Arumemi-Ikhide: Nigerian Banks Only Guaranteed our Loans for Aircraft

                Chairman of Arik Air, Chief Joseph Arumemi –Ikhid


The Chairman of Arik Air, Chief Joseph Arumemi –Ikhide, spoke with Chinedu Eze on how the airline became indebted to the Asset Management Corporation of Nigeria (AMCON), the challenges the airline faces operating in the country, among others




The impression many Nigerians have is that Arik Air is being drowned by the huge debt it owes AMCON and others, that it may not survive the next few years. How did this debt come about?

Thank you very much for your question on Arik debt profile. As far as I know, it is very difficult for a group of people to raise over $1.5 billion to purchase new aircraft. Even if you have such amount of money, it will be wise for you to raise some money from the banks or other financial institutions. This was what we did because we have the contacts, we have the pedigree, we are known in Europe and because we had worked in Europe we were able to access these funds. And of course due to the support of the present Finance Minister, Ngozi Okonjo-Iweala, who was in the World Bank and later the Finance Minister then. Her successor, Mrs. Nenadi Usman also supported us.
So we were able to access these funds. US Exim Bank gave money to us. Madam Christine Largade who is now the Managing Director of the International Monetary Fund (IMF) was the Finance Minister of France at that time, also helped us. A lot of players came in. I will just say by God’s grace, we were able to secure the credit facility. Prior to the funds from Europe, we got financing from the US Exim Bank for the Boeing 737-700 and 737-800. The Bombardier CRJ 900s were financed by the Exim Bank of Canada. By June this year we would have finished paying for them. That tells you how aggressive they are in getting back their money.

And most of these people don’t have confidence in Nigeria and that was why they gave us short-term loans. In other parts of the world, such facility is repaid within 12 to 15 years, but this one we were given less than seven years and it affected our cash flow seriously.

The same thing happened with Boeing 737 acquisitions. We acquired credit facility from US Exim Bank and we were getting the same terms, which was very aggressive. Of course, we were ready to go international; we wanted to go to London and other parts of the world. We were sourcing for aircraft and opportunity came from Airbus and we tried to look for financial assistance, so it fell through the European Credit Agency (ECA). They have never done this to any African government, not to talk of any African company but through various contacts and God’s support and being at the right place at the right time we were able to secure credit facility.

We met Madam Christine Largade at that time and she obliged. After looking at all our documents and making background checks on me, she obliged us. During that period the then Managing Director of Union Bank, Mr. Bath Ebong, said he was interested in providing the local guarantee. So when you look at it, all the financial institutions that gave us the money followed one pattern; that means that a Nigerian bank has to guarantee the loans. This means that the Nigerian bank is the guarantor but the funds to purchase the aircraft came from overseas. They passed it to us through the Nigerian bank to make sure they get back their money.


Mind you, we were paper company when we started (start-up airline), most of these credit agencies, ask anywhere in the world, don’t give money to start-up airlines. They don’t. You need to have been operating for at least five years or six years before the give you money, but in our case, I think we are one of the very few companies in the world that they gave money, as a paper airline. And that was why they passed the facility through trade finance and the trade finance minister had to get a local bank which would serve as guarantor.

Let me say quickly that no money was raised by the Nigerian banks. I am sure that those in the banking industry will explain it better.
But we negotiated with each aircraft manufacturer and the credit agency approved the price of the aircraft and paid the manufacturer and it was assumed as if the Nigerian bank borrowed the money and passed it to us. Such transaction before the banking reforms was known as contingency liabilities; you don’t write the full value in your books; you only write a percentage of it. So it was a tripartite agreement between us and the credit agencies and the Nigerian bank and another agreement between us and the credit agency. All these things are very complicated but both the Nigerian lawyers and the lawyers abroad worked very hard and had all these documents signed. Let me say I thank God that till today we have not defaulted. That is why we still have the 23 aircraft still with us.


On the Airbus acquisition they were supposed to be three aircraft, that is the A340-500; we took two and we did inform Union Bank at that time that if ECA gave us the loan to be repaid in seven years, there was no way we would pay up because it would affect our cash flow if we have three aircraft. First of all we were starting a new route, going to London, developing the route which had matured for our competitors and we were just coming in, so to reduce the pressure on our cash flow we requested that they extend the loan repayment to 12 years. They agreed and said they were going to refinance it either from the Far East or somewhere; that we could look at it and the export credit agency in China or Hong Kong would take over from the ECA.

