- Debt hits over N250bn
- Contributed to near failure of Union Bank
The Asset Management Corporation of Nigeria (AMCON) has revealed that Arik Airline failed due to the dominant control, mismanagement by Sir Johnson Arumemi-Ikhide, its founder, and its lack of effective corporate governance.
AMCON in a statement by its Head, Corporate Communications, Jude Nwauzor, said the airline had a poor aircraft acquisition strategy, and engaged in unbridled borrowing which has left the airline indebted to AMCON to the tune of over N250 billion when it was taken over (in receivership).
“The company lacked a clear strategy for managing its huge FX risks and could not deal with the slowdown in the Nigerian economy. And after making mistakes, they lacked the courage to sell wrong planes and cut losses. Frozen and jaded in the mist of the crisis, it was safe to say the business was too complex for its owners.
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AMCON described some claims by Sir Johnson Arumemi-Ikhide as published in some dailies as misrepresentation of facts, and an attempt to besmirch the integrity and reputation of AMCON in the fulfilment of its statutory mandates and objectives.
Nwauzor said Arik Air Limited (in Receivership) remains indebted to AMCON to the tune of over N250 billion, aside from other trade credit to third parties.
“Amongst several inaccurate claims, the Arik founder feigned ignorance of his debt to AMCON, stating that the Receivership was premature and claiming that his loan was performing and so on. This is absolutely untrue.
According to AMCON, a loan is deemed an Eligible Bank Asset for AMCON purchase if the said loan is classified as non-performing by the bank, CBN or otherwise so designated by CBN. “In a letter dated October 22, 2010, from UBN to Arik, the company was informed that its loans of a staggering sum of about $474 million, which was in excess of ₦70 billion at the time (above the single obligor limit of ₦22 billion of the bank) was not performing. Nigerians need to understand that such non-performing loans contributed to the near failure of Union Bank.
“Nigerians need to understand that such non-performing loans contributed to the near failure of Union Bank.
“At the time, Arik’s total indebtedness to UBN could be used to set up three commercial banks or to acquire GSM licence. It was a significant exposure.
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“For the record, Arik’s loans were sold by two banks – UBN and Bank PHB (now Keystone Bank). Upon their purchase, the customer willingly agreed to restructure the total exposure of ₦85 billion. It was agreed to waive ₦15billion, reducing the loan exposure to only ₦70 billion, for a tenor of nine years and interest at 12% per annum.
According to AMCON, between November 2016 and January 2017 Arik wantonly cancelled flights, had travellers in Nigeria, South Africa, UK, and USA stranded due to its inability to fulfil flight obligations for which payments have been made by innocent Nigerians.
“As of February 9, 2017, when Arik went into Receivership, the work environment was toxic with many disgruntled staff due to unpaid salaries. Salaries of the expatriate staff and crew were unpaid, some since July 2016 (over six months). Some Nigerian Pilots had not been paid since October 2016. In addition, salaries for other local staff had been outstanding since December 2016.
“Apart from the suspension of operations in September 2016 due to non-payment of insurance premium, the insurance policy for the airplane fleet was due to lapse on Friday, 10 February 2017, and the Company was already owing ₦418million as arrears of unpaid premium.
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“It is important to mention that against the strenuous attempts to create the impression of incompetence in the media, Arik in receivership has, at all times, been led by best-in-class professionals. The Chief Executive Officer, Capt. Roy Ilegbodu is a seasoned aviator with decades of experience in airline operations, executive management, and regulation.
“He was supported by senior management officers from within Arik and outside Arik. To strengthen governance, a Technical Advisory Committee was empanelled, led by Dr Harold Demuren, former DG of NCAA. They exercised control over the operations of the airline. The Receiver Managers provided legal authority, oversight, and support.
“Arik’s financial struggles with local and foreign creditors have been well-documented, including enforcement actions against assets pledged to them, which may have enjoyed waivers,” he added.