Besides that, local and expatriate staff salaries of all categories were owed for months, health insurance for employees expired, training schools owed and refused to grant further credit, and rents on accommodation for foreign professional staff were unpaid. Mercator, who managed the Passenger Service System and sale of tickets, was owed millions of dollars; it stopped rendering service to Arik. Even the internet subscription service by a local network was suspended. In sum, almost no one wanted to do business with Arik Air.
In a detailed statement signed by its General Secretary, Ocheme Aba, the National Union of Air Transport Employees (NUATE) has weighed in on the AMCON versus ARIK matter where it reveals how the once-promising airline came to the sorry pass of receivership. The association largely corroborates the gross mismanagement of Arik Air but goes deeper into the origin of the airline’s troubles. The group should know because its members were insiders to the running of Arik.
Beginning with a not-well-thought-out business model that included ‘absence of proper due diligence, needs assessment…and operational objectives’ through poor human resource management (‘there was no conditions of service or any HR manual known to the workers…[and] ‘personnel were hired and allocated salaries at the owners’ whims and discretion’), to ‘financial recklessness and [a] lack of discipline whereby the entirety of revenue accruing to the Airline was seen as personal revenue and acted upon as such’, NUATE says directly that ‘the fall [of the company] was a story foretold by its own methods’. Mismanagement of Arik even appears to border on the criminal because ‘personnel taxes and pensions were being statutorily deducted but not remitted, nor saved’. The relevant agencies of government must take an interest in this serious corporate misbehaviour under Chief Johnson Arumemi-Ikhide.
NUATE is not alone in the firm opinion that Arik Air was badly managed. Lately, another sectoral professional group that should know, the National Association of Aircraft Pilots and Engineers (NAAPE), led by Engineer Mudi Muhammad, has expressed satisfaction with the way AMCON has handled the Arik matter in the face of it reportedly considered ‘negative narratives that are clearly designed to mislead the public, who do not understand the enormity of the challenges of Arik before AMCON intervened’. Indeed, NAAPE paid a courtesy visit to AMCON ‘to demonstrate our support to AMCON because, as insiders, we understand the big contribution AMCON made to ensure that Arik did not die. If AMCON had not stepped in at the time they did, Arik would have ceased to exist a long time ago’. The association added: ‘We know AMCON’s intervention in Arik about seven years ago was to protect the airline and save hundreds of us from losing our jobs. We can tell you categorically that in the last seven years of AMCON’s takeover of Arik, the airline has stood the test of time. So, we totally understand that Arik survived because of AMCON’. If the testimony of the good job AMCOM is doing is ever required, these are more than enough. Except, in the view of the Chief Johnson Arumemi-Ikhide, the ousted executive chairman of Arik-in receivership. The Receivership ran the affairs of the airline in a most transparent manner and is proud to say it is open to any form of investigation.
The shareholders of Arik appear eager to have their company back, and to this end, made proposals on two occasions in 2018 and 2022. Despite a near 60% discount on the debt, Arik Air owners were unable to pay. Now, with a new administration, the owners of Arik Air gleefully want to take back the airline for free after the winding down of AMCON.
AMCON is a public corporation that is responsible solely for serving the public interest in the fulfilment of its mandate. Having injected some public funds into Arik with the purpose of stabilising the airline in the early stage of the receivership, among other functions, it cannot, and will not succumb to the machinations of persons, no matter how highly placed or well connected, to prevent it from doing its job of recovering debts. The facts about Arik Air are in the public domain for anyone who seeks the truth of the matter. The bottom line is that the shareholders should come into negotiation with a transparent mind, and a preparedness to redeem their corporate indebtedness so that public monies expended on the airline are returned to public treasury. It is not AMCON’s money but Nigeria’s money for Nigerians. It should not benefit a handful of greedy, arrogant ‘mis-managers.’
It is bruited that AMCON, which has sustained Arik Air to date, may be wound up. If this is true, and before it is done, the Minister of Finance, Mr. Wale Edun, should, in the context of the provision of the extant Constitution, ensure that all indebtedness is fully negotiated and paid by Sir Johnson Arumemi-Ikhide before returning Arik Air to him. For the purpose of clarity, the 1999 Constitution in Section 16(2) (b) (c) enjoins the State, (through federal and other tiers of government) to judiciously use Nigeria’s resources for the maximum benefit of the citizens.
***Simon Tumba is the CEO of SY&T Communications Ltd, Lagos.*