So because of that we stopped the delivery of the third one and said let us get these two aircraft and let us make sure that the new credit agency could take it over so that we would not stretch our cash flow. I think that we had paid for about two years before Asset Management Corporation of Nigeria (AMCON) came in. we never defaulted one day.

Somehow, there was a banking reform and a new managing director for Union Bank came in and she said she didn’t want to take such responsibility. A lot of things went in. Mind you again, we ordered for some aircraft and Union Bank said it was going to finance it; that is narrow body aircraft. We made some deposit to the aircraft manufacturing company, but when the new management of Union Bank came they said no, they would not finance it and even wanted the refund of the initial payment, but the manufacturing company, which is Boeing, said you don’t do that. We knew Boeing was going to use legal means to get the bank and Arik to honour the agreement. It was a tripartite agreement. Boeing was angrier with the bank than us. They made the initial payment and made it clear that it was a payment by Union Bank on behalf of Arik. There was a time all the banks wanted to come together and finance a new aircraft for Arik and later Union Bank pulled out and said they wanted to do their own and the whole plan fell like pack of cards.

Looking at the situation of Nigerian aviation that time and the perception of the country, if the reneging on that agreement with Boeing was allowed to go on it would have ended up in big problem that it would have become very difficult for anybody from Nigeria to access fund from international credit agencies. So the best thing was to save the situation. We managed to save the situation by raising fund from other sources which prevented Boeing from taking any action.


The new banking reform said that the total value of the guarantee should be written in the books of the Union Bank, instead of a percentage of it. That was another problem because each of the aircraft cost over $240 million. Of course we have paid some money for the aircraft but two of them (the Airbus 340-500) plus the other ones, so you will be talking about $500 million.

Although we had paid HSBC for two years out of the seven years which would end in 2016, so it was taken to AMCON.

AMCON said, okay, you know the period is short. The Managing Director of AMCON, Mustapha Chike-Obi did a good job. He went to Exim Bank and ECA and asked why they were giving Arik seven years, when Air India and Air Malaysia were getting 12 to 15 years. They replied and said that it was due to the country risk; that once they were comfortable with Nigeria they would consider stretching such loans to 12 to 15 years.

He found out that what I was saying was true because if you get that facility for seven years it is very short. I told the new management at Union Bank that the bank we took the loan from promised to refinance it to longer term but the management said it was not interested in it; they want to offload it from their books. So that was the situation we found ourselves.

It is not that all our aircraft are under that debt; that was why we told AMCON to give us the airplanes that are ours out of the 23 aircraft and take the rest but they said no. This involves the two Airbus A340-500.


AMCON has been of great assistance. We are supposed to get some money from the intervention fund to reduce our interest rate from the banks. N26 billion was approved for us as intervention fund, but it has been with AMCON now for the past five weeks. We have not accessed it, and it is even to refinance our debts in the bank; not to give us to go and spend. Where we are paying 21 per cent we will not be able to pay three to four per cent.


This is loan and we are paying it back. It will just help us to boost our cash flow. By the way we have our aircraft which are getting to five, six years now. Within this period we want to go for heavy checks and we are not waiting for them to get to seven years, so we have started now phasing them for heavy maintenance. We are doing the first heavy checks now, which are C1 checks. Normally we should wait for 2015, but we decided to bring them forward and start doing them gradually so that we space them out. We are also expecting two more aircraft next year to join our fleet. The new Boeing Skyline is coming next year.


Over time we will have our aircraft spaced out and then we continue to do our checks. So that is the price we have to pay for delivering our airlines almost at the same time, within a year and they are all new aircraft. So the only sensible thing we need to do is to bring the heavy checks forward; if not, by 2015, we will shut down. So this year we are taking five aircraft for maintenance; next year we will do five or six. We did some late last year. We are doing all our normal checks, all the base checks...B1, B2 and then we have done some C1. In fact, six months before 2015 we must have completed all our checks.



There have been assumptions about the ownership of Arik and how it is managed. I want you to clear the air on who owns Arik?

