The CEO of the Asset Management Corporation of Nigeria (AMCON), Mr Ahmed Kuru, has listed out the factors responsible for the failure of airlines in Africa’s largest economy. Speaking during a stakeholder event that was organised over the weekend to commemorate the 10th anniversary of Aviators Africa Magazine, Kuru highlighted financial recklessness in the aviation sector as a major problem.
What we know
A press statement that was seen by Nairametrics also quoted the AMCON CEO as listing the other problems bedevilling the sector to include: corporate governance lapses, greed on the part of airline owners, over-taxation by the government, unfavourable forex, etc
The AMCON boss, who was represented at the event by Tajudeen Ahmed, also focused on the “serious issues in aircraft financing” which he blamed on “our people that dabble into the business of aviation with the wrong capital mix”.
Banks were fingered
Nigerian banks were also blamed for lacking the right understanding and financial capacity to fully delve into 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.
“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 abound in the industry.”
The Arik Air example
To buttress the point above, Kuru recounted how the former management of Arik Air spent the sum of $260 million to acquire two A340 planes some years ago. Unfortunately, there was no feasibility study carried out prior to purchasing the airplanes. As such, the former investors did not know on the time that the planes were already commercially obsolete as at the time of buying them. The planes were never used, making it impossible to recoup the money invested in buying them. This contributed to the debt crisis Arik Air was plunged into.
The AMCON CEO went further to state that inasmuch as the investors were liable for not carrying out the necessary feasibility studies, the banks that provided the funding for the purchases were also to blame.
“In such a situation, in as much as we blame the investor for not knowing the right planes to buy, the banks also have a share of the blame. If they had the expertise, they would have guided against the purchase of commercially obsolete planes. The $260million dollars, Arik management ‘wastefully’ spent buying the two aircraft at that time was enough to buy telecommunications operating licence like MTN, Globacom and others did.”
A possible solution
In view of the foregoing, it has become extremely difficult trying to convince banks to lend to the aviation sector, Kuru noted. Unfortunately, the airlines are having to bear the brunt of it in the meantime. But Kuru believes that something can be done to address the situation; the Central Bank of Nigeria should “consider incentives that will encourage banks to fund aviation in Nigeria,” he said.