Arik Air enters receivership
April 2017 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING
Financier Worldwide Magazine
Nigeria’s biggest airline, Arik Air, entered receivership in February due to its inability to pay workers and creditors. As a result of this failure, the Nigerian government has taken control of the company via the state-owned ‘bad bank’ Asset Management Corporation of Nigeria, known as AMCON, which was set up in 2010 after the country’s banking crisis.
Arik was founded a decade ago and is is now west Africa’s biggest carrier by passenger numbers, flying 55 percent of domestic flights in Nigeria as well as transcontinental routes to London and New York. The ongoing Nigerian currency crisis has engulfed the airline.
Arik’s ongoing difficulties resulted in AMCON temporarily suspending the company’s service to New York and grounded more than eight other planes. The airline has also suffered from non-payment of leases. AMCON appointed a new team to manage Arik, under the supervision of a receivership manager.
“Arik Airline has been in a precarious situation largely attributable to its heavy financial debt burden, and bad corporate governance...that required immediate intervention,” AMCON said in a statement. AMCON also told the Senate Committee on Banking, Insurance and other Financial Institutions that Arik would have stopped flying before the end of February if it did not take steps to intervene.
Ariks’ debt was estimated to be around N147bn. AMCON also suggested that the airline owed some local banks over N165bn. Its foreign debts stood at $81m. The airline also owes over 2000 staff between six and seven months salary arrears.
In 2011, AMCON became one of Arik’s major creditors when it took over some toxic assets arising from alleged past unpaid loans owed by Arik to local banks and some companies owned by the company’s executive chairman, Chief Johnson Arumemi-Ikhide. According to AMCON, an injection of around N10bn is needed before the carrier will be able to resume full and uninterrupted flight operations to its regular routes. By taking control of the airline, AMCON has claimed that Arik will “avoid job losses, protect investors and stakeholder funds, as well as ensure safety and stability in the already challenged aviation sector”. However, Arik has challenged AMCON’s takeover in court.
The airline has been troubled for some time. Toward the end of 2016, when its troubles began to really take hold, 70 percent of its international flights were delayed. Such was the state of ill feeling around the company’s operations, in January Arik was forced to issue a plea for passengers not to attack its employees when delays and cancellations were announced. The airline currently has around 30 aircraft, but only 10 were in operation at the beginning of February.
Arik is not the only airline to be impacted by the foreign currency restrictions introduced in 2015. A number of other international carriers and Nigerian airlines have all said they have been affected, Iberia and United Airlines in particular stopped flights to Nigeria last year.
Arik has also been dogged by accusations of bribery and corruption. It said in an emailed statement that officials from the Economic and Financial Crimes Commission, Nigeria’s main anti-corruption body, recently attended the company’s head office in Lagos.
Arik’s financial difficulties reflect problems throughout the Nigerian aviation industry. Nnamdi Azikiwe International airport in Abuja – Nigeria’s second busiest after Lagos, which handles around 5000 passengers per day – is to close from 8 March as its runway is resurfaced. Furthermore, AMCON also announced in February that it was to take control of another Nigerian aviation company – Odengene Air Shuttle Service OAS Helicopters – following a court order.
Toward the end of February, Arik recommenced payment of staff salaries and creditors as it looked to restore flagging confidence in the company.
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