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Merging airlines can save AMCON billions

In the five years of managing Arik Air and Aero Contractors, the Asset Management Corporation of Nigeria (AMCON) may have done its best to keep the once insolvent airlines afloat. But to date, the airlines are struggling to soar high, making it increasingly difficult for the receiver-manager to recover debts and sustain jobs at the same time.

Even as AMCON tries to return two relatively ailing airlines to winning ways, it is planning to float yet a third one; NG Eagle, which it says ‘will run alongside Arik Air in the future.’

Experts have raised concerns on how AMCON hopes to sustain these airlines as it continues to inject huge sums to recover debts, pay salaries for pilots, engineers and crew; and renew Air Operating Certificates (AOCs) and Air Transport Licences (ATLs) for all three airlines.

BusinessDay’s checks show that to operate an airline, there are certain financial requirements that need to be met. Airline operators have to pay a sum of N1 million to obtain the ATL form and N500 million as paid-up capital to carry out domestic operations. The airline also has to pay $1.5 million as a deposit fee in case of future crisis.

Operators, who have plans to carry out regional operations, pay N1 billion and those with plans to do international operations pay N2 billion. This licence is renewed every two years.

Airline operators are also required to pay some amount for an AOCs. This is also renewed every two years. For an airline to obtain an AOC, it must have three aircraft and must either own these aircraft or operate dry lease aircraft. A dry lease arrangement means the crew must all be Nigerians.

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For an airline to be given these certificates, it must have a chief pilot, chief engineer, managing director, safety manager, training manager and commercial manager.

Each of these staff earns between $100,000 and $150,000 annually. With a CBN exchange rate of N380 to a dollar, this implies airlines pay each of these six key staff between N38 million and N57 million annually. This implies that airlines spend between N456 million and N684 million just for these six key staff annually.

Airlines also pay for recurrent training and retraining of pilots and crew members.

This implies AMCON would be paying between N684 million and N1.02 billion annually for these key staff, if it eventually floats a third airline.

Considering these amounts AMCON has to spend on the three airlines, merging them would create effective and efficient management structure, asides being a cost-saving measure. It would also birth a larger, likely more efficient airline that would benefit from eliminating the duplicity of routine payments, and be better positioned to save jobs and return substantial profits.

“Money was put into Arik Air without a way of recovering the money,” Alexander Nwuba, managing director, Smile Air Ghana, said. “Arik can’t recover so a new company will be created out of its assets that are expected to recover the debt, (but) where’s the firewall/separators?”

Two distinct companies tied around the same objective will be a strategic mistake, noted Nwuba, who is also former managing director, Associated Airlines and WestAir Benin.

Stressing that Arik could be beyond saving, he said, “Give it a fitting burial or new lease of life. NG Eagle is too closely aligned to distance itself. There is no point moving the chess pieces around, the game has rules.”

For aviation analyst, Daniel Young, if AMCON could not turn around the fortunes of the airlines after years of being in receivership and injecting billions of naira without commensurate results, the strategy of floating another airline, more or less based on the same Arik, for instance, would not make a difference.

A name change, it appears, is not the bane of the airlines’ woes, rather, deficiencies in management and recurring costs that could be better managed if a merger is considered.

AMCON should stop trying to save Nigerian aviation and save itself,” Nwuba said.

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