AMCON Seeks Regulatory Support For Banks To Go Into Airline Assets Securitisation

The Central Bank of Nigeria (CBN) has been urged to create incentives that will encourage banks to go into airline asset securitisation as part of moves to revive the aviation industry.
Chief executive officers of the Asset Management Corporation of Nigeria (AMCON), Ahmed Kuru said the regulatory bank should consider incentives that will encourage banks to fund aviation in Nigeria because it is such a critical sector of any economy.
Kuru who spoke at Aviation Leadership CEO’s Roundtable in Lagos over the weekend said the government should also create an enabling environment that would enable airlines to set up leasing companies in a well-tenured manner.
The government, the AMCON boss said can consider the idle pension funds for this venture so that operators will enjoy long-term credit.
The AMCON chief executive was represented at the event by Tajudeen Ahmed, called on the federal government and indeed all stakeholders to take a holistic review of the business of aviation in Nigeria because of the critical role the sector plays in the growth of any economy.
He attributed the failure of many airlines in the country to a myriad of issues ranging from greed exhibited by airline owners; financial rascality and overbearing charges and taxation by regulatory agencies.
He also blamed some banks for the high mortality in the industry because many of them rush into the business of funding aviation without the requisite knowledge or understanding of the aviation business.
“From what we now know, there are serious issues in aircraft financing because our people dabble into the business of aviation with the wrong capital mix. On the other hand, the banks who are the primary source of funding also have short term views about the business.
“Banks that have attempted to fund the business in the past neither had deep expertise nor carried out proper due diligence before committing their funds. Banks lack both the financial capacity as well as the expertise in personnel to critically analyse the business and its associated risks before throwing their money into aircraft/aviation financing.
“Because the banks do not understand the business, it is easy for any ‘sharp businessman’ with dubious intentions to approach them with dodgy proposal to float an airline just to get loans that will go bad shortly after. Such cases abound in the industry. No wonder Nigerian banks, having watched the trend of the short lifespan of aviation investment shy away from further funding.
“In my opinion, the aviation sector, which is a critical component of the transport, is perhaps one of Nigeria’s most challenging sectors; especially in the light of the massive need for infrastructure development in air, rail, road and sea transport to ensure seamless movement of people and cargo. “Regardless of the mode of transport – the aviation sector has proved to be a catalyst for the economic development of nations.
“It is the wheel that drives economic activities. The air transport sector facilitates trade, tourism; boosts productivity in the economy; improves efficiency in the supply chain; it is an enabler for investments; can spur innovation, facilitate commerce and provide fast and reliable delivery of cargoes and services,” Ahmed said.
Speaking on the ‘bad bank’ experience with the take over of Arik Airline, he knocked the previous management of the airline for lacking the requisite knowledge of the industry before rushing to invest in the industry.
The previous management of Arik, according to him without carrying out serious feasibility studies some years back bought two A340 planes for $260million dollars and within four years, it was discovered that the planes are commercially obsolete.
“So even with that huge capital outlay, the two planes were not able to operate to generate the money to service the huge debt, not to talk of making profits. This is just one of many.
“In such a situation, in as much as we blame the investor for not knowing the right planes to buy, the banks also have a share of the blame. If they had the expertise, they would have guided against the purchase of commercially obsolete planes.
“The $260million dollars, Arik management ‘wastefully’ spent buying the two aircraft at that time was enough to buy telecommunications operating licence like MTN, Globacom and others did. If due diligence was carried out, that money would have been enough to buy four or five of other specifications of commercially viable aircraft that would still be flying today and making money for the company, meaning that the loan would also not have gone bad and thus end up at AMCON.
“But as I speak with you, the multimillion-dollar investments are parked at the airports and could be regarded as scrap,” he said.