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IS ARIK TOO BIG TO FAIL?

Ugodre Obi-chukwu by Ugodre Obi-chukwu
October 30, 2012
in Stock Market
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As a Nigerian keen to see Nigerian business succeed its not unusual for me to be sentimental about the challenges several Nigerian businesses face. Arik is one of such wholly owned Nigerian businesses that most pundits (even the government) so desperately wish to succeed. But with the hefty burden of the Central Bank ban restricting Amcon debtors from seeking additional loans, one can’t help to think that the end is near for the airline. Airlines operate on thin margins and as such rely heavily on liquidity to survive. But with restrictions to obtain short term funding, there is little else that can be done to prevent insolvency at list locally.

 

It’s probably for this reason that the MD of Arik Air Chris Ndulue gave a press conference explaining the need for CBN to lift that restriction. According to him “We control 65 percent of the total domestic market share. We do about 120 daily flights from our two hubs in Lagos and Abuja and we serve 22 destinations across Nigeria, five in West Africa (Accra, Monrovia, Freetown, Banjul, Dakar), two in Central Africa (Angola, Douala in Cameroon), One in South africa, One in London Heathrow, one in New York JFK. We also service 42 routes across the world”.

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Despite all the achievements listed above, the MD could not give a specific amount that has been spent in investments and capacity expansion. A. Indication of poor accountability and zero corporate governance. For those wishing to know what the N85b ($534m) it is owing AMCON was used for you may have to wait another day. He claims though, that they have spent N5.8b on servicing bank loans this year alone. A figure that is not up to 10% of its AMCON debts. But should this be enough reason to let the airline fail. According to the MD again ” Arik Air has invested at least $2 million on cadet pilots training and created over 2500 direct jobs for Nigerians. We have made it possible to connect many key cities in the country direct to Lagos and Abuja”.

 

Arik Air controls about 65% of Nigeria’s domestic market and does about 120 daily flights from two hubs in Lagos and Abuja serving 22 destinations across Nigeria, five in West Africa (Accra, Monrovia, Freetown, Banjul, Dakar), two in Central Africa (Angola, Douala in Cameroon), One in South africa, One in London Heathrow, one in New York JFK. They also service 42 routes across the world.

 

These are by all means of immense economic importance to a country badly in need of more avenues to transport it’s fast growing small businesses across its regions. Arik, in my opinion needs a bail out and the Central Bank should think fast about converting its debt into equity and force a pathway for the company to get listed. This has the multiplier effect of saving jobs, installing corporate governance and providing a logical exit for the toxic cleansing bank.

 

Some businesses are certainly too big to fail least of which are airlines. But Arik and Aero are two that certainly can not be allowed to fail.

Tags: Deepdive
Ugodre Obi-chukwu

Ugodre Obi-chukwu

Ugo Obi-Chukwu "Ugodre" is the Founder, Publisher, and Chief Analyst of Nairametrics, a leading business and financial news online platform in Nigeria. Ugo is also the Chief Editor of the Nairametrics “Blurb” Opinion pages. Follow Ugodre on Twitter @ugodre and Instagram @ugodre Email: ugodre@nairametrics.com

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