Arik Would Have Folded Up Without AMCON – Capt Ilegbodu

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In this interview, the managing director and chief executive of Arik Air Limited, Captain Roy Ilegbodu, speaks with BUKOLA IDOWU on the developments in the airline since it was taken over by  the Assets Management Corporation of Nigeria (AMCON).

It has been three months since you came on board after the Asset Management Corporation of Nigeria (AMCON) took over the management of Arik. What was the situation on ground?

When we started on the 9th of February, we looked at what was on ground at Arik, what we met was quite interesting.  For an airline that has about 30 aircraft on its book, they were only about 10 of them that were functional.  If you look at that alone, that tells you that there is a problem in the system. If out of 30 airplanes, only 10 are functional, then there is a problem somewhere. So, one would say that AMCON’s intervention was very timely.

That is because if you look at some of the things that were on ground, you can easily deduce that the company would have folded up in a couple of weeks, or maybe months. They were no spare parts in the stores to support the operations and you could see slow attrition in terms of aircraft fleets. There were huge bills left unpaid when we came on board which we had to address in order to rebuild confidence.

This business is mainly driven by credit and a lot of people offer credit based on trust. Once you try to breach that trust, then you lose all those credit facilities. Arik had reached that stage where a lot of creditors were refusing to do business with them based on credit. Also, lots of flights were being delayed and customer confidence was very low. It was totally unreliable at that stage. By the time we started looking at the financial records, in addition to what AMCON was being owed, we noticed that they were also exposed to third party creditors. Based on that, KPMG was called in to carry out a thorough audit of its books and that process is on-going.

More revelations keep coming up daily. So, the closure of that audit is something we are looking forward to, so that it would give us a true position of where the company is and also enable the government decide on what to do going forward. What we have done in the past two months that we have been here was to take charge of operations. Our strategy was quite simple: When you have a company that is in distress like this, what you want to do is to try to regain control. You slow things down deliberately because this is an industry where safety is very critical. International flights were suspended and also the number of airplanes being flown was reduced. That is because if you don’t have spare parts in the store, there is no way you are going to support your operations. So, we had to go back and plan to slowly bring the airline out of its situation.

That has taken us quite a while to achieve because the processes in the industry are very well regulated. A lot of people think that in three months or four months, you can turn around an airline. But it doesn’t work so in this business. Everything is well guided because you have to make sure all the parts of the business are in order. Everything is done systematically and AMCON has supported us very well. We have been able to source spare parts and we have spare parts arriving on daily basis.

As of today, we operate a fleet of about eight aircrafts, but by mid-May, we would have 14 airplanes in service and we are going to maintain that number for a while. You also don’t want to grow the operations too rapidly because it has its own setback. Don’t forget also that quite a lot of the airplanes that we found on ground had been cannibalised. That is, what they were doing was to take spare parts from those airplanes in the past to try to keep the few flying planes operational.

When you do that, you are actually degrading the status of all the airplanes on ground and the cost of bringing an airplane that had been cannibalised back to service is so enormous.  So, in a nutshell, we have managed to stabilise operations and the unpaid staff have been paid salaries and we are up to date on that. A lot of the expatriates also, we have brought their pay up to date. Our passenger number has gone up considerably. We recently lifted over 3,000 passengers a day alone. But decision has to be made on how to proceed in the future.

 

The Minister of Finance recently disclosed that some private investors are considering investing in the airline. How do you see that?

I won’t speak for the minister, but I would speak for myself. There is nothing wrong with this type of intervention. If you look internationally, it happens always. Airlines like United Airlines also had interventions at some point. It is to make the industry move forward. In the case of Arik, I actually encourage that investors, be it foreign or locally should be sought to see how the airline can move forward. But there must be an exit plan. So, along that line, I am going to support any move to seek investors to come to the aid of the company.

More so, we are talking about debt and those debt needs to be addressed. Now, I am not speaking for Arik alone, but the entire industry. One thing to note is that Nigeria has the potential to produce the largest airline in Africa, based on the fact that this is where the population is in Africa. If you look around the world, you would see that an industry like this is actually stimulated because of population.

When we look at the population of Nigeria, you just need someone that has the passion to come in. It is a long-term business, but what we see here is that we tend to look at it as a medium-term business. It is a long-term business that requires at least 10 years planning. What I am saying in effect is that what the Minister of Finance has said is in line with what should happen. The industry is highly capital intensive and if you are going to seek investors, they should be competent and have the financial muscle to support what they want to embark on.

 

Just about two months after you took charge, you are talking about stability. With the level of decadence that we were told you met at Arik, one would be wondering how you were able to achieve such feat within two months after you took over?

