The failure of the Nigeria Civil Aviation Authority (NCAA) to conduct its regular economic and safety audits on airlines has been identified as among the reasons Arik Air and Aero Contractors, the two biggest domestic airlines in the country were taken over by the Asset Management Corporation of Nigeria, (AMCON).
AMCON took over Aero Contractors, on 5th, February 2016 over unserviceable debt of over N20billion, in addition to several allegations of mismanagement. On February 9th, 2017, one year after; AMCON took over Arik Air, as a result of its unserviceable debt of over N300billion.
Stakeholders in the aviation sector say that although the NCAA does not have a role to play in the takeover of these two biggest airlines, the authority could have avoided the takeover if consistent safety and economic audits were carried out on the airlines, as stipulated in its regulations.
“The NCAA could have been able to help the airlines or any operator from such indebtedness if it had been carrying out the economic regulations oversight functions regularly and effectively, or if it had been sanctioning airlines that breached the regulations.
“Unfortunately, the NCAA has for many years been passive and very unconcerned because most of the operators are owned by politically exposed persons, either in government or out of government,” John Ojikutu, secretary-general of the Aviation Round Table (ART) and chief executive officer of Centurion Security & Safety Consults, told BusinessDay.
NCAA regulations (Part 18.10.3) state that all Nigerian licensed airlines shall submit to the authority on a monthly basis, all financial data and records on their operations in the form and manner as may be prescribed by the Authority.
Also, NCAA regulation 18.10.4, states that the NCAA shall evaluate the financial returns and make a copy of the report of the financial health assessment to the Management of the airline, which may make representation to the NCAA.
AirPeace said recently that it has lost over N3 billion as a result of the grounding of two of its aircraft involved a in wing tip accident and one aircraft damaged by the Skypower Aviation Handling Company Limited, (SAHCOL) ground handling at the Benin Airport.
Allen Onyema, Managing Director, Air Peace, said these three aircraft were scheduled to operate 24 flights in one day, adding that the grounding of the aircraft for 10 days will automatically affect 240 flights, which will amount to the loss of almost N3billion.
Stakeholders have however questioned this figure of N3 billion loss in about a week plus three days, which translates to slightly less than N156 billion in 52 weeks or one year. This contrasts with figures released by the NCAA, which gave N385 billion and N330 billion as tickets sales by all airlines (local & international) for 2015 and 2016 respectively.
“We really do not know if the NCAA has their figures right on what the airlines realise on ticket sales, except if the airlines are also unaware on the actual sales they make a day on ticket sales If financial audit was done transparently and regularly, the NCAA and the airlines would know the actual amount realised on ticket sales,” an expert who craved anonymity told BusinessDay.
John Osadolor, aviation expert, said the financial condition of airlines did not get to an abysmal state overnight for the NCAA to have responded only after AMCON had reached a conclusion to take over the management of the airlines and this is part of the issues that led to the sack of the directors at the NCAA.
“If the NCAA has carried out audit on the airlines, they would have advised them on time, on how best to utilise the scarce aircraft and equipment the troubled airlines were having, rather, they allowed them continue scheduled operations which made the airlines incur more costs than they could handle,” Osadolor said.
BusinessDay’s checks show that before Aero Contractors was grounded, the airline had been owing salaries for two months. Aero had almost three aircraft on maintenance for months and funds were the reason why it could not get its aircraft or get maintenance for them, the airline was heavily indebted to the airport it operates from and indebted to aviation fuel marketers.
In the midst of all this, the NCAA still allowed the airline to operate until the airline had to disclose to the public, its financial state, which made it unable to continue operations.
Dung Pam, Chairman, Governing Board of the Nigerian Aviation Safety Initiative (NASI) raised questions with regard to section 18.10.3 of the regulation, corroborating that if the NCAA had actually evaluated the financial returns and done the consistent financial health assessment, it would have known at what point the airlines became not fit to operate.
“The NCAA is to conduct financial audit, make assessment and send the report back to the airlines, so the airlines will receive recommendations if they need to change the way they are doing things.
“For instance, Arik owed the Federal Airports Authority of Nigeria, (FAAN) N7billion in unpaid landing and packing fees two years ago. For the debt to get to this point, the NCAA should have been aware because every month, they would have seen the inflow of cash from Arik and they would know Arik’s operational cost.
“From the inflow of cash, the NCAA would have known if the airline was in debt or not. They should know if they have paid for insurance, parking or landing fees, staff salaries or have not remitted pensions,” Pam said.
He explained that if airlines do not send the reports, the NCAA should have penalised them and not allowed things get to the point where airlines are in extremely unsustainable debts.
AMCON recently disclosed that the net asset of Arik Air is between N40billion to N45billion but the airline’s liabilities are in the region of over N300 billion.