The Asset Management Corporation of Nigeria (AMCON) has asked the federal government to bailout the aviation sector.
With the global aviation sector virtually grounded as a result of the lockdown of economies and freezing of travelling in the wake of the coronavirus crisis, the agency says the bailout would help save the sector from total collapse.
The AMCON proposal is coming just as the debt management agency says it injected about N500 billion into the aviation sector between 2012 and 2020 to stabilise airline operations in the country.
The Executive Director, Operations at AMCON, Aminu Ismail, disclosed this, on Wednesday, as one of the panelists at an aviation webinar organized by Aelex Group in collaboration with SY&T Communications Media Partners.
The webinar, which was themed “Flying into Turbulent Skies, Safely Navigating COVID-19 Headwinds: Survival Strategies for Nigerian Aviation,” also featured other industry experts, namely the CEO, Financial Derivatives, Bismarck Rewane; the CEO of Aero Contractors, Ado Sanusi; and the CEO, Belujane Konzult, Chris Aligbe.
Other were the CEO, Ropeways Transport Limited, Dapo Olamide; the CEO Ibom Air, George Uriesi, the Exco Member of Nigeria Stock Exchange and Divisional Head, Listings Business, Olumide Bolumole.
Mr Ismail said AMCON’s intervention resulted in the purchase of about $1 billion Non-Performing Loans (NPL’s) from Nigerian banks owed by major Nigerian airlines, including Aero Contractors and Arik Air.
He said although the aviation sector accounts for about 8 per cent of AMCON’s restructuring portfolio, AMCON’s efforts to restructure the airline operators’ loans protected a critical sector of the country’s economy.
Given the critical nature of the essential services airlines render to the economy, the director said AMCON’s intervention helped to stabilise their operations.
“With the intervention the airlines were able to utilize the assets realized in the settlement of their outstanding debts. In the process, the huge cash flow needed to run the sector effectively and efficiently was further advanced to support growth of the airlines, fleet expansion, job retention and job creation,” he said.
Regardless, Mr Ismail said when the airlines failed to repay the loans, AMCON was left with no choice than to appoint Receiver Managers to manage the airlines pending its divestment.
He also highlighted the challenges faced by aviation in Nigeria given AMCON’s experience since its intervention in the sector.
“Historically, aviation industry in Nigeria has been fraught with many challenges, including poor capital structure, difficulty in accessing finance and cost-effective leases as well as high insurance costs.
“Also, the challenges include difficulty in accessing foreign exchange 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.”
With the outbreak of the coronavirus pandemic, Mr Ismail said the challenges have tripled.
Strategies for survival
For any of the airlines to stay afloat, he said its leadership must think differently and strategically to survive.
Despite the government’s declining income as a result of the huge fall in crude oil prices, Mr Ismail said AMCON was in support of the federal government providing bailout packages to airlines.
Currently, he said COVID-19 crisis was forcing airlines to cut staff strength by as much as 60 per cent.
He, however, said the federal government must be guided and more strategic in packaging the bailout this time around given the experiences of previous bailouts to domestic airlines between 2009 and 2012.
The bailouts handled by the Bank of Industries (BOI) and the Power And Airline Intervention Fund (PAIF) by the Central Bank of Nigeria (CBN) were allegedly mismanaged by the airlines.
Central Bank of Nigeria (CBN)
He said they either failed to meet with the repayment obligations, just as some of them diverted the funds to other areas to the detriment of the aviation sector.
“AMCON is in support of any bailout from the government that would ensure the continued survival of the airline industry in Nigeria,” he said.
Bailout not jamboree
“However, any intervention in the aviation industry this time around must be directed at the core areas of need and should not become a jamboree.
“If the intervention comes in the form of grants, it must be to fund operational losses, which must be basically intended to save jobs and reimburse for operational losses induced by the COVID-19 pandemic.
“It must be to promote local content – the intervention should focus on reducing dependence on foreign companies for pilot training and aircraft maintenance.
“For us, development of Nigerian based simulator capacity and C-Check for various Boeing aircraft types should benefit from government support.
“Should the government decide that their intervention will come by way of loans, it should be in the form of low interest loans (with FX support) granted to strengthen the airlines in equipment overhaul, lease and purchase,” he proposed.
Insisting that liquidity would be key factor for airline to resume operational services after COVID-19, the director said AMCON would like to see the proposed federal government intervention in the sector as quickly as possible.
He said, any governmental intervention now must not be used to resuscitate airlines that had stopped operations before COVID 19 broke out.
Such government intervention, he said, must be for public good, directed at aviation companies with large labour force and who carry the most passengers in the country.
Besides, he said the government should not use its fund to support luxury consumption like charter firms that service the rich.
He said the intervention from government should not be merely for loan restructuring, but directed to the airlines, to grow the economy just as its disbursement must be controlled and strictly monitored by a regulator.