Nigerian Airlines Recorded Huge Losses to Aviation Fuel, FX Scarcity in 2016- Arumemi-Ikhide
The Chairman of Arik Air, Joseph Arumemi-Ikhide spoke to ChineduEze on the challenges that hampered the operations of local airlines in 2016. Excerpts:
Arik Air must have lost huge revenue when the unions stopped your operations for one day?
We had held talks with labour and we seem to be agreeing on certain issues they pointed out, but suddenly they decided to call for strike, even when we have not concluded our discussions. Whatever their grouse may be, I don’t think it is proper for them to be exaggerating issues. It is true we had not paid our staff for October and November, but they claimed we owed the workers seven months. That is wrong and unprofessional. We know they want to establish a union in the company and we told them that they should give us time because most of the airlines they are referring to are much moreolder than us. Like British Airways which is over 90 years old, Ethiopia Airlines is over 70 years and that is the same with other legacy airlines. What we said was that they should give us time and let us put our house in order.
We will sit down and talk with them and reach an agreement. We usually have normal management meetings with the staff and the staff is free to air their views. I am aware that most of the staff in Arik have their own views, a few of them want to join the union which we are not opposed to but majority of them do not want to join. Be that as it may, I think the message the action of the unions sent out to Nigerians is that there is uncertainty in doing business in the aviation industry, not just Arik. Whatever we do, we should understand that with all the difficulty in the country such action makes doing business in the country unattractive. By that action I hope they know that they are scaring investors away from the sector.
We must understand that the whole world was watching and most of them were perplexed that the unions could do that from the responses we got, some people were surprised that the unions could do that and the authorities did not do anything to stop them, knowing the effect on the image of Nigeria in terms of attracting foreign investment. And of course people are watching, you will recall that one of the negative comments made by Richard Branson about Nigerian aviation has been haunting us. Branson said we don’t keep agreements. Previous Ministers have tried to explain it away but it has not been convincing to international investors.
Arguably Nigeria has the freest media in Africa, but we expect them to always ensure they inform the public well. They should be committed to facts and not peddle prejudices or take one side of a story and be broadcasting, especially when they have access to balancing the story. Arik Air never owed its staff seven months, so the television that broadcast that report should have come to us. When you have reputation as a media outlet you should nurture that reputation. You can see the unfairness of that medium and yet they keep awarding several media awards for many years consecutively to that medium. When you bring in the so-called expert on television he should go beyond theories and talk about realities.
We are the ones wearing the shoe so we know where it is pinching and those who go to talk on television should arm themselves with facts from the field before they go and talk on television. They talked about interline with foreign airlines. When you want to interline you have to follow the rules, including dealing with the banks. We have interline with Emirates but we do not sell their ticket because if we do then we are liable to pay them in dollars. If somebody wants to go to China he pays us in Naira, we pay Emirate in dollars. So look at it with even with the restriction of Central Bank of Nigeria (CBN), it is not appropriate for any Nigerian airline to go into interline arrangement with foreign airlines now.
The impact of the strike on Arik affected many Nigerians because many of our passengers were stranded in various parts of the world, some in UK, South Africa and various airports in Nigeria. I am aware that there are many of these travellers who decided not to cancel their ticket because they don’t want to go to any other airline. So whatever we are doing in this country we should think about the need to sustain the businesses that we have; that is the way we can grow our economy.
Let’s talk about the problem of inadequate supply of aviation fuel on your operations, especially during the Christmas holiday?
Well fuel (Jet A1) is very necessary for air travel all over the world and Nigeria is an oil producing country but unfortunately there is no processed or refined Jet A1 recently. I will speak for the industry generally. Since the devaluation of the naira, Jet A1 price has increased tremendously from N105 in Lagos to about N230 in Lagos. Of course that means over a 100 percent increase and if you want to look at it the airfares are going up but not reflecting the actual price of fuel. If you fully pass the high cost of aviation fuel to the passengers, nobody will fly. But unfortunately the most disturbing thing is that it is even very scarce and that has affected the performance of the airlines. Suffice to say however, that the federal government warned its citizenry that because the country is in recession we all have to change our life style and we all have to bear some inconveniences. One of the consequences of economic recession is weak naira, which makes the price of anything that is imported costlier than it used to be before recession.
