The Asset Management Corporation of Nigeria said Arik Air and other firms belonging to its principal promoter, Johnson Arumemi-Ikhide, was indebted to it to the tune of N263.7bn.
This is apart from the different amounts owed other creditors and members of staff in the form of salary arrears.
The development, AMCON stated at an appearance before the Senate, made the takeover of the airline inevitable.
AMCON’s management team, who appeared before the Senate Committee on Banking, Insurance and other Financial Institutions in Abuja on Wednesday, alleged that Arik Air broke several business rules and agreements before the takeover.
The Managing Director, AMCON, Mr. Ahmed Kuru, in his presentation, described Arik as a serial delinquent debtor.
He said, “Currently, based on the analysis and the reports that we received from outside, Arik Air is confronted with some of these challenges: they have consistently defaulted in servicing all their loans; they have consistently defaulted in making all the lease payments; they have consistently defaulted in paying even insurance premium; they have failed to meet other service providers’ obligations.
“There is total lack of accountability, because nobody knows what is happening there financial-wise. And they have also accumulated regulatory debts, some of which we couldn’t verify before, but which we now know to be N26.4bn, including $3.3m. These are debts to the NCAA, FAAN, NAMA, etc.”
The AMCON boss also identified poor corporate governance as a major cause of crisis in Arik, as decisions were taken solely by the owner.
“And they have failed to even pay staff salaries. They are owing salaries for periods ranging between five and seven months, depending on the department,” he added.
Kuru stated that despite Arik’s refusal to pay its debts, the airline was making an estimated revenue of N7bn monthly.
“In spite of all the efforts extended to Arik, given its strategic nature in the industry, it either refused or neglected the terms of settlements,” Kuru told the lawmakers.
The Chairman of the committee, Senator Rafiu Ibrahim, in his opening remarks, said the lawmakers were in support of AMCON’s activities.
He said, “I would like to put it on record that from the inception of the eighth Senate, we have made it clear to the nation that we are in a total support of the management team of AMCON, because we saw the huge responsibility on its table.
“I am reiterating that we are in support and that whatever you do within the ambit of the law, not infringing on the fundamental human rights of any citizen of Nigeria, you have the support of the Senate.”
The lawmaker, however, said the Senate wanted to know what led to the final decision by AMCON and the corporation’s plan for Arik.
In his response, Kuru explained that in line with its statutory mandate, AMCON bought Arik Air’s non-performing loans from Union Bank of Nigeria Plc (N71bn) and Keystone Bank Limited (N14bn), with the transaction with the latter originated by the defunct Bank PHB.
He said the facilities were granted to Arik for the purchase of additional aircraft and to refinance existing term loans, adding, “The default in repayment posed systemic threat to the banks and, indeed, the Nigerian economy.”
Kuru further said, “The principal promoter of Arik Air is Sir Johnson Arumemi-Ikhide. Apart from AMCON, Arik is also currently indebted to other commercial institutions in Nigeria, including Standard Chartered Bank, Zenith Bank, Ecobank and Access Bank to the tune of circa N165bn; N26bn is owed to the federal aviation agencies and regulators; $11m is owed to European aviation agencies and service providers; and $20m owed to Lufthansa Technique.
“AMCON also acquired three other non-performing loans of companies in which the principal promoter is Sir Johnson Arumemi-Ikhide, namely: Rockson Engineering (N107bn), Ojemai Farms Limited (N8.6bn) and Ojemai Investment Limited (N1.9bn). The total exposure of Sir Arumemi-Ikhide to AMCON is N263.7bn.”
The AMCOM boss recalled that the corporation, in September 2011, restructured Arik’s debt from N85bn to N70bn as a nine-year-term loan running at 12 per cent interest per annum.
“Unfortunately, the proprietor of the business failed to meet all the restructuring agreements,” he added.
Other terms of the restructuring, Kuru said, included that AMCON should appoint a resident monitoring manager who would have the authority to call for any of Arik’s records for examination. Arik was also to provide three-year records of its remittances to the Federal Airports Authority of Nigeria.
Kuru stated, “Arik defaulted on the terms of the restructuring and failed to make the monthly repayment as agreed.
“In May 2013, AMCON sourced N26bn of the Central Bank of Nigeria’s Power and Aviation Intervention Fund through the Bank of Industry on behalf of Arik. AMCON disbursed N21.38bn of the BoI loan to Arik as working capital. Out of this amount, N2.4bn was meant for the reconfiguration of two aircraft from passenger to cargo carriers. This was never done as the funds were diverted by the Arik management and is now the subject of EFCC investigation. Both aircraft were abandoned in the UK.”
Kuru further explained that due to accrued interest and unpaid principal, a second restructuring was proposed for Arik’s debt to reduce it from N138bn to N90bn in December 2015. He, however, noted that the proposal was still awaiting the CBN approval.
According to him, the proposal was made based on Arik’s plan to do a private placement and subsequently do an Initial Public Offering within a period of six months.
Kuru said, “Based on that, they were expecting N44bn from Afrexim as a bridge. None of this happened as Arik could not comply with any of the conditions given to them. In spite of the leniency and good faith demonstrated by AMCON throughout the negotiations, Arik refused or neglected to adhere to the terms of settlement.
“AMCON continued to bear the burden of repaying the BoI loan at one per cent interest rate without any corresponding commitment from Arik. So far, AMCON has paid N9.05bn on behalf of Arik.”
Kuru put the total recoveries from Arik to date at N4.6bn, which he said, was only 3.2 per cent of current exposure to AMCON. He stressed that the total repayment by Arik in last 18 months was “N50m only.”
Kuru said as of December 2016, Arik’s debt to AMCON stood at N146bn. This, he said, was “due to mounting interests and unpaid principal.” He added that the consolidated exposure of debtor companies in which Arumemi-Ikhide was the principal promoter stood at N263.7bn.
“This figure excludes Arik’s indebtedness to other banks, aviation authorities (local and foreign), vendors, contractors and workers,” the AMCON boss stated.
Kuru disclosed that Ethiopian Airline was invited to manage Arik Air under a management contract but the airline backed out from the deal when it got the true profile of Arik.
After Kuru’s presentation, Ibrahim pointed out that AMCON’s takeover of Arik was belated.
At a sitting of the House of Representatives Committee on Aviation , AMCON said Arik would have collapsed in another eight weeks had the corporation not moved in to take over the airline from its former owners.
Kuru said AMCON was alarmed that Arik did not have a management structure other than that it was run as a one-man business.
He explained, “Nobody can give you a financial statement, there are no accounts and it became very urgent to engage KPMG to carry out an audit.”
He said, “Public confidence in Arik was diminishing and there was the constant fear that Arik Air aircraft could be seized at any location due to mounting debts. The Federal Government felt that Arik is more than just a business, but an airline of strategic importance to Nigeria.
“So, the government decided that AMCON should intervene by appointing a recovery manager. If the intervention did not take place, the airline would not have survived for another eight weeks.”
When the lawmakers sought the views of Arik’s new Chief Executive Officer, Mr. Roy Ilegbodu, he corroborated the submissions of Kuru.
Kuru told the committee that in his 40 years of working in the aviation industry, he had yet to see an airline “badly run as Arik.”