Flying On AMCON’s Lifeline



IT is not surprising that the local aviation industry is still flying in turbulent weather. The domestic airlines’ quest for fresh lifeline from interventionist agency and bad debt managers, Asset Management Corporation of Nigeria (AMCON), is nothing but a reaffirmation of operational challenges, mainly financial. A smooth landing from the bumpy ride would, however, be elusive without a holistic approach to solvency.

The N130 billion fund created to absorb non-performing loans from banks owed AMCON at present by six domestic operators is enough reason to withhold further assistance. But for a strategic sector like aviation that is so crucial to economic activities and safety of lives, AMCON should have a rethink, only if a fresh bailout plan is subjected to stringent rules of engagement. Although AMCON’s chief executive, Mustapha Chike-Obi said the agency was unlikely to accede to the request, the suggested intervention, if it would come eventually, must be with a clear mandate.

With daunting challenges as hallmark of the airlines’ operations, there couldn’t be room for breaking even, let alone profitability. With managerial hurdles in their tracks and profit not forthcoming, there is the likelihood of compromise of passenger safety. AMCON will do well to continue to play a balancing act.

The operators’ latest formal request is coming on the heels of the working capital of several billions of naira disbursed earlier on a similar rescue mission. Curiously, the latest request is not to service aircraft or procure spares to ensure passengers’ safety but to settle aviation fuel bills! So far, AMCON has converted some of the debts owed by a particular airline into a significant equity stake.

Some stakeholders have argued that the airlines have no justification making fresh requests for intervention when there are still financial commitments to the same agency, citing bad management by the airlines. A former senior official in the Airlines Operators of Nigeria, Muhammed Tukur, is one critic with a point: “NCAA should investigate them… they appear not to be doing fine and very soon, such airlines will start to cut corners in aircraft maintenance and other critical safety areas”. We agree.

From all indications, the airlines are the architects of their own problems and they should rather look inwards to identify their failings. A lack of consolidation and/or cooperation among the industry operators may even have contributed to the current problems.

Apart from the operators individually owing the aviation agencies, the airlines have duty waivers on aircraft spares and collected loan facilities from banks collectively owned by Nigerians. Therefore, they would appear to be going overboard asking for more facilities without meeting due diligences on earlier assistance.

Again, how credit-worthy are they even when taken alongside their foreign partners? Can they at any time withstand a financial squeeze for reasons of country’s economic downturn or debilitating operational challenge? What is the ownership structure like in most of the airlines — one that supports business growth or just to promote family identity? Obviously, airlines cannot be profitably run as a family venture as vested interests would no doubt blur transparency in the operations. Will rationalization or a merger of two or more carriers not have made more economic sense considering current realities? The relevant aviation agencies or authorities should also be concerned about one, two-aircraft airlines. No doubt, such an airline would not serve its clients well.

How often then can AMCON inject funds into troubled carriers at any sign of distress?

What the country is faced with now is an industry with weak structures that can collapse to the detriment of the economy. Something has to give in the absence of focused management and transparency in the operations. The industry is ailing seriously and the country cannot afford any more disasters from that sector.

Airline operations revolve round adequate and comprehensive servicing of facilities, availability of spares and personnel upgrade. Regrettably, these are on the decline as revealed by the current squeeze that informed request for fresh funds.

Allegedly, pilots pay for own training in some instances. This is unacceptable. Planes are grounded at will “for operational reasons”, of course, including debts owed fuel suppliers!
he first consideration in the sector is safety. This must never be compromised under any circumstance. The country has suffered enough humiliation from international certification bodies in the past.

AMCON must remain steady in its commitment to rescuing troubled sectors towards stabilising the economy. But the rules of engagement must be clear and the companies so rescued must prove deserving of it.

  • Yasin

    Airline business is very capital intensive. The so-called successful airlines of the Middle East like Qatar Airways, Gulf Air, Etihad etc are heavily subsidised by rich governments. This is creating conflict with American carriers citing unfair competition. Perhaps the budget airlines of Europe are making big money.

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