I want to make one point clear. There is rumour that Arik Air cannot pay for fuel and that is why it is not getting fuel. That is not true. The fact is that we cannot get the volume of the product we need and it is more than total of what other commercial airlines need. For example, our flight to New York needs over 90,000 litres of aviation fuel. With 90,000 litres of fuel another domestic carrier can operate all its local routes and still have fuel in reserve. So the major challenge we have is getting the volume we needed to operate our flights. And we don’t just buy from any oil marketer. We have marketers that were recommended for us because of the type of engine our aircraft have. We have some approved marketers that we purchase our fuel from. Remember recently, one of the major carriers had issues with fuel it purchases from Lagos, it affected their engines and the Nigerian Civil Aviation Authority (NCAA) had to carry out a lot of investigations. And I think one marketer was suspended for a while before it was allowed to continue. So in Arik we have our preferred marketers because we have tested their products and we are quite satisfied with their products. And like you know, we are the only one with EASA (European Aviation Safety Agency) safety certificate in West Africa and this is a no mean feat, so we can’t cut corners, we don’t have the same operating standards with other airlines. In order to maintain and retain this safety certificate there are certain process and procedures we have to carry out and follow. It is something we guard jealously and you will find that our operations are carried out with strict safety standard in mind. Be that as it may, I must also say that the marketers we purchase from are very professional and we are quite satisfied. In spite of that we still audit them and test their product from time to time.
During Christmas period what is the number of flights you made in the previous years?
Christmas period we do almost about 136 and 140 flights a day, in fact there is a year, I think 2013 or 2014 before the elections we clocked about 146 flights a day and we had to deploy all our aircraft, we are talking about domestic, West Coast and international flights. On the average we use almost about 550 to 600,000 litres a day but when we do flights to New York, London and Johannesburg, we up it up to about 750 to 800,000 litres a day. But unfortunately in December 2016 we were not able to do more than about 79 to 80 flights and that was a struggle. And let’s say quickly that I want to appreciate the efforts of the fuel marketers, they too have been working very hard, I know they have a lot of challenges and in my opinion I think the government should make Forex available to these marketers to import aviation fuel. Aviation is an engine for economic growth, it is not elitist as thought by some people and I know that PMS (petrol) affects everybody, for convenience of driving, movement within the country but the economic drivers of the nation need Jet A1 to move around from one place to the other. I don’t think it is appropriate to think that Jet A1 is meant for the elite; no, it is not. I appeal that the government should give equal urgency to provision of Jet A1. Apart from the Yuletide period, in the last couple of months there has been this serious shortage of the product with its astronomical price increase.
What are the projected losses due to inadequate supply of aviation fuel?
Well, we have lost a lot of money, not just in revenue but we have some fixed cost, some of these aircraft have to be paid for by the financial institution that gave you the aircraft. And of course you know that with the devaluation of the naira you need more naira to get more dollars. So it is a huge amount of money that we have lost and all the airlines have all lost. I must say that it is not just Arik, whether it is Medview, Dana, Air Peace, we have all lost a lot of money, because we have to pay our financiers.So I think in other climes the government would have compensated us for these huge losses.
If you look at when 9/11 (terror attack in United States September, 2001) occurred the US government compensated the US carriers. During the period of volcanic ash eruptions that affected flight operations to Europe and the Americas, the UK government compensated all the UK carriers, but here, we are left like that; nobody bothered about us. You know that the airlines have lost a lot of money during this period, especially this Yuletide period. You know also that as we get near to Christmas, it is a one- way business; even when you are going (outbound) you are full, but when you are coming (return) you are practically empty. I will say that three to four days to Christmas most of the airlines are just trying to operate most of these flights just to serve their customers. At the end of the day your load factor even if it is at 100% when you are going, when you are coming on the average it is 50%. The peak of the period is already over now and because of the fuel situation, flights were disrupted. So I sincerely hope that next year (2017) a better arrangement will be made and the marketers themselves will have to increase their facilities and be ready.
But on the whole, yes we are in recession but then there should be better planning and forex should be made available to the marketers to import fuel. You will remember that one of the reasons Emirates pulled out of Abuja and reduced its frequency in Nigeria from three to one was because of fuel scarcity, they mentioned it, so it is not a question about Nigerian airlines are complaining and complaining. And most of the foreign airlines go to Accra to go and pick up fuel to go to Europe and some of them go to Malabo (Equatorial Guinea). That tells you that there is serious problem and I know that Air Cote d’lvoire does a lot of tinkering, gets sufficient fuel from Abidjan while coming to Nigeria, they do occasional top up and go. We have no other country than Nigeria and this is our base, so we feel the pinch more.
