- List Factors Responsible For Failures
Managing Director/Chief Executive of the Asset Management Corporation of Nigeria (AMCON), Ahmed Kuru, at the weekend in Lagos called on stakeholders to undertake a holistic review of the business of aviation in the country.
He lamented a situation where Nigerian airlines find it extremely difficult to exceed 10 years in operation, describing it as a negative business trend that must be arrested for Nigeria is to be taken seriously.
Kuru, who spoke on “Aircraft Financing: The Issues & Challenges of Asset Management Corporation of Nigeria (AMCON),“ at the Aviation Leadership CEO’s Roundtable to commemorate the 10th anniversary of Aviators Africa Magazine, said a review of the situation has become urgently necessary in view of the critical role the sector plays in the growth of any economy.
With the hindsight of the corporation’s experience in the sector, Kuru, who was represented by Tajudeen Ahmed, identified reasons for the failure of many airlines in the country, including greed among the owners, even as those still operating are struggling for survival.
He identified other factors to include financial rascality by the owner-managers, overbearing charges, and taxation by regulatory agencies. Others include the unpredictable and unstable forex regime; non-adherence to principles of good corporate governance, a lack of due diligence procedures and over-invoicing, among other challenges.
He also blamed the nation’s banks for rushing to finance the aviation business without the requisite knowledge or understanding of the industry dynamics.
The aviation sector, he continued, as a critical component of the transport industry, “is perhaps one of Nigeria’s most challenging sectors; especially in the light of the massive need for infrastructure development in air, rail, road and sea transport to ensure seamless movement of people and cargo.
Perhaps, due to the ugly incidences of the past, he lamented that convincing banks to invest in aviation today, he stressed, has become difficult, hence the need for the Central Bank of Nigeria (CBN) should consider incentives to encourage banking sector funding for the nation’s aviation industry.
The apex bank, the AMCON CEO stressed, should also motivate banks to go into airline asset securitization, just as the government should create an enabling environment that would enable airlines to set up leasing companies in a well-tenured manner. The government can consider the idle pension funds for this venture so that operators will enjoy long-term credit.
“Regardless of the mode of transport – the aviation sector has proved to be a catalyst for the economic development of nations. It is the wheel that drives economic activities. The air transport sector facilitates trade, tourism; boosts productivity in the economy; improves efficiency in the supply chain; it is an enabler for investments; can spur innovation, facilitate commerce and provide fast and reliable delivery of cargoes and services.”
A sector as strategic as aviation, he argued, must be given all the necessary policy backings by the government to enable the sector to take its pride of place in Africa, adding that following AMCON’s experience with its intervention in aviation, there is a clear need to totally overhaul its operation.
“From what we now know, there are serious issues in aircraft financing, because our people dabble into the business of aviation with the wrong capital mix. On the other hand, the banks who are the primary source of funding also have short-term views about the business.
“Banks that have attempted to fund the business in the past neither had 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 analyze 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 a dodgy proposal to float an airline just to get loans that will go bad shortly after. Such cases abound in the industry. No wonder Nigerian banks, having watched the trend of the short lifespan of aviation investment shy away from further funding. The previous management of Arik without carrying out serious feasibility studies, some years back, bought two A340 planes for $ 260m, and within four years,
“it was discovered that the planes are commercially obsolete. So even with that huge capital outlay, the two planes were not able to operate to generate the money to service the huge debt, not to talk of making a profit. This is just one of many.
“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 $260m, Arik ‘wastefully’ spent buying the two aircraft at that time was enough to buy telecommunications operating licence like MTN, Globacom and others did. If due diligence was carried out, that money would have been enough to buy four or five of other specifications of commercially viable aircraft that would still be flying today and making money for the company, meaning that the loan would also not have gone bad and thus ended up at AMCON. But as I speak with you, the multimillion-dollar investments are parked at the airports and could be regarded as scrap.”
Photo caption: From left, Head, Corporate Communications Department, Asset Management Corporation of Nigeria (AMCON), Jude Chiedozie Nwauzor; Managing Director, Trove Capital UK, Tony Uzoebo; Representative of AMCON MD/CEO and top official of AMCON, Tajudeen Ahmed and Editor-in-Chief, Aviators Africa magazine, Toni Ukachukwu at the just ended “Aviation Leadership CEO’s Roundtable” to commemorate the 10th anniversary of Aviators Africa magazine Lagos on Saturday.