• Aero, Arik Struggling, Five Years Post Takeover
• Over 3,000 Court Cases Hindering Disposal Process, Says Spokesperson
• ‘Our Obligation To CBN Down By N2t, N4.7tr Due’
The Guardian gathered that the assets scattered in different parts of the country have suffered value erosion, even as the asset management company struggles to lease or sell them
In the event, the corporation fails to monetise the said assets, the accumulated non-performing loans (NPL), which amounts to N5trillion could be passed on to the Federal Government and ultimately taxpayers, who are already suffering the pangs of soaring public debts.
Managing Director of AMCON, Ahmed Kuru, had said if, at sunset, it is unable to recover the outstanding N5trillion debt the burden will automatically become that of the Federal Government. He added that taxpayers’ money would be used to settle it in the long run. Only about 350 Nigerians are said to have been responsible for 80 per cent of the toxic debts.
The N5trillion alluded to by Kuru represents the face value of the loans. At the inception of the resolution company, whose initial mandate was for 10 years, the Central Bank of Nigeria (CBN) issued an N1.7trillion bond to buy toxic assets.
But recovery is said to have been challenging for the Corporation and its receiver managers. This is worsened by the current liquidity crisis, sources in the financial sectors noted, while also raising fears that the Corporation’s assets could suffer more depreciation with the chance of future disposal more challenging if they are not timely liquidated.
However, the Corporation’s Head of Corporate Communication, Jude Nwauzor, argued, yesterday, that the disposal programme is stalled by litigation, noting that AMCON is currently involved in over 3,000 court cases. He stressed that AMCON is profitable, saying it will not sell any asset below the cost of acquisition. He disclosed that the Corporation has so far recovered N1.2trillion. Nwauzor added that the company has sold assets worth N500billion while it has paid the N2trillion to the CBN. Its outstanding indebtedness to the apex bank, he said, “is N4.7trillion.”
IN the aviation sector, the fate of Aero Contractors and Arik Air, which AMCON took over, hangs in a balance over their slow recovery in the last five years of their takeover and funding by AMCON.
Though AMCON has invested billions into the two carriers, their operations are far from stable, and yet a hard sell to new investors.
In a controversial cost-recovery move, AMCON launched a move to float a new airline, NG Eagle, deploying some of the assets of Arik Air. Two aircraft erstwhile operated by Arik, have been rebranded in the colours of NG Eagle and parked at the Murtala Muhammed Airport in Lagos, ahead of operational take-off.
The development has further fueled doubts on AMCON’s ability to manage an airline profitably.
Recall that AMCON, a special purpose vehicle of the Federal Government for the recovery of debts, took over Aero Contractors in February 2016 and Arik Air in February 2017. The rationale was to save the airlines from imminent collapse, citing alleged financial distress and gross mismanagement by the owners. Arik’s debt was then estimated to be over N300 billion-plus.
The Federal Government, through AMCON, injected billions of Naira into the two airlines to stabilise their operations. Besides paying salaries and meeting basic obligations, about nine out of 30 aircraft owned by Arik were said to return to operation, sustaining both local and regional operations. Aero divested into Aircraft Maintenance Organisation (AMO), creating a local service hub for Boeing 737 classics airplanes.
About five years down the line, The Guardian learnt that the carriers are far from safety and operational efficiency, given the alleged level of rot, debt and hard-to-recover investments pumped into them. While new investors are cautious of litigation from previous owners, the Federal Government has also debunked plans to merge the airlines into a new national carrier.
Sources within the airline that responded to questions on AMCON changing Arik to NG Eagle, spoke in denial, saying both are distinct entities.
AMCON is exchanging its cash investment in Arik with assets. The government has spent so much to defray N300 billion-plus liability just to keep the airline from dying and more Nigerians out of jobs. Rather than continue to wait, it has taken two good planes on the airline to form a new one, one of the sources said.
Arik Air Receiver Manager, Kamilu Omokide, had clarified that the airline would be operated along with NG Eagle, at least till the end of 2021.
Omokide said AMCON would continue to support Arik Air, as it had concluded plans to wet-least three aircraft for Arik operations.
He said: “Arik does not plan to get out of business. It will operate side-by-side with NG Eagle for a while. We have been able to access wet leases and we have been able to run them very professionally. AMCON is not taking all the planes. We have a plan to bring three more planes with the support of AMCON on wet lease, ACMI.
“We are not rushing to kill Arik. We cannot pull all of our aircraft from Arik. Arik will be sustained throughout this year. Arik has a very big space at its headquarters that can take in four airlines on a good arrangement where costs can be shared. So, Arik has a huge facility, it has good workers who are experienced and we have been training staff since AMCON took over, something that was rare in the past. We have exposed the workers to all kinds of training. Our pilots are some of the best in the industry. Experience is very important,” he said.
While stakeholders are divided on the prospect of the arrangement, a cross-section of the industry players expressed displeasure over AMCON’s ownership of three airlines (Arik, Aero and NG Eagle), and the subtle carry-over of both asset and liability of Arik into a new airline.
The Chief Operating Officer (COO) of one of the local airlines described the cash-out through asset-stripping option as curious.