I don’t manage the airline. Dr Michael Arumemi-Ikhide and Chris Ndulue are the ones who are running the airline. There is a lot of misconception in Nigeria and people conjure up a lot of ideas in their minds, but we don’t work like that here. The way I was brought up in the United States is that management is a collective responsibility. Anytime you have a management where only one person is taking the decisions it is wrong and I try to inculcate this in my colleagues here. Whatever we want to do there is no way one person can sit down and take a decision; no. We usually deliberate over issues and sometimes I am overruled. For example, the last salary increase they did they did it without my knowledge. I only got to know later but unfortunately they did not pay me one kobo. I don’t get paid in Arik. I don’t get one kobo from Arik; you can find out.


I have the joy to build the airline from scratch until the aircraft started flying. There were challenges, but I wanted to show that the black man is capable of owning and operating an airline. Airline is a very, very sensitive business and it needs a lot of discipline to operate. Our operational status is that when we started we had expatriates everywhere, but many people thought that we were not realistic; no. we brought in expatriates to lay down good foundation and we started scouting for Nigerians who were going to work with us. For the first four years we had a lot of expatriates, including managing directors, head of flight operations but today we have head of operations who is a Nigerian; not just being a Nigerian, he was groomed. He has a passion for the airline.


On the issue of management, these gentlemen work day and night and they have a passion because they grew within the system. And of course we are lucky that we have Captain Ado Sanusi who has garnered experience in NAMA (as managing director) and other places and he came in and grew within the system. He worked under an expatriate flight director. He has also attended many courses. He is now the deputy managing director to Chris Ndulue and also the vice president Flight Operations. So gradually we are indigenising the company. We also have senor personnel from other countries in West Africa. What we are trying to build is a Nigerian project and West African project.

Then the other issue about ownership of Arik, I would have dismissed those assumption about the ownership by Chief Olusegun Obasanjo or Dr Peter Odili. If you ask anybody working in Arik he will tell you that he has never seen Obasanjo or Odili step into the company. In fact, Dr Odili said that he doesn’t like flying us so that they will not accuse him of owning Arik. Dr Odili is a good friend of mine. He is a noble person; he is a gentleman, very honest and straightforward person. He has no shares in this company. He has nothing to do with the company, except relating with me as a person and as his brother and friend.


Chief Obasanjo has no financial interest in this company, even though he instigated me to come to airline business because after the crash of 2005 and 2006, when he had open discussion on the way forward for the aviation industry in Nigeria and he started searching for credible Nigerians that could establish airlines. That was when he allowed Richard Branson to come in (to establish Virgin Nigeria). He had series of meetings with South African investors who gave him a lot of stringent conditions and he asked: Where are you Nigerians? He urged Nigerians to come out, promising to them all the support and he floated the idea of zero duty on aircraft imports and spares. Obasanjo had very good ideas to encourage Nigerians to come out and establish airlines.

That was the kind of thing the Late Margret Thatcher, the former British Prime Minister did for Virgin Atlantic. At that time there was no private carrier in Britain and they wanted who will actually compete with the Americans. Obasanjo wanted to tow that model and since he pioneered that idea he was very supportive to us. But he does not have any share in Arik. Sometimes he flies us in his travels. There was a time he would have flown with us to New York but his schedule was different from ours. He told me he is always excited by Arik’s progress. So we want to use this opportunity to appreciate him; appreciate the Late President Umar Musa Yar’Adua and President Goodluck Jonathan too. The presidents who ruled this country since we started have been very supportive. Arik Air is owned by me and members of my family. That is how it is, just as Bombardier is owned by the Bombardier family. Dangote company is owned by Alhaji Aliko Dangote, so I don’t understand why this controversy.


On our financial management, I wish to state that our account is audited by the PriceWaterhouseCoopers If we are sharing money as alleged PriceWaterhouseCoopers would have declared that because ours is a public account. And what are we sharing money for? In airline business, as Richard Branson said, you have to be a billionaire in order to become a millionaire. This means that it sheds your weight financially. Airline operation needs a lot of infrastructure. We need to get a maintenance hangar; we need to have simulator. We have built a new training centre, which cost us a lot of money. You need to see the wonderful work Captain Ado has done. I am very proud of it. If that is the way we are sharing money, so be it. We are sharing money by putting in infrastructure, by having our operational control centre (OCC), which is the best in Africa; by having our maintenance control centre that we are establishing now. If we are sharing money to various departments in order to improve them, well, thanks be to God.



What is your debt profile to the aviation agencies?

I want to thank you for asking this question and thank my colleagues who are working here. They must be patriots and determined people for them to brook the amount of propaganda and image smearing we go through every day. Any fickle minded person would have thrown in the towel and walk away. But they know the truth.


