Arik grounding: Local airlines risk leasing challenges

Amid a rising call for more aircraft in Nigeria’s aviation industry, a court order has shut Arik Air, one of the local airlines over a debt. OLASUNKANMI AKINLOTAN examines the effect of the development on the aviation industry

The already challenged aviation industry seems to have been put in a more difficult situation as the Federal Government through the Nigerian Airspace Management Agency ordered the grounding of Arik Air.

This is happening at a time when air travellers have been complaining about the high airfares caused by the shortage of aircraft in the country.

The grounding of the aircraft followed the alleged inability of Arik Air to repay a $2.5m debt owed a billionaire businessman, Mr Arthur Eze.

Before the grounding of Arik Air, the country had been struggling with aircraft shortages, occasioned by different factors. The most notable cause of aircraft scarcity is the country’s foreign exchange crisis, which made it difficult for many airlines to bring back their aircraft from maintenance facilities abroad.

The spokesperson of the Association of Airlines Operators, Prof. Obiora Okonkwo, noted that multiple taxation by the government was also inimical to the operations of the airlines. As a result, he said some airlines plying local routes were living on ‘life support’.

Responding to the many challenges, last Friday, the Minister of Aviation and Aerospace Development, Festus Keyamo, told the stakeholders at the 2024 edition of the annual conference by the League of Airport Aviation Correspondents that all hands were on deck to reduce airfares.

Barely four days after the minister’s promise, the Nigeria Airspace Management Agency enforced a “court order” that grounded Arik Air, a local airline operating mainly from some major airports in the country.

However, The PUNCH gathered that Arik Air was operating with three aircraft, which represent one of the largest fleet sizes in the country. This means, by the latest grounding, thousands of flying passengers have been automatically added to the burden of the current challenges of the aviation industry, occasioned by the shortage of available aircraft.

According to TheCable newspaper on Wednesday, the suspension of Arik Air operations is reportedly posing a threat to the production of about 200,000 barrels of crude by Chevron, as its workers were finding it difficult to get airlifted to Osubi and Escravos airstrips, a facility close to oil-producing areas in the Niger Delta.

Chevron Nigeria Limited, a major energy investor in the country, reportedly runs a joint venture arrangement with the Nigerian National Petroleum Company Limited for the onshore and offshore assets in the Niger Delta region.

Although the minister has not released an official statement regarding the grounding of the aircraft Arik Air, the management, currently in receivership, in a statement signed by Chief Executive Officer, Capt. Roy Ilegbodu, faulted the minister, claiming that the order to ground its operations defied an existing court order.

Ilegbodu said the decision to ground its aircraft was in disregard of the ongoing judicial processes, pointing out that there was an ongoing case in the Federal High Court, where Asset Management Corporation of Nigeria was asserting its secured interest in Arik’s assets.

Meanwhile a statement, by the Nigerian Civil Aviation Authority, barely three days after the incidents noted that the airline’s operations were neither suspended nor grounded, but the government only acted in adherence to the court’s order attaching Arik Air’s aircraft (5NMJF, 5NMJQ, 5NBKX) following the determination of its case at the Supreme Court, ensuring compliance with regulatory and safety standards.

According to the Director of Public Affairs and Consumer Protection of the NCAA, Michael Achimugu, the airline’s flights continue as scheduled, and its ability to operate its remaining fleet remains unaffected.

“It is important to clarify that this action does not include the suspension of Arik Air’s overall operations by either the NCAA or the Federal Ministry of Aviation and Aerospace Development, as claimed in some quarters.

“We appreciate the public’s understanding and patience as Arik Air works through this situation with minimal disruption,” the statement said.

However, an officer at Arik Air, who refused to have his name in print for the sensitivity of his office, faulted the regulatory agency, stating that by the latest action, all the aircraft of Arik Air were already grounded.

Barrage of debt

Meanwhile, aside from Eze’s debt, AMCON specifically took over the airline over the huge debt the aviation company was owing both the various creditors both in naira and foreign currencies.

In 2017, the airline’s receiver manager, Oluseye Opasanya, said the airline was indebted to the tune of N375bn in local debts, including foreign debts totalling €31m and $6.5m.

Announcing the grounding, NAMA said, “Arik was further given a notice of public auction of the planes by the court, which was slated to hold on the 26th day of July 2024 if they fail to pay the Judgment debt.

To that end, NAMA stressed that “We have decided to comply with the effect of the Supreme Court order, by grounding the aircraft (subject of dispute) so that they are not taken out of the jurisdiction of the court or tampered with in a way as to frustrate the courts.”

