Nairametrics| Finance minister, Kemi Adeosun on a recent trip to Washington stated that some private equity investors, were interested in taking over Arik and Aerocontractors. The two airlines are currently under the control of the Asset Management Company of Nigeria (AMCON).
Arik was taken over February this year and owes local and international creditors over half a billion naira. Aerocontractors owes AMCON over N20 billion, in addition to a N15 billion debt that was converted to a stake. The bad bank subsequently took over its affairs in 2016. Despite the high debt burden and other legal issues, both airlines remain an attractive investment for several reasons.
First, they have the largest fleet size in the country, though several of the planes are currently out of service. It would be cheaper for an investor to put the planes in order, than securing new aircraft. Arik in particular, has a fairly modern fleet. Recent events with Air Peace, which saw three of its aircraft going out of commission and confusion ensuing, shows that the country lacks a major carrier. Arik before downsizing, played that role.
Buying one of the airlines, would also be attractive because of their existing brands. Establishing a new airline would involve billions of naira being spent on branding to differentiate it from the competition. Discounts and various promotions would be run on an extended period, causing an extended period of losses. Using an existing brand reduces that expenditure and shortens the break even period. Amcon and other creditors would be more than willing to take a haircut on the debt owed them, if potential investors show interest in taking over the airlines.
The interest in the airlines could also be due to the large size of the domestic market. Data collated by the National Bureau of Statistics (NBS) for Q4 2016 showed 15.2 million passengers passed through Nigerian airports. 72% were domestic passengers travelling within Nigeria.
Despite the country entering into recession last year, this was a 6.3% increase over 2015. The planned concession of the airports means they will be more attractive to foreign airlines who can use them as as a hub for West African operations. Aviation operators in the country have often complained of poor facilities in many airports. The Abuja airport had to be closed for six weeks to fix the runway. During this time, foreign airlines were hesitant to use the Kaduna airport due to the poor state of facilities at the airport.