We have been paying the agencies. Let me divert a bit, we have a former general manager of Nigeria Airways Limited who worked for us as a consultant and he made a statement: that many people who are criticising Arik are doing so because by our presence we are preventing the government from bringing money to start a national airline. That is our offence. So the anger is on Arik because of our posture. We bought new aircraft; we are flying.


So people still want that national cake, where you will bring money they will share it; you will argue about whether the Managing Director is from the south; the General Manager is from the north. I will give you an example, when we took over this place, there was a DC 10 aircraft which belonged to the defunct Nigeria Airways Limited. DC 10 has three engines. One engine was sent to India for repairs, the other engine was sent to somewhere in UK; the third engine was sent to Miami, the US. So, it was difficult for them to agree because of the problem of sharing, they could not send the engines to one place. That will tell you the level of mismanagement in the old airline.


Up till today they accuse us of buying Nigeria Airways. We did not buy Nigeria Airways; we only bought property belonging to Nigeria Airways. Some of the workers in the aviation agencies came from the former national carrier and by alleging that we bought the airline they vent their anger on us. They said Chief Olusegun Obasanjo handed over the airline to us. We bought this property through a court order. The person that sold it to us was a liquidator and all the transaction took place by court order. So I don’t understand why people are making this noise; making statements that are not right.


Because of these grievances they would wish we don’t exist. One of them who is in Federal Airports Authority of Nigeria will bring bogus bills and say, pay! When I asked him, what do you mean by that? He said; you people have money; you said you have money, you are buying new planes, oya, here is the bill. But we have showed the FAAN Managing Director that we have paid our debts to the agency, because he said we have not paid since we started. We have made payments but because of several changes in these agencies, a new person will come and said we owe a certain amount of money.



We have written to the banks and asked them to confirm the payment we have made which is N3 billion and the banks have gone to the archives and we have urged them to expedite action. So that we prove to the present management of FAAN that we have paid some money to the agency, but if they don’t have the records, well, they don’t blame us. We have been paying the agencies since we started. We say that we would not pay FAAN completely because of the incident at the Calabar airport, when a car run under our aircraft and damaged it and we had to pay N2 billion for its maintenance. So if you add that, that is N5 billion. We parked our plane at the airport and somebody drove under it and severely damaged it. We were lucky that nobody died. That aircraft was away for over three months. We have to change the fuel tank, do a lot of things. Lufthansa did the job and billed us N2 billion. That was when we stopped paying.


The case of the Nigeria Civil Aviation Authority (NCAA) is very different. Our payment to NCAA was up to date until the time we suspended flight operations because we found out that we were paying them and they owe us money. We have an arrangement whereby the bank is deducting the money from source and they are being paid regularly. We signed agreement with them and we pay money into the bank and the bank is paying them.


But when Nigeria was to get Category 1 safety status they needed an airline that they will inspect under the watchful eye of the Federal Aviation Authority (FAA) of the US. We were picked to do that. Now, if we are going to do it, NCAA was supposed to foot the bills. At that time the director general of NCAA said, we don’t have the money and asked if we could do that for them. We now commissioned a consultant, SH &E in the United States to write the manuals, according to the Civil Aviation Act and we had to comply and NCAA had to review the manuals and the manuals were taken to the States.



FAA people came to Arik with NCAA. A lot of things were on and at the end of the day we carried out some test flights and even simulated accidents at about 2:00 am in Port Harcourt. We went to Dakar, Senegal and flew down to Johannesburg; we deployed slides. This cost us $14 million. We asked NCAA, pay!

We held a meeting and at that meeting Dr. Harold Demuren (former director general of NCAA) said we were up to date and I said, no, you owe us money. The Hon. Minister said she was not aware of the debt and I said, maybe they didn’t tell you. Dr. Demuren said that we did it because we wanted to fly the United States; that was what I didn’t like.


I want to tell you that Ghana is ready for certification by FAA but Ghana does not have an airline, so if they approach us I will say, well, here is the bill. If you pay the bill, we are prepared. It is not the airline that should pay for it, so as we speak, NCAA owes us.

In spite of that our banks is still paying them. But suddenly another change was done at NCAA and the new accountant came and told us, you owe us N5 billion. Even as we speak our banks are still deducting money and paying NCAA.


