Arik wasted $240m on two A340 planes- AMCON

The Assets Management Corporation of Nigeria (AMCON) has blamed the short life span of Nigerian airlines on what it called financial recklessness by the operators.

Managing Director/Chief Executive Officer of the Corporation, Ahmed Kuru, specifically faulted aircraft acquisition without the due diligence of feasibility studies.

He said Arik Air which is under its receivership blew $240m on acquisition of two Airbus 340 planes without conducting feasibility study.

Delivering a paper at a roundtable on “Aircraft Financing: The Issues & Challenges of Asset Management Corporation of Nigeria (AMCON), to commemorate the 10th anniversary of Aviators Magazine in Lagos, Kuru also blamed banks for their lack of expertise in aircraft financing.

Represented by Tajudeen Ahmed, a senior official with the corporation, Kuru said given the strategic importance of the sector, it becomes imperative for the Central Bank of Nigeria (CBN) to take over the complicated issue of aircraft financing.

According to him, the intervention of AMCON in the sector following the takeover of Arik and Aero over huge bank debts had exposed the corporation to many wrongs in the sector.

He said if Arik Air had done the due diligence of feasibility studies, the $240m spent on acquiring the two Airbus planes which it deployed to London-Heathrow, New York and other international routes would have bought many smaller aircraft which would still be operating at the moment.

One of the Airbus planes is still parked at the Murtala Muhammed International Airport (MMIA).

According to the AMCON boss, the aircraft could best be regarded as a scrap.

He said, “From what we now know, there are serious issues in aircraft financing because our people dabble into the business of aviation with the wrong capital mix. On the other hand, the banks who are the primary source of funding also have short term views about the business.

“Banks that have attempted to fund the business in the past neither had the deep expertise nor carried out proper due diligence before committing their funds. Banks lack both the financial capacity as well as the expertise in personnel to critically analyse the business and its associated risks before throwing their money into aircraft/aviation financing.

“Because the banks do not understand the business, it is easy for any ‘sharp businessman’ with dubious intentions to approach them with dodgy proposal to float an airline just to get loans that will go bad shortly after. Such cases abound in the industry. No wonder Nigerian banks, having watched the trend of the short lifespan of aviation investment shy away from further funding.

“The previous management of Arik without carrying out serious feasibility studies some years back bought two A340 planes for $260 million  and within four years, it was discovered that the planes are commercially obsolete. So even with that huge capital outlay, the two planes were not able to operate to generate the money to service the huge debt, not to talk of making profit. This is just one of many.”

He stressed that aviation which he described as an economic driver deserves ample commitment of the Federal Government.

He said, “In my opinion, the aviation sector, which is a critical component of the transport, is perhaps one of Nigeria’s most challenging sectors; especially in the light of the massive need for infrastructure development in air, rail, road and sea transport to ensure seamless movement of people and cargo.

“Regardless of the mode of transport – the aviation sector has proved to be a catalyst for the economic development of nations. It is the wheel that drives economic activities. The air transport sector facilitates trade, tourism; boosts productivity in the economy; improves efficiency in the supply chain; it is an enabler for investments; can spur innovation, facilitate commerce and provide fast and reliable delivery of cargoes and services.”