There have been rumours that Arik Air compromises safety standard and does not have spares for its aircraft. What is your response to these allegations?
You know that for Nigeria to get category 1 safety status, Arik was the airline that was used by NCAA and the US Federal Aviation Administration (FAA) and even for the renewal of the Category 1 it was also Arik that was used. And like I said earlier, we have part 129 FAA certification, so we can fly our plane ourselves into the US and into Europe. And the Israeli airspace CAA (Civil Aviation Authority) came to Nigeria and they carried out a check on us and found out that we met all their safety standards, which is very rigorous and stringent. I think only Arik and Ethiopian airlines and South African Airways met their stringent conditions.
So if Arik could do that, I think one should give kudos to Arik. But most unfortunate in Nigeria we don’t value our own, we try to pull ourselves down, say everything bad about ourselves. Just recently again we have been on this European safety certification and we have been on it for just a few months now. We have gone through everything they required, the authorities from Europe have come here, they have checked all our system, they have observed us, they were here observing us for months. They have checked our stores, they have checked our maintenance procedures, they checked the background of our engineers both our contract engineers and local engineers, they have also checked the management of the airline, even the spares we buy and where we bought them from and they looked at the procedures of how we change our spares and make sure that all our spares are changed at the right time.
They know that we have zero tolerance for safety, and then they saw the training school we send our pilots to, we send then to the best training school, CAE, Oxford or we send to Boeing and the one in Canada. All pilots are sent to the top training school so when you have European certification both for maintenance and operation, that means all aspect of aviation have been checked.
The good Lord has been very good to us. Somebody started spreading rumours about us a few days ago, unknown to the person EASA certification result was to come out and when it was released, the good Lord has vindicated us that the person who wrote that story was just writing something that is untrue. And people tend to do some de-marketing but whoever is doing it has been put to shame because this is a certification that was published by EASA themselves we did not know it was coming out and then it came out at the right time. Even when that rumour came we had the IOCs (International Oil Companies) have sent their safety auditors to us, they’ve come and then they were quite surprised at all the spares that we have. They witnessed our procedures and were quite surprise that somebody could write such negative things about us.
NCAA has come out to say that they have checked and they issued a release about our airworthiness. I must commend the NCAA, any time we have all these foreign inspectors, the NCAA will come around too. We have helped NCAA too because they had to adjust their own game with these various inspections we have been having. So there have been a lot of discussions and to us having all these international inspectors is a routine thing for us. In fact, most of the time I don’t even know when they come, we just find out that our quality control and engineers have done everything.
We have IOSA (IATA Operational Safety Audit). We have finished IOSA for a long time; we have e-IOSA now, which is enhanced IOSA (an advancement of IOSA). We got IOSA about five years ago and we have now migrated to e-IOSA and I think we are the first in Africa to get it. IOSA is part of the air that we breath, we live with it as breath of air, so we comply with IOSA regulations, FAA, EASA, so safety wise we have tried our best, you can only try your best and leave the rest to God. So I don’t know what certification we need again on safety but we have met all certification that is why if you noticed we are the only one flying Nigeria registered aircraft into US, UK, New York and when we were going to Dubai, we are the only one. So we are proud to fly the green, white and green. We look forward to having our brother Medview go through the system and then be able to fly Nigeria registered aircraft to London and to US and to Jeddah. We are looking forward in cooperating with them and they are very decent people, they are not people who engage in negative publicity and de-marketing like one of the local airlines.
How has inadequate supply of foreign exchange affected your operations?
In aviation 80 per cent of the input is in dollars because we don’t manufacture the spare parts here. And even all the charges like over flight charges I am sure Medview and ourselves have been had hit on this because we had to pay Europe control in foreign exchange and it is not in CBN rules. We found that the regulations of the CBN do not take into cognisance payments for international aviation. If you talk about over flight charges, you put in your paper to the bank they say sorry it is not part of the CBN rule. If you talk about even simulator training, you should know that, yes we fly internationally but most Nigerians like to pay in naira.