You can see that the agencies need to get their acts together. We have been paying FAAN since this new system they brought on January 14; they can’t say we owe them. But FAAN may not tell you that the airlines pay FAAN on every litre of fuel we buy. We pay them N2.50K per litre. But even the road that leads to the fuel depot in Abuja is bad, FAAN has not repaired it and this delays flights, especially during the rains when the tankers cannot come to the air side to dispense fuel; yet they collect N2.50k per litre of fuel. So they just call a dog a bad name in order to hang it. If you look at foreign reports, Arik is highly rated. Most airline that started with us in other parts of the world have fallen by the way side.

We don’t have problem with the Nigerian Airspace Management Agency (NAMA). NAMA is managed by a level-headed person, a professional gentleman, Mr. Nnamdi Udoh. He is a fair-minded person, so he looks at the whole thing and we reached agreement on payments.

Nigerian airlines seem to be losing the air travel market in the West and Central Africa sub regions to airlines outside these areas. Before now, Nigerian airlines were dominant in the sub regions. Is there any strategy Arik has to take over the market from the other airlines as more than 65 passengers in these routes are Nigerians?

One of our plans to take over the West and Central African market will be crystallising by June 1. There is Leon Airways that is starting. We are technical partners to Leon Airways and we will be flying from Freetown to London. Of course they too will be flying to some of the West Africa destinations. We are having serious discussion with Air Cote d’ Ivoire. So while we are not making a lot of success in Nigeria because we are not getting a lot of support and recognition, others do appreciate what we are doing. We are aware that in some of the countries Emirates has offered to come and operate and they said no; that they would prefer to have a Nigerian carrier, whereas in Nigeria we are the ones inviting these foreign airlines for peanuts and we say we want to create jobs when all the jobs is to have one indigenous station manager and some people will collect money from the airline and say, go ahead.


Do you share the fear that Nigeria may lose Category 1 if the safety standard in which the country obtained the status is not maintained or improved upon?

I share the fear that Nigeria may lose Category 1 Safety Status from the United States of America. Some of the things we are doing in Nigeria now, aviation wise, are not right. A lot of people are making statements that show that the country doesn’t have a good grip of the aviation industry. But let me quickly say that there are many top Nigerians in the International Civil Aviation Organisation (ICAO) who are highly knowledgeable in aviation but their views are not being taken into consideration.


The NCAA should have full autonomy, although they should be supervised by the Ministry of Aviation, but NCAA should have full authority to make statements regarding issues, and not the ministry. And the departure of Dr Harold Demuren, to me, is a sad one. Dr Demuren is very well respected in the world and he knows what he is talking when he is talking about safety and he has the contacts. Whether we like his face or not we have to appreciate his work, his pedigree, his knowledge, his experience. I thought we should have given him sometime to groom people and actually bring in FAA to help and look for a different module than what we have now. But the way we are now, where the ministry dictates what the NCAA does, I can see it easily that we may get to a point whereby we lose Category 1.


We are in the industry, we are in contact with a lot of people and we know their thinking and what they say. We just tell them, give us time let us see what will happen. So many people open their mouths and make statement and I think it is not right. I think that many people who sit at the corridors of power today should please watch what they say because they may be hurting the system while saying things to please their masters and it is taking a lot of efforts of a lot of people to get Nigeria to the respectful position that it deserves. We should try not to open our mouth to make statements that are laughable.

I wish to use this opportunity to appeal to our travelling guests (passengers) to stop patronising touts at the airport. As the management of Arik said, we have not deployed up to 60 per cent of our capacity. The other day somebody wrote that by putting more flights in the air, that we are putting more pressure on the aircraft. I find it very interesting. In the United States because of time difference, some aircraft are used for about 18 hours, but ours at maximum operation is about seven to eight hours a day. The reasons for this include poor airfield lighting, insecurity and others. For example, you cannot go to Owerri and Benin after 6:00 pm.

Let me not be misunderstood that I am attacking anybody, I am just giving you the reasons why we cannot operate more hours with our aircraft, like 18 to 19 hours they have on the Boeing. Most of our captains who are supposed to do 100 hours in a month are flying 75 to 80 hours. So we still have more rooms, we can even add more frequencies.
http://www.thisdaylive.com/articles/arumemi-ikhide-nigerian-banks-only-guaranteed-our-loans-for-aircraft/144933/
Culled from Thisday Online