AMCON Mulls Arik Air Liquidation Over N227.64bn Debt

Asset Management Corporation of Nigeria (AMCON), on Friday, said it had not foreclosed liquidating Arik Air over its N227.64 billion debt to the corporation.

LEADERSHIP Weekend reports that the airline under Sir Johnson Arumemi-Ikhide had a non-performing loan with Union Bank of Nigeria (UBN) and Bank PHB (now Keystone Bank) worth over N227.64 billion which AMCON bought over from the two banks

However, speaking to newsmen, on Friday, the head, Corporate Communications Department, AMCON, Jude Nwauzor, said the option to liquidate Arik Air is still on the table following several efforts it has made to revive the airline but to no avail.

Nwauzor also noted that section 48 empowers the corporation to appoint a Receiver or Receiver Manager to take, manage, and dispose of assets of a debtor company like Arik.
He said considering the powers that AMCON possesses according to the law, liquidating Arik Air remains an option that’s still on its table.

He stated that Arik was managed in its bad state and already insolvent, without any kobo from anyone before the company took over.

Nwauzor, however, added that the Corporation met trade creditors to Arik debt, debt to its technical partners, and debt to other aviation experts all over the world.

”Managing these debts was challenging for the corporation, which still can liquidate Arik. But here we are still managing Arik, which was already insolvent and still insolvent even as we discussed,” Nwauzor said.

He said a KPMG report commissioned by AMCON revealed that Arik was balance-sheet insolvent, with a negative equity value of approximately N80 billion and total liabilities amounting to N289 billion as of December 31, 2016.

Additionally, PwC Nigeria, the company’s long-standing auditors (previously appointed by Johnson Arumemi-Ikhide), conducted audits for the years 2015 and 2016, he said.

These audits, he noted, confirmed that Arik had been technically insolvent since 2014, with its liabilities exceeding its assets throughout 2015 and 2016, up until the commencement of the receivership in 2017.

“As of December 2016, Arik’s negative shareholder capital stood at N139 billion, nearly equivalent to its debt to AMCON,” Nwauzor added.

He said amongst several inaccurate claims, Johnson Arumemi-Ikhide, the founder of Arik, has consistently peddled a false narrative regarding his debt to AMCON, claiming that Arik never defaulted in its payment obligations to Union Bank and feigning ignorance of the debt owed to AMCON.

Nwauzor said Arumemi-Ikhide has also alleged that the receivership was premature and claimed his loan was performing.

“These claims are misleading. The intelligent public must ask, if the loan was performing, why was it sold and restructured? And why did he agree to the restructuring? Did he fulfil the agreed terms?

“The decision to classify the loan as non-performing and to sell it was made by Union Bank of Nigeria PLC (UBN), by the Prudential Guidelines set by the Central Bank of Nigeria (CBN). Union Bank willingly offered the Arik loans to AMCON, which purchased the loans in compliance with the law.

“In a letter dated October 22, 2010, UBN informed Arik that its loans, which amounted to a staggering $474 million (approximately N70 billion at the time), were non-performing and posed a threat to the bank’s stability. This loan exposure was a significant factor in Union Bank’s financial challenges.

“It is important to note that beyond Union Bank, Arik’s loans were also sold to AMCON by Bank PHB (now Keystone Bank), and Arumemi-Ikhide has, on several occasions, admitted to this indebtedness,” he disclosed.

He further explained that following the purchase of the loans, Arumemi-Ikhide willingly agreed to restructure the loans, acknowledging the debt.

“In any event, any challenge of the purchase of the NPLs by AMCON is statute-barred and there are provisions within the AMCON Act demonstrating that there is no valid cause of action that may arise from such a challenge.

“In any event, from 2011 to 2017, AMCON engaged in prolonged negotiations with Arik’s management (who never questioned the NPLs), but despite several financial accommodations, debt reduction offers, and restructuring efforts, Arik consistently defaulted on its obligations. AMCON was left with no choice but to consider various recovery options,” he said.

Nwauzor further explained that when AMCON’s Receivership Team assumed control of Arik, the airline was plagued with operational challenges, including inadequate cash reserves, grounded aircraft, and mounting debts.

“When the Receivership Team took over Arik, the airline was financially stranded and on the verge of shutting down. Several planes were grounded, while service providers withdrew support over unpaid debts.”

The corporation added that the operational challenges caused Arik’s on-time performance (OTP) to drop below 40 per cent, with frequent flight cancellations.

“Upon taking over the company, the team found a fleet with only eight operational aircraft (as against the inaccurate 30 being bandied about). Many of the planes required urgent maintenance, while others had been used as collateral for Sir Johnson’s personal debts, leading to repossession by creditors,” the AMCON spokesman stated.