Even London-Lagos now for this season you will find that many Nigerians pay in naira here. And we as Nigerian airline we cannot refuse our countrymen from paying in their local currency. That is the only way we can strengthen the naira because the more you go down to foreign airlines and pay then they will demand from CBN to take this money out, then you are encouraging capital flight. And we felt that this is the reason why the CBN should give Medview and us special concession, and give us the opportunity to buy forex. At least we have saved the country a lot of money that would have gone out as capital flight. They should also give other airlines too to meet their spare parts requirements. I am aware that one airline is in the habit of using such funds meant for airlines for its other sister company business and that I am sure the CBN and the authorities can check. We need to be very honest with ourselves, we need to be straightforward, the money belongs to all of us Nigerians.
The more capital flight we can save or prevent, the better. But then a few people are abusing it and they should not be allowed. Somebody cannot have one or two aircraft and be requesting something in the neighbourhood of $26 million. It doesn’t make sense. I think there is need for the CBN to work with the airlines and put some regulations down to check round tripping and abuse in the system. Yes, there is scarcity of foreign exchange but what is there is that we should be able to use it prudently and use it justifiably not somebody having two or three aircraft and asking for stated sum and yet people who have six aircraft are asking for $5 million and they can’t get it. Whatever savings we can make as Nigerians, we need to save and save our country. The country belongs to us we have no other country than Nigeria and we shouldn’t be wasteful. We need to be prudent and I appeal to the CBN to call for a meeting, let us discuss it, let us put a mechanism in place that will ensure that only the needed foreign exchange is made available for the local airlines.
Recently Lloyd’s of London threatened to stop insuring Nigerian airlines because of their failure to pay their premium. How will this affect airline operation in the country?
Yes, I agree with Lloyds of London. Let us take this thing in two parts. Aviation is an international business even if you are flying Lagos to Abuja, you are going to meet people from other part of the world flying. And of course if you are flying to London or New York or any other place, you have it as an international business. So insurance especially aviation is done in dollars and I think these are one of the reasons I believe CBN should meet with the airlines, let us sit down, form a committee and we can put some regulations down that will be easier to pay for. This is because when you are making your claims it is in dollars. For example, if your aircraft is damaged you are going to pay in dollars because when you get to the place to repair it; you pay for the service in dollars. If there is compensation, God forbid if anything happens, it is going to be in dollars.
So, I think there is need for us to understand that the currency in aviation is in dollars. Like I said earlier on Medview and ourselves, we are taking naira from Nigerians who buy tickets, yes, we can spend the naira here, pay salaries and other things but we still need some dollars to pay for spare parts, services and other requirements. However, let me say quickly that this shortage of forex is not peculiar to Nigeria. Our experience is that the same thing is happening to us in Angola and Arik has some funds trapped in Angola since February 2016 and we have not been able to get it out. We have made a lot of effort to the Angola Ministry of Foreign Affairs to assist us.
We have written to IATA and the Angolan government is insisting that they have a serious problem of foreign exchange; that we should bear with them. So let’s not heap all the problems at the door step of the Nigerian government. We even have some West African countries that used to be flexible, they are now tightening up,some of our funds are tied up in some countries. But what I still appeal to the Central Bank of Nigeria is to assist us to pay the over flight charges because this is very important both for Europe control, the Caribbean and some other parts.
Let me humour you a bit, but it is a fact. In Angola we wanted to have our funds trapped there, which is in their local currency and we wanted to pay for the over flight charges to go to South Africa with their local currency too and the Angolan government refused; they said we should pay them in dollars. Whereas they have our own money trapped there and we told them that you are refusing your own local currency and you are saying I should get you dollars when I have a lot of the Angolan currency trapped in your country and I can’t get it out, where am I going to get the dollars.
Is it possible that because of lack of forex some airlines may have aircraft that are due for maintenance but they may not take them out for checks?
I can’t speak for other airlines. Let me speak for Arik. Now we have scheduled maintenance and whenever they are scheduled we carry out the maintenance, we cannot because of forex refuse to carry out this scheduled maintenance. Like I told you, we have IOSA, we have EASA and FAA certification, so we breathe safety like air in Arik. Mind you, we are being monitored by European aeronautical control, a lot of people have records of Arik, a lot of financial bodies have records about Arik, so they watch us and they know what we are doing. So when people write whatever they want to write we don’t bother ourselves. But let me comment on something. A week ago I was watching a programme on AIT by Rev. Father George and he was talking about people spreading false information. That was even before this rumour came out. He said that people like bad news. Once they hear any bad news they go straight to the social media and spread false information that in itself is bad and it is destructive to the society.
