Arik Air fleet grounding spells doom for aviation sector
As the furore continues over the grounding of Arik Air aircraft by the Nigerian Airspace Management Agency (NAMA) following compliance with the Supreme Court judgment, experts in the Nigerian aviation industry have raised the fear that this may spell doom for the airline sub-sector and the entire industry in the country.
They also expressed that foreign creditors may be skeptical about financing aircraft purchase for indigenous airlines, fearing that their assets may be taken as lien by other creditors in case of litigation.
Besides, they declared that dry leasing of airplanes the government is canvassing for indigenous carriers may be in jeopardy as no lessor would want to release its equipment for local operators with the current situation.
Those who spoke to Daily Independent, also queried the quick implementation of the Supreme Court judgment, saying that there should have been a harmonisation of the court’s order by parties involved.
NAMA in a statement, last Tuesday, by Alhaji Abdullahi Musa, its Director, Public Affairs and Consumer Protection, had said that three Arik Air aircraft were affected by the Supreme Court ruling.
It gave the aircraft as Boeing 737-700 with the registration number, 5N-MJF, B737-800; 5N-MJQ and DASH8-Q400 with the registration number, 5N-BKX.
The statement clarified that the airline’s fleet of aircraft were grounded over the $2.5 million debt to one Atlas Petroleum International Ltd, which attached its airplanes.
The statement explained that on July 19, 2024, the enforcement department of the Federal Capital Territory (FCT) High Court, enforced an order made by the court regarding the $2.5 million.
The statement hinted that Arik was further given a notice of public auction of the airplanes by the court, which was slated to hold on July 26, 2024 if the management failed to pay the judgment debt.
Earlier, the management of Arik Air (in receivership), had accused Keyamo of grounding the airline’s fleet of aircraft.
A statement by Capt. Roy Ilegbodu, the Chief Executive Officer, Arik Air (in receivership), insisted that the minister’s order was in disobedience of existing court order.
Speaking with Daily Independent on the issue, Dr. Alex Nwuba, President, Aircraft Owners and Pilots Association of Nigeria (AOPAN), warned that the judgment and its implementation may hamper the growth of the industry.
According to him, global foreign financiers may not be willing to finance major projects in the country anymore, fearing that their assets may be taken over by other creditors in case of legal tussle.
Some of the global financial services with interest in aviation financing include Afreximbank, Exim Bank, Maxim Bank Group, Citi Australia, China Merchants Bank and Luzerner Kantonalbank, among others.
He also queried the judgment of the court, which allowed a creditor to pick any of the airline’s assets, which were not part of the collateral as entrenched in the agreement.
According to him, the assets put up for public auctioning by the court were financed by another creditor, wondering how the creditor would reclaim its assets after being auctioned by someone else.
He said: “Whatever has happened between Arik Air and the government is not a good omen for the industry because the airline has a secure asset. The court says attach the assets of Arik. You can’t attach the assets of Arik that are already attached by somebody else. When Arik bought airplanes, somebody financed the project and put a lien on them. So, in the event of default, they would take those assets back. They are the first secured party.
“The implication is very simple; nobody will trust asset security in Nigeria. So, they will tell you to bring cash, then you will look for cash to deposit with them as a collateral in their own banks. So, if anything happens, they will take your cash. Then, it becomes pointless, which is what banks do here.
“If for example, I gave you my property as a collateral and I’m owing somebody else, you are the first to secure my collateral, but I borrow money from another person and the person takes it before you, then, thereisnosecurityandif thereisno security, there is no business.”
Nwuba also said that NAMA was not a debt recovery agency, stressing that it should have engaged the services of court officers to implement the judgment.
Also, an industry expert, who didn’t want his name in print, said that since the airline was already under a receiver manager (AMCON) since 2017, then, the assets automatically are secured for the government.
The source explained that the seized assets are secured for Afreximbank, the financier of the aircraft, wondering how a non-secure creditor would take over the assets of the bank.
The source warned that this action would have a ripple effect on the industry.
Besides, the source explained that there was a prior court judgment, which said ‘all status quo should be maintained by both parties,’ lamenting that the aircraft was denied a start up by NAMA with passengers already onboard.
“Arik Air was taken over on February 9, 2017 and it was this year that Capital Petroleum put a lien on those assets for a case that has been on since 2016. How can the court work in such a way? This is after seven years of receivership.
“It was also gathered that the money the founder of Arik Air, Sir Joseph Arumemi-Ikhide, took was for oil and gas business and not for Arik Air. So, why come to take over the assets of Arik Air? And we learnt it was a personal loan because AMCON checked the book, there was nowhere the man gave the airline money.
“It is necessary to put it on record that this action is jeopardising Nigerian airlines because creditors like Afrexim, Exim, Maxim and others will now be very careful to allow Nigerian airlines to get loans from them. If a government agency like AMCON can not secure their assets, then, how are they safe with other people?” The source said.
Mr. Olumide Ohunayo, Director, Research, Zenith Travels Ltd, wondered the reason for the quick implementation of the Supreme Court judgment without effective harmonisation.
Ohunayo explained that since passengers were already on-board the aircraft, NAMA should have given it a start-up as requested by the pilot.
The director further pointed out that the Nigeria Civil Aviation Authority (NCAA), the apex regulatory body and not NAMA, should have initiated the process of grounding the aircraft fleet since it was a local flight.
However, a statement by Mr. Michael Achimugu, Director, Public Affairs and Consumer Protection, NCAA, clarified the status of the airline on the court order.
According to him, the action did not include the suspension of Arik Air’s overall operations by either the NCAA or the Federal Ministry of Aviation and Aerospace Development.
Achimugu explained that the NCAA was duty-bound to comply with the court order attaching Arik Air’s aircraft, following the determination of its case at the Supreme Court and to ensure compliance with regulatory and safety standards.
