With aero contractors, the Assets Management Corporation of Nigeria (AMCON) got a very bad deal from the beginning. It’s obvious in every respect that AMCON’s risky acquisition of bad loans has not faired very well in the aviation sector. While aero and Afrijet airlines are two basic litmus tests for the risk management company, the former can easily be salvaged if AMCON is interested in recovering a portion of its N20 billion investment.
AMCON has two options: allow aero to die a natural death by outright liquidation after paying off the workers, or inject more funds into the airline to upgrade its current fleet, recover the five airplanes currently in maintenance, and then sell the company. Neither of the two options is cheap, but a feasible prospect lies with the second.
Cecelia Ibru and her family deliberately punched aero into the unrecoverable position it has found itself. The delay by AMCON to take control of the affairs of the airline in the early stages, after buying off the debts, gave the Ibrus ample time to milk the carrier dry, leaving the carcass for the asset company to bitterly swallow. The result is an airline in dire need of blood transfusion in an intensive care unit.
I was not surprised when aero announced last week that it would suspend schedule operation. The airlines has steadily lost N500m per month in the past two months. With an average monthly salaries and wages of N600m, daily serviceable fleet of three airplanes, its demise was incontrovertible.
This is not the best way for aero to fallout of the sky, albeit the available options are too expensive to bear. Hence our appeal to AMCON to reconsider its hard stance against further liquidity support to the oldest living airline in Nigeria.
The minister of state aviation, Hadi Sirika’s encouraging statement that the employees of Aero will get their jobs back, and necessary steps will be taken to compensate those retired from the company should not emerge as another political rhetoric. The weight of the promise must be endured with alacrity, and we stand to hold the Honourable minister accountable to his word. Aero’s mysterious survival up till last week is commendable; it shows that will the infusion of some cash, the airline could meet its obligations to the investors in a few years to come. It is still a big gamble if the indices of Nigeria’s current economic debacles are applied to the equation.
These are the hardest of times for all businesses in Nigeria. But like I have always said, airlines bear the most brunt of this economic scourge.
First nation airline is in a spiral spin also; it has being for a while. The foreign exchange scarcity will add more burden that will, undoubtedly, keep the airline below the surface until further notice, if it does make it through.
Nigeria will remain unripe for commercial aviation as long as government owned agencies arbitrarily dish out draconian policies that adversely affect airlines’ nominal profitability.
There has never been any time in history, worldwide, that airline business is a profitable venture. Airlines simply enhance other sectors of any nation’s economy. Commercial aviation (schedule and non-schedule air transportation) has never yielded more than 9% return on investment, and it has a terminal date of discontinuity.
The challenges of sourcing low- interest- funds to keep the industry afloat are clearly visible. Commercial banks have raised their lending rates to 32.5% in the past two weeks, leaving airline operators gasping for air. With high cost of funds, more airline calamities are inevitable; meaning more job losses, and more hardship for those working in the aviation sector.
This vicious circle has become the rhythm and chorus of airline catastrophes in the realm of the sector. Surprisingly, very few stakeholders care to take notice. The bell is ringing louder, and if this government is sincere about its promise to grow the economy, it must find ways to tame the cyclic inflation. It might be impossible, in the short term, to improve the value of the Naira–Nigeria’s currency–due to the low prices of crude oil, but sourcing cheaper aviation fuels would suffice.
All these analyses are hypothetical because there is nothing to point towards a plausible redemption of the economy right away. Which means more carriers will nose -dive in less than one year in this current plight. Already, foreign carriers have studied and projected the future of Nigeria’s economy, and promptly so. They have opted for Ghana, a country with less volatile currency. The fact that Nigeria’s government keeps pouring out policies and counter policies is an indicator of uncertainty in the economy. Investors are very sensitive. They will flee your country if they sense visible nervousness in monetary and fiscal policies by the country’s Central Bank. Unfortunately, the Central bank of Nigeria (CBN) has failed to encourage foreign investors with its unusual policy overlaps.
This prediction, although very bitter to digest, is nevertheless the reality of the time. Extorting funds from airlines in dire need of liquidity is as good as sending them, early, into their graves. The illusion that airlines are cash-cows, and will pay unreasonable charges has led to huge debts owed to the service providers. These debts must be written off; no airline is financially stable to offset unreasonable bills. This is one area the federal government can assist carriers.
With both aero and First Nation airlines suspending operations, the critical question is yet to be answered. What will become of Arik, Med-View, Air Peace, Dana, Azman and Overland airways? The Federal Airports Authority of Nigeria (FAAN), and the Nigerian Airspace Management Agency (NAMA) have recently rolled -out debt profile of each carrier. The figures are insurmountable, and conspicuously unpayable. If the only solution is sporadic grounding of an airline’s operation, the punishment could become unbearable. This will surely truncate industry growth and will render more unemployment. In every direction, fragility appears on the horizon; bankruptcy is tenable.
Those canvassing for massive government’s support may be oblivious of the wasted N200 billion bail-out largesse rendered by the same federal government a few years ago. The few beneficiaries are yet to render account of what transpired with the funds. Therefore, the constant appeal to the government for redemption should cautiously be revisited.
From my own angle of vision, the situation of all the air carriers in Nigeria looks more precarious than ever. Increasing airfares beyond affordable level could lead to deflation, a situation whereby passengers avoid spending money on airfare, and opt for alternative modes of transportation.
The battered Naira, and the general economic downbeat are clear outliers to airlines’ financial prospect. The fad is unsurprisingly over. Indeed, a very dire situation for schedule and non-schedule air transportation in Nigeria.