You don’t check, you didn’t confirm whether what you have is correct or not you start passing it round. Any time you now get good news and you have something that is serious nobody is going to believe it. So what I am saying is that I never knew that EASA would release their certification about Arik, this gentlemen went out and spread false information about us. And I was wondering why a highly respected person would get a text and start circulating it without checking. There are some people I have respect for, but when I see what they do my opinion about them changes. This is because if you cannot reason, cross-check their facts before spreading false information then their dignity is questionable and their sense of reasoning is also questionable. This is because the issue we are discussing about is that Arik has over 600 pilots, if one pilot who was disciplined decided to write against is because he knows the psyche of the public, he plays on their intelligence and then you now decided to take and spread it. I read in the papers the other day that an Arik staff had an accident, if the person is working in Arik he should have a name but all the newspaper headline said that Arik staff had accident. So it looks as if all the public want is negative news about Arik.
Have you spoken to the government about the charges levied on domestic carriers by agencies?
In think all domestic carriers have spoken with one voice. My brother in Medview the other day spoke extensively about it, the Chairman of Air Peace spoke about it and we have always talked about it. And as far as I am concerned, it doesn’t make sense. There are multiple charges, they are expensive and they are not actually necessary. The government itself has to contribute something to air travel in Nigeria. If you say you want to leave it then give the airport control, give everything to the local airlines; yes they need to do that. If you say you want to hands off aviation then don’t say you are concessioning the airport because you can’t concession and give the airports to others, while the real work is being done by the airlines. So you can’t just come and say you concession to this and this and then you now say we pay this and that.
So they should allow the body of airlines to run aviation and then take care of the airports, maintain them and control them. We would have made better progress some time ago, when we applied to the government to give us a piece of land at MurtalaMuhammed Airport, Lagos to build our own terminal, that request was turned downed. We wanted to build our own terminal. We wanted to build a hanger in Lagos it was again turned down. Can‘t see any progress has been made within the last three years on that.
How are Nigerian airlines going to come out of this recession?
Well, I think everybody has its own strategy and the only way to come out of it is if the airlines, I mean the functioning airlines come together and talk. They mustn’t merge but I think it is lack of cooperation; lack of discussing strategies to tackle the problem is what is worrying us. I think confronting it alone will not help. We need the cooperation of Air Peace and Medview and Dana to work together and form a body to strategise. One person cannot strategise, so we need to strategise and look at it and actually get it done. If we don’t do that then I think we are not going to get anything done and that is the truth.
The system is taking advantage of lack of corporation among us and again we should not allow armchair critics and armchair operators to meddle into what is not their business. A few of them told me they have been in aviation for 50 years, all their life. I respect them, they have been there but they are not operating now and the challenges of that time and now are completely different. So as far as I am concerned there is need for us to make moves to talk to one another, interact with one another, that is the only way. Even though we make one flight a day to UK, I know that in UK there is this body that talks about the airlines, some of them make about 20 flights a day, some three flight and some one flight, so we have three categories but at the end of the day we still talk. Even in the repair of runway at Heathrow, we had an input and to be fair to them in UK they are quite reasonable.
People fear that the cancellation of flights, flight delays during the last festive season will affect the patronage of Arik as many people were disappointed with the airline.We really apologise for those infractions. We apologise to our customers. I want them to understand that every airline wants to operate and generate revenue. No airline will pay huge sums of money and acquire aircraft and want to leave it on the ground. Aircraft is making money when it is in the air. The truth is that we have a deficient system and no matter how you make your plans, if any part of the process chain is deficient it will affect your operation. We did not get enough aviation fuel to operate our flights.
Our fuel demand is about a total of what all the other domestic airlines need to operate all their flights. We promise that if the fuel supply is normalized today we wont have such disruptions. I also want our passengers to know that stopping an airline from operating because you did not get your bag or your own flight was cancelled cannot solve the problem; it will compound it. For example, your bag did not arrive with you from London, another flight wanted to go to London to go and bring the bags, you refused that they should go. You have stopped the airline from going to get the bags and you have complicated issues for that airline. This will delay the airline from getting your bags. While we apologise to the airlines, we also plan to open a channel of communication to ensure that our passengers get the right information.