“The minister, being a member of the Inner Bar himself understands the implication of the Supreme Court Order dismissing the motion for leave to appeal and will not risk his license as a legal practitioner or his privilege as a Senior Advocate of Nigeria by engaging in acts that will frustrate an order of the Supreme Court of Nigeria.”

However, despite the promise by FAAN to assist passengers affected by the grounding of Arik Air operation with alternative flights, many of those passengers were still confused as of Wednesday evening, 24 hours after the airline was grounded.

An official of the airline who chose to speak on condition of anonymity said, passengers of the airline were affected greatly by the grounding of the carrier.

He added that when the development was announced, it was a pitiable situation as some of the passengers had important plans.

“A man almost started crying. He had to quickly look for an alternative for him to travel to Abuja from the Murtala Muhammed Airport in Lagos, with serious warnings that he would be back for his refund first thing Monday morning,” the official stated.

Professionals react

Secretary General of the Aviation Safety Round Table, a group of aviation professionals, Olumide Ohunayo, said the action of the government’s agency against Arik would further impound the problem of skyrocketing airfares currently rocking the aviation industry in the country.

He also said the development might make it difficult for Nigerian airlines to lease planes from abroad, adding that Arik Air has valid aircraft contracts with some foreign organisation

He explained,  “This will lower the number of available seats on domestic flights and lower the seats at a time when fares are high and that means that fares will gallop again by what has happened with Arik aircraft, mostly on the routes they operate such as Port Harcourt and all. I think this that has just happened to them will also affect the operation of one of the major oil companies which is one of their clients. If that is not resolved on time, there will be job loss and loss of revenue by all parties and even agencies of government.

“Arik is an airline that is already bleeding, it is on receivership and by this, the airline’s problems have been compounded.

He added, “However, for me, I don’t know how an aircraft that is about to take off will be stopped by NAMA, I think that was a bit harsh. For NAMA to have been the one to enforce such judgment and not the regulator shows that somewhere along the line there was a choice between the legal profession of the honourable minister and the comfortability of the flying passengers and the minister chose the legal profession! That is where I will end it.”

Also, the President of the Association of Foreign Airlines and Representative in Nigeria, Kingsley Nwokomoma, appealed to the government to look at the issues and find a long-lasting solution to them.

However, he emphasised that should the matter with the airline border with safety, same shouldn’t be taken with levity from any front.

“We need to grow and build our domestic airlines and the more players we have the better for the industry. We know how they started and we know how they are now. If it has to do with safety, then there is no problem there is no problem because we don’t want a situation where an aircraft falls out of the sky. But when issues have to do with safety then it is a ’ no-no’ for me. Anything that will compromise safety is a ‘no no’.

“However, debt is also a safety concern, because when you owe, you begin to cut corners and that is not good for operations, a ‘no no’ but I know Arik Air has been around for a while and I hope the government will look at whatever the issues are and find a solution to it so the airline can get back into the air.”

Industry expert and executive at Harrier Global Services Limited, Yemi Dada, said, “The insolvency practice in Nigeria as directed by CAMA and the Insolvency Act dictates that all court cases should be stopped once a receiver has been appointed. I don’t know how AMCON allowed this matter to go all the way to the Supreme Court after that and the last part was the judgment debtor only applied to have these assets attached recently and not as part of the judgment against Arik. The assets do not belong to Arik and it is not theirs to give. I believe the HMA should have weighed in and allowed Arik to continue to operate the assets while AMCON pursues legal redress because of the workers and the capacity pressure in the industry at the moment.”

While reacting, an international aviation expert and President of the Private Aircraft Owners Association of Nigeria, Alex Nwuba, said, “It’s a real blunder by the Honorable Minister of Aviation and goes against everything he’s been preaching about developing the dry lease space in Nigeria. It also shows a need to immediately stop interfering in matters that are best handled at the agency level, if even required. aviation is not a bailiff.

“The HMA is a learned silk. This was one attribute the industry was glad for, but how do you allow a party to override a receivership? How does a party in litigation seize assets that were already under the first lien by a financier, thereby usurping the order of security? How do we explain to any financier in the world that security and liens in Nigeria are secure? Isn’t this worse than failing to return an asset upon default, something we’re persistently accused of? For now, the supposedly secured parties who financed these assets are hearing that they will be auctioned with their first lien in place. So, how will any Nigerian airline access global markets.”

Efforts to get the media aide to the minister, Tunde Moshood, to defend the grounding of the airline was futile as he neither picked his calls nor responded to a text message sent to his line.