Why airlines fail in Nigeria — AMCON MD

Ahmed Kuru, Managing Director, Asset Management Corporation of Nigeria (AMCON)
Ahmed Kuru, Managing Director, Asset Management Corporation of Nigeria (AMCON) [Photo: Tadall]

Many airlines have failed in Nigeria because of a myriad of unethical business conduct, including greed and financial rascality by their owners, the managing director of the Asset Management Corporation of Nigeria (AMCON), Ahmed Kuru, has said.

Mr Kuru who was represented by a top official of AMCON, Tajudeen Ahmed, spoke in Lagos on Saturday at the Aviation Leadership CEO’s Roundtable to commemorate the 10th anniversary of Aviators Africa magazine.

Also, he said those who are still operational are struggling for survival due to overbearing charges and taxation by regulatory agencies.

He àlso blamed the challenges faced by the airlines operators to the unpredictable and unstable foreign exchànge regime in the country; the non-existent good corporate governance principles; lack of due diligence procedure and other associated risks as well as over-invoicing, among other challenges.

The AMCON boss also heaped blame on banks who rush into the business of funding aviation without the requisite knowledge or understanding of the aviation business.

Delivering a paper on “Aircraft Financing: The Issues & Challenges of Asset Management Corporation of Nigeria (AMCON)”, the AMCON boss,urged the federal government and all interest groups to take a holistic review of the business of aviation in Nigeria.

He said such a review was crucial in view of the critical role the sector plays in the growth of any economy.

“In my opinion, the aviation sector, which is a critical component of the transport sector, 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.

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“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,” he said.

He said a sector as strategic as aviation must be given all the necessary policy backings by the government to enable it to take its pride of place in Africa.

With AMCON’s experience through its intervention in the aviation sector, he said has made it clear that there was the need for a total overhaul of the mode of operations in the sector.

The AMCON CEO, who was a former managing director of a bank, identified issues in aircraft financing as one of the most serious challenges investors face in the business.

He said investors dabble into the business of aviation with the wrong capital mix.

“From what we now know, 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,” he said.

Besides, he said 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, the AMCON MD said, abound in the industry, adding that this was why Nigerian banks, having watched the trend of the short lifespan of aviation investment, shy away from further funding.

He cited the example of the previous management of Arik airline, which he said, without serious feasibility studies some years back bought two A340 planes for $260million dollars and within four years, the planes became commercially obsolete.

Even with such huge capital outlay, he said the two planes were not able to operate to generate the money to service the huge debt, not to talk of making profit.

In as much as the investor is blamed for not knowing the right planes to buy, Mr Kuru said the banks also have a share of the blame.

If the banks had expertise, he said they would have guided against the purchase of commercially obsolete planes.

“The $260million Arik management ‘wastefully’ spent buying the two aircraft at that time was enough to buy telecommunications operating licence like MTN, Globacom and others did.

“If due diligence was carried out, that money would have been enough to buy four or five of other specification of commercially viable aircraft that would still be flying today and making money for the company.

“This means the loan would also not have gone bad and thus end up at AMCON. But as I speak with you, the multimillion-dollar investments are parked at the airports and could be regarded as scrap,” Mr Kuru said.

Speaking on the difficulty of investors convincing banks to invest in the aviation sector, he urged the Central Bank of Nigeria to consider incentives that will encourage banks to fund aviation in Nigeria in view of its critical importance in any economy.

The CBN, the AMCON CEO said, should also motivate banks to go into airline asset securitisation, just as the government should create an enabling environment that would enable airlines to set up leasing companies.

He identified a number of options, including the idle pension funds by the government, like pension funds, to operators to enable then enjoy long-term credit.


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