Row over N50b AMCON’s bailout, new loans for aviation

The Asset Management Corporation of Nigeria (AMCON) yesterday disclosed that it injected N50 billion to stabilise the operations of the aviation sector between 2012 and 2020.

The disclosure, however, unsettled stakeholders, who sought the rationale and justification of new bailouts of private businesses that are perpetually at their infancy.

Indeed, AMCON had joined operators in the sector to rally the Federal Government to a fresh bailout fund for the aviation industry.

AMCON’s Executive Director in charge of Operations, Aminu Ismail, at a webinar forum, explained that AMCON’s intervention led to the purchase of about $1 billion Non-Performing Loans (NPL’s) from Nigerian banks owed by major Nigerian airlines, including Aero Contractors, Arik Air, among others.

Although the aviation sector accounts for around eight per cent of AMCON’s restructuring portfolio, Ismail explained that the AMCON’s actions in restructuring the loans of airline operators protected a critical sector of the economy for Nigeria.

He said given the critical nature of the essential services rendered to the economy by the sector, the intervention objective of the government recovery agency was to stabilise the operations of the airlines rather that realise the assets of the airlines in settlement of their outstanding debt.

In the process, he stated that the huge cash flow, which is needed to run the sector effectively and efficiently, additional loan was further advanced for the purpose of providing support towards growth of the airlines, fleet expansion, job retention and job creation.

However, Ismail said when the airlines failed to repay the loans, AMCON was left with no other choice, which necessitating the appointment of Receiver Managers to manage the airlines pending AMCON’s divestment. He also highlighted the challenges faced by aviation in Nigeria given AMCON’s experience since it intervened in the sector.

“Aviation in Nigeria has historically been fraught with many challenges including poor capital structure, difficulty in accessing finance, difficulty in accessing cost effective leases, high insurance costs, difficulty in accessing FOREX for maintenance and spare parts, multiple taxation by government agencies, weak corporate governance structure, lack of airport infrastructure and very marginal share of the lucrative regional flights of under 20 per cent. But with the advent of the dreaded coronavirus (COVID-19) pandemic, the challenges have now triples meaning that the leadership of any airline that wants to stay afloat must think differently and strategically to ensure that the airlines survives,” Ismail said.

Notwithstanding the low income levels of the government occasioned by a huge fall in crude oil prices, which is Nigeria’s major revenue source, Ismail added that AMCON was in support of industry stakeholders that are urging the federal government to provide bailout packages to airlines, who are currently threatening to reduce staff number by as much as 60 per cent.

Apparently in agreement that past intervention were mismanaged to warrant AMCON’s takeover of two local airlines, stakeholders questioned the propriety of further injections into the sector.

Aviation Security consultant, Group Capt. John Ojikutu (rtd), said it was incumbent on AMCON to tell Nigerians how much of the monies owed by the airlines had been recovered.

“That should be what they needed to tell us. By the way what was the N50 billion injection meant for in the sector? Which of the agencies or operators are the beneficiaries?

“By the way, has AMCON been able to find out the total annual earnings of the domestic airlines or the loss in their earnings for three months of March to May? AMCON, think about your primary link with aviation now; to recover debts from the airlines and not to add to their debts,” Ojikutu said.

Another stakeholder, Abdul-rasheed Disu, described the loan and debt management approach with the airlines as “water leakage on the floor of a room.”

“We have been busy mopping up the water on the floor without tracing the source of the leakage to close it. Close the tap, stop the flow of water. When you mop the floor dry, it will remain dry. Private companies and public corporations have statutory financial accountability guidelines. Breaking them has penalties.

“Monitoring agencies have clear defined duties on how to check compliance. For airlines, there is a dept in NCAA saddled with this responsibility. Corporate affairs have laws that ensure corporate management responsibilities. When a financial institution give loans and compromise in due diligence, then neglect performance monitoring, that loan will not end well.

“In aviation, accidents don’t happen the time you see the event, it happened the first time you compromised safety and got away with it. You can’t go to the stream with basket to fetch water and expect to reach home with a bucket full of water. We can keep talking about need to give loans upon loans for survival of companies operating in our industry while we pretend about the problem of corporate management culture and fiscal responsibility. We are deceiving ourselves,” Disu said.