15 February 2017

Nigeria: Accolades, Misgivings Trail Govt's Takeover of Arik Air

Photo: Premium Times
(file photo).

Lagos — Arik Air, the largest airline in Nigeria performed so badly that the intervention of the Federal Government was fait accompli. Its operations had not only been erratic but epileptic.

More than 50 per cent of air travellers have one tale of woe or the other to tell about Arik. Is it the trauma of flight delays or the cancellations without cogent explanation? Like the Assets Management Corporation of Nigeria (AMCON) said when it took over the airline last week, Arik Air was immersed in huge indebtedness which was on the verge of grounding it.

Arik Air is not only indebted to its foreign and local partners like the insurance firm, aircraft leasing company, fuel marketers, and aviation agencies, it is also owing its staff several months of unpaid salaries. Gradually its glory launched in 2003, on a sound and solid footing in a manner that was intimidating to some operators, started to fritter away in recent times all thanks to the endless disappointments.

Its debt profile was estimated at over N300 billion; another figure put it at N90bn. Obviously a forensic audit would be the best option in ascertaining the actual indebtedness of the airline. This would be done within the next 12 weeks by the world renowned audit firm, KPMG, appointed by AMCON on Monday.

But should the case of Arik be treated in isolation? This was the poser raised by Aviation Roundtable (ART), an industry think-tank, which says it is not surprised by Arik Air's takeover. Treating the case of Arik Air in isolation would be to trivialise the issue, according to Elder Gbenga Olowo, president of ART.

Again, considering that Arik Air's operation became epileptic in the last one year, analysts wonder why the federal government waited for so long. What of the Nigeria Civil Aviation Authority (NCAA), the regulatory body empowered to carry out monthly financial audit of airlines? When last did the NCAA carry out its audit on the debt-ridden airline to ascertain its solvency? Surprisingly when rumours were rife that Arik Air was in dire financial straits and unable to maintain its fleet, NCAA came out in its defence, saying it was not having safety issues.

Already, Arik Air has indicated it was going to challenge the takeover to the highest authority in the land but obviously its defence lies in its readiness and ability to offset its huge indebtedness.

But there is strong suspicion that the takeover of Arik, which some describe as hostile, could be a prelude to the establishment of a new national carrier as the government is said to be determined to float one. Whether the sudden takeover of Arik was to convert it to a national carrier or not, time will definitely tell.

Airline Operators of Nigeria (AON) in a reaction to the fate of Arik said it is unfortunate that the system failed to recognise airlines are a pivot and one of the pillars to jump-start the economy of the country out of recession. Rather, they say, the system was continuously manipulating and cutting into the finances of airlines by inflicting multiple taxes, charges and levies on them to the extent that some are going bankrupt.

AON chairman, Capt. Nogie Meggison, said it is the extant operating environment that culminated in the untimely death of many airlines in the past. He said, "Ordinarily, airlines meet so many costly foreign exchange components on daily basis that account for 70% - 80% of their direct operational costs such as Jet fuel, spare parts, insurance and simulator training among several others.

"It is unfortunate that domestic airlines have become a cheap target for the agencies that are putting additional pains and burden on operators through multiple taxes, charges and levies which they demand from airlines with impunity," he said.

He listed charges levied on domestic airlines to include "35% to 40% of a ticket cost as taxes and charges that come under the guise of statutory levies in addition to other charges. These include 5% Ticket Sales Charge, 5% Cargo Sales Charge, 5% Value Added Tax (VAT), Passenger Service Charge, Charter Sales Charge, Aircraft Inspection Fees, Simulator Inspection Fees, Landing Charges, Parking Charges, Terminal Navigational Charge, Enroute Charge, Fuel Surcharge, Airport Space Rent, Electricity Charges, and Apron Pass, Ramp Access Charges, ODC and a newly imposed Registration Fee all of which are paid to government agencies."

Meggison further noted that in the Nigerian VAT Law, all forms of commercial transportation are exempted except the Nigerian carriers. "Air transportation in Nigeria is subjected to 5% VAT contrary to the law. Road, maritime and rail transportation don't pay VAT. Even foreign airlines operating in Nigeria don't pay VAT," he said.

He advocated for incentives for airlines to survive. These incentives, according to him, should include, exemption of air transportation from VAT as done for road, rail and maritime as shown in their receipts; removal of en route and terminal navigational charges for domestic airlines as done globally; provision of airfield lighting and navigational landing aids at all airports in Nigeria to reduce delays and cancellations and allow for 24-hour operation and better utilisation of air planes.

Others are granting waivers of landing charges in the home-base of airlines; extending tax holidays for the first 10 years for qualifying airlines in order to cushion the impact of start-up to ensure the survival and growth of domestic airlines; and all the charges to be streamlined to a single fixed charge window to be distributed between the agencies using an agreed formula; access to land and removal of excessive levies for airlines to develop maintenance facilities.

"Airlines provide critical socio-economic services and should not be treated as a cash cow and strangled out of existence by multiple taxes, levies and charges that are sometimes forced on the airlines without due consultations.

"We pray that government reappraises the way it sees air transportation and accord it the support it truly deserves as done in other climes", the chairman said.

Also, the ART president said, "Treating the Arik's case in isolation will be to trivialise the magnitude of the problem. Going back to almost 40 years, government airline, the Nigeria Airways, failed; pioneer private airlines Okada, Kabo, etc failed; 3rd generation ADC, Bellview, Chachangi, Sosoliso, etc failed; 4th generation Richard Branson Virgin Nigeria, Air Nigeria, etc failed. Believe me, given the same Nigeria operating environment the national carrier yet to be born will fail.

"Essentially it is a Nigerian business environmental factor. Business and government are permanently at variance. Cost is permanently higher than income. Tax overburden and infrastructural deficit erodes revenue steadily. Gazetted policies that will enhance performance are not implemented. Credit is not in the Nigeria business dictionary. Yet Aviation is prone to the most minute situation in the economy ranging from weather to politics, reckless holidays, etc. Needless to say that lack of will to do things right by leadership is the undoing of Nigeria and ditto Nigerian Airlines and businesses."

However, the new management of Arik did not mince words in its determination to reposition the airline and restore its waning glory.

Indeed there is more than meets the eyes in the takeover of Arik Air according to watchers of the aviation industry. Some have attributed it to politicking and power mongering by a cabal and desperation to, by hook or by crook, establish a national carrier.

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