Like I said, there are still lots of work to be done. What we did was to stabilise operations which means that the airline would survive. But then, there is a need for long-term planning. Like I said, the airplanes on ground need attention. So, what I am saying is that there is a potential for the airline to grow and it is that potential that an airline would look at before deciding if they want to embark on this business.

 

In total, how much AMCON has injected into the airline since you took over and what has happened to the obligations that are due with the local banks?

AMCON indeed has been very supportive with funds and that is why we are still here today. I would say that in the first couple of weeks that we took over, AMCON injected approximately N1.5 billion. Basically, that has sustained us comfortably. Now, don’t forget that some of those airplanes were financed by other groups. So, as an investor, I won’t want to spend money on airplanes belonging to other people.

So, some of these things have to be factored into what we do daily. In terms of outstanding obligations, discussions are on-going. We engage with the banks on a daily basis and other creditors also. As I speak, the Receiver Manager is in the United Kingdom and the intention of the trip is to engage with some of the foreign creditors. So, basically, we are engaging with them because the number of creditors is large. What we have done also is to approach it in a systematic manner. So, the bigger your bills, the more urgently we treat it.

 

What timeline have you set for this restructuring that you embarked on?

We want to get this over as soon as possible. One of the major things we would be depending on would be the report from KPMG. So, that report would set the tone for how we proceed and how far we would go. I think a KPMG report would be internationally acceptable. So, anyone coming to invest their money would like to see the report. A lot would actually hinge on the report. So, there is a timeline, but because of the way the demands have been coming in, we had to adjust that severally. When I came in, I didn’t expect to see the level of indebtedness that we are seeing. Almost on a daily basis, things keep showing up in terms of demand from creditors.

 

Talking about debt, another area we want you to clarify is the area of refund for tickets. To what extend have you been able to settle that?

We met this on ground when we came. But we have been addressing that on a daily basis. We have actually made a lot of refunds. I would say an average of between N60 million and N75 million is paid out weekly as refunds. That is substantial. Considering that we are also injecting funds into our operations, ideally, one would have decided not to even pay the refunds. But we thought through the whole situation and agreed to do it.

This is because these are the same set of passengers we want to attract to come and fly with us. The best we can do is to manage our relationship with passengers. Sometimes, we offer them deals that would help to keep them calm. Also, what we have been doing is to put some of the international passengers on third-party flights. We have had quite a few passengers fly on Medview to London.

 

When do you plan on resuming flying international routes?

We don’t intend to resume international routes for now. There are still quite a lot of things to be sorted out. Arik owed a group called Europe Control about €1 million. So before you go into operations, you want to make sure all these things have been sorted out. Now, you don’t want to rush back into certain operations. It introduces some elements of complexity which if you don’t address at the beginning; you may run into some hitches along the way.

An airline that follows best practice would not commence a route like that. They are always allowed 90 days before they return back into a service that they had withdrawn from. That allows you to carry out all due diligence before you return to that flight service. Also, if we are trying to win back customer confidence, we have to be sure that once we commence that flight, we should be sure of what we are going into.

 

What do you think are some the challenges in the industry?

There are lots of challenges in the industry and these challenges are global. So, before you decide to embark on a business like this, you must have done your business plan. Ideally, a business plan should show you if a business is going to be viable or not. Based on the results of the business plan, the investor should decide if he wants to go ahead or not. I have been in the industry for almost 40 years and I don’t think that a lot of people started with a business plan when they came into this industry and that is where their failure starts.

Yes, locally we face challenges in terms of the fees we pay and the charges. They are quite huge and perhaps higher in this region, compared to other regions. But, that is not to say we can’t manage those issues. Another big issue all the airlines face is the foreign exchange challenge. It is not about the rate, but the stability of the foreign exchange. This is because once you plan, you want to plan with numbers and that plan needs to be long-term.

Let’s say for example, you planned to buy a liter of fuel at N120 a litre, last year, but now it is N240. So, if you had a 10-year business plan, your plan would be changed completely. So, what I learnt in my early days at Aero Contractors was to tie my cost to the dollars. One of the things they thought us to do then was to base all our business plans on dollars. That model was what helped Aero to remain in business for almost 50 years.

 

What do you estimate is the size of Arik in the market today? You used to be number one; do you think you are still the market leader?

I would say we are back to being number one. In terms of movement of passengers, I will say we are back to being number one and in a couple of weeks, we would emphasise that in the market.

 

What is your take on the plan to set up a national carrier and do you think Arik can be the backbone for that project?

On the issue of a national carrier, this is my personal opinion. I don’t think it is advisable for the issue of Arik to be missed up with that. The issue of Arik should be treated separately. I do believe that the ministry has its plan and that is my opinion.

 

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