“When I heard what was going on, my first thought was, what was AMCON thinking about when they were sinking funds into the airline? Did they put in so much without any recovery plan? Arik can’t recover, so a new company will be created out of its assets that are expected to recover the debt? I think two distinct companies tied around the same objective is a strategic mistake that will go down the same way. I don’t know any airline that has been helped by wet-leasing aircraft to operate. Not one.
“We said from the beginning that AMCON has no experience or business in aviation and we have been vindicated. They are listening to the wrong advice. Someone needs to tell them that this is aviation, not banking,” he said.
Member of the Aviation Safety Round Table Initiative (ASRTI), Olumide Ohunayo, said a better approach would have been to form a new carrier from a merger of the two airlines (Arik and Aero), instead of splitting one into two.
Ohunayo said having the three airlines run side-by-side implies AMCON pumping in more money than it aims to save. “AMCON should not become a liquidating holding company. I was looking forward to them taking the two out of the way, then berthing a new one then keeping them all with liabilities and encumbrances, which might also affect the new airline.”
“I believe AMCON should be commended for keeping that airline afloat, at least for securing jobs before and after COVID-19. The macroeconomic situation in the country and challenges in aviation, with new entrants, make the project a herculean task. Unfortunately, the NG Eagle appears to be caught up in some political quagmire.”
Aviation Security Consultant, Group Captain John Ojikutu (rtd.), said he was not surprised at the claims around Arik Air, because it is clear from day one that AMCON has no muscle to rescue Arik.
Ojikutu said: “Recall that at the time AMCON came, it asked for N10 billion to rejuvenate the airline even when Arik was said to owe about N300 billion. I knew then that they were not serious to rescue the airline, but to take a pound of flesh out of the bleeding carrier.”
He said such an airline could only be rescued if and only if the manager could recover, or make more than a net profit of N10 billion annually, over 30 years.
Ojikutu reiterated the need to invite foreign technical investors to buy 35/40 per cent shares in the airline including that of Aero Contractors. “Sell another 20 per cent to credible Nigeria private investors; 35 per cent to the Nigeria public through the stock market and 10 per cent for the Federal government and the 36 states governments.”
So far, AMCON has had to dispose of assets under its management at discounts. An instance is the bridge banks on whose establishment the company was set up. Heritage Bank acquired Enterprise Bank Limited (formerly Spring Bank) for N56.1 billion, which was less than N111 billion the CBN injected into it about a decade ago.
Keystone (formerly Bank PHB) was also sold to Sigma Golf-Riverbank consortium at a disclosed sum of N25 billion whereas a fresh N283 billion was put into it to meet its capital adequacy ratio (CAR) in 2011 whereas AMCON sold Mainstreet (formerly AfriBank) to defunct Skye Bank for N126 billion as against N285 billion fresh capital injection it received to stabilise its operation 10 years ago.
But Vice Chairman of HighCap Securities Limited, David Adonri, said AMCON discount offering was understandable as the assets are categorised as non-performing and bad ‘ab initio’. He, however, said the assumption that the economy would revive and support the accretion of the assets and AMCON’s profitability. He noted that the asset company was struggling because the assumption “did not come to pass”.
“The major issue is the debt arising from the AMCON operation, which is in the region of N4 to N6 trillion. They issued a zero-coupon bond, which is now being discounted at the CBN discount window. The CBN has to create new money and issue a new debt instrument to offset the debt. That is a major challenge coming from the AMCOM operation,” Adonri said.
But Gowin Owoh, a professor of applied economics, said AMCON has operated within its statutory responsibility. He also noted that the Corporation has shown integrity in the manner it has prosecuted the NPL issue without minding whose ox is gored.
Owoh said it would be difficult for AMCON to operate profitably as expected as the debts they inherited were of little or no value, which is the reason they acquired the banks at a discount. He noted that the new law, which empowers the corporation to go beyond the underlying collaterals, was the silver lining in the efforts to clean the books.
Nwauzor, however, yesterday, insisted the company “is highly profitable”, disclosing that it has recovered N1.2 trillion so far
He said: “It is highly profitable because the AMCON has recovered over N1.2trillion and counting since it was set up. Recall, prior to the establishment of the Corporation, the economy was in a dire state. There were foreign portfolio withdrawals of credit lines and investment from Nigeria; the stock market also collapsed leading to loss of about 80 per cent of its value and the banking Industry crisis deepened due to poor risk management that led to an increase in the NPLs of the banks as a percentage of industry loans.
“If you also remember, at a point in 2009 NPLs as a percentage of all bank loans was as high as about 37.25 per cent. Nigerians should indeed salute the courage and the wisdom of the Central Bank of Nigeria (CBN) for quickly intervening by proposing to the National Assembly the need to set up an Asset Management Corporation to stabilise the economy, which was the global trend at that time. Most of the loans AMCON bought over from the banks were acquired at a discount and having stabilized a good number of them such as the bridged banks, AMCON disposed of them for profit even though the Corporation was not set up to make a profit. AMCON was set up to mop up the NPL in the banks, give the banks a new lease of life to carry on with their core function of lending to the real sector while AMCON goes about recovering the loans from the obligors. So, the asset recovery and disposal programme are profitable to the nation.”
