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Is Arik slipping into oblivion?

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Is Arik slipping into oblivion?

Government is at a crossroads on what to do with Arik Air, having injected N1.5 billion since it took over the carrier. It’s time to take far reaching decision on the airline’s future, writes WOLE SHADARE

 

Arik on life support

For those who don’t know, Arik Air is currently dying a slow death and here are some of the signs. The airline has just five aircraft from the over 29 it acquired when it made a debut 10 years ago.

It purportedly came with a difference with state-of-the-art aircraft, which comprised Bombardier CRJ narrow-body airplanes, B737-700/800s, A340- 500s and A330. Aside the A350s, which are considered fuel guzzling airplanes, the other planes in the fleet of the airline made other carriers go green with envy.

Arik then was the preferred airline for many people, including foreigners who recommended the airlines to their nationals residing in Nigeria. Within a short period, it expanded its operations to London, Johannesburg, New York, Dubai (which it later stopped), Accra and became very visible on the West coast.

The airline’s success within a short period of time did not make the liquidation of Nigeria Airways to be felt so much as many saw it as one that would effortlessly replace the former national carrier.

Their sentiments were not misplaced considering the buy over of former Nigeria Airways administrative headquarters, hangars and other assets at a reported N800 million, which many said was grossly undervalued.

The rot

The deep rot in the airline became visible when it could not meet some of the smallest of its responsibilities by allowing its insurance to expire late last year; thereby leading to the grounding of the airline’s entire operations for 24 hours. Many who had booked their flights were stranded, leading to great erosion of the brand that had suffered terribly before then.

The airline would have stopped operations had the Assets Management Corporation of Nigeria (AMCON) not come to rescue the ailing carrier. Arik owed virtually everybody, including all the aviation agencies, aviation handling companies, fuel marketers, insurance firms, maintenance companies, workers and financial institutions, among several other companies.

The truth of the matter was that the airline that once controlled over 58 per cent of the market was living on borrowed time and hanging in the balance. Arik’s predicament has again highlighted the fact that many operators do not understand the sector.

They fail to do their feasibility study to understand that the profit margin of airlines all over the world is less than 10 per cent.

Money bags sold dummies

Most money bags are being sold dummies that airline business is lucrative because they erroneously calculate what would accrue to them if they carry full load of passengers in a B737-700/400/500 without putting into consideration huge taxes/charges they would pay, their overhead cost and high cost of maintenance and aviation fuel.

Many Nigerian airline owners are wasteful, lack good corporate governance and oblivious of the ethics of airline business that it’s highly capital intensive. They live large at the expense of their workers.

Dangerous signs

The sign that the airline might be liquidated is high as the Federal Government would, this week, take a massive decision on the airline. This decision would most likely result in the outright sale of the airline or liquidation. Spokesman for AMCON,Jude Nwauzor had, last week, told the media in Lagos that major decision concerning the airline would be taken this week.

He disclosed that the Federal Government, through AMCON, had since the take-over of the carrier last February injected N1.5 billion into the ailing airline. He said: “I know that very soon something will happen.

It was by government’s decision that we took over Arik. AMCON never wanted it, given what we have seen with Aero Contractors. But the corporation was mandated to take it over. Aviation is a very minute session of companies we manage on behalf of government, but they seem to be the most difficult to deal with.

“What we are seeing in Arik is so unbelievable. But AMCON will not continue to keep Arik for so long, even if we can recover the debt. As things stand, the Federal Government will have to take the final decision, which may just be the initial plan to liquidate the place and sell off its assets.”

Expert’s view

Chief Executive, Centurion Aviation Services Limited, Grp. Capt. John Ojikutu (Rtd), said sgovernment needs to take a very quick action on the carrier to stem loses and see what government can salvage from the over N387 billion exposure of the firm to AMCON.

He said government should quickly set up a body to evaluate what is left of the assets and sell it to people with good reputation, adding that they should start by selling some of the grounded aircraft of Arik, the hangars and other valuable assets.

He was however, opposed to liquidation, insisting that this would result in sale of the assets as peanuts, reminiscent of the hurried liquidation of Nigeria Airways by former President Olusegun Obasanjo.

Bad reputation

The eventual liquidation of the airline would again paint Nigeria as country with the highest turnover of airlines. Over 150 airlines had ceased to exist in the past two decades.

This is said to be even higher than in the United States where there are more airlines that have their challenges, but have not gone down with the speed at which the Nigeria’s carriers are collapsing.

Conclusion

If government eventually liquidates Arik Air, over 2000 workers would be thrown into the labour market. Already, many are being clandestinely eased out of job because of the very low utilisation of aircraft and shrinking of the airline’s fleet from 29 to just five airplanes prior to the take-over by AMCON.

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