A requiem for Nigeria Air - ITREALMS Online

Commentary@ITREALMS:

For those eager to celebrate the launch of a national carrier, let me warn that the stunt pulled off last week by the federal government through its transportation minister responsible for aviation, Mr. Hadi Sirika, at the Farnborough Airshow in England, was nothing more than a statement of intent. It was a cleverly choreographed political sound bite, complete with photoshopped images of an aircraft depicting Nigerian livery. It was targeted at fooling the public into believing that the administration was sticking to its campaign promise to establish a carrier flying the Nigerian flag.

What was sorely missing from that presentation was the business case for the so-called airline to be named Nigeria Air, investors that had indicated interest in taking a stake in the airline, a lease/procurement plan with aircraft manufacturers and lessors for the acquisition of aircraft, management and technical services agreements with a prospective operator for the airline, a realisable blueprint for the actualisation of an airline hub possibly in Lagos, targeting first the West African sub-region, and a plan for the establishment of a maintenance, repair and overhaul (MRO) facility as an additional revenue stream for the proposed airline.

It must be mentioned that at the presentation at Farnborough, Sirika’s audience was made up solely of officials of his ministry and the regulatory agencies in the Nigerian aviation sector. Not a single prospective investor, aircraft leasing firm or manufacturer, or advisory firm was in sight. The sole foreigner at the Farnborough event was the cameraman hired by the transportation ministry.

At the very minimum, the so-called advisors led by Airline Management Group (AMG), which the federal government appointed a year ago at a princely fee of N1.5 million, should have been at the airshow to present their outline business cases for the airline, MRO, aerotropolis, and so on. AMG was named the lead in the advisory consortium after Lufthansa Consulting pulled out five months ago. Citing conflict of interest as one of the reasons for Lufthansa’s withdrawal, Sirika added last February that his ministry and the German firm were unable to agree on the contract terms for the advisory services, requiring an upfront payment of 75% of the contract fees that would have been payable in euros into an escrow account with a foreign bank. But I digress.

Sirika clearly went to the airshow unprepared. He also failed to address the challenging Nigerian aviation environment characterised by under-capitalised airlines, safety concerns, jet fuel shortages, an unattractive fiscal regime, the absence of world-class aviation infrastructure, and shoddy regulation. Even outside Nigeria, the minister was unmindful of the litany of unprofitable, struggling airlines on the African continent and beyond. Examples abound of defunct, bankrupt and unprofitable national and government-owned carriers ranging from Sabena, Swissair, Alitalia, Iberia, British Airways (pre-privatisation), Air Afrique, South African Airways, EgyptAir to Kenya Airways.

It would be futile using Ethiopian Airways and Emirates Airline as examples of state-owned airlines that have succeeded. They operate unique models that are difficult to replicate. Whereas Ethiopian Airways has a government-protected monopoly on its domestic routes, has benefitted from economic growth and stability averaging 10% over the past decade, provides a plethora of services including maintenance, catering and training to other airlines, boasts a young and modern fleet, purportedly pays zero landing fees at Ethiopian airports, and controls a large chunk of the air traffic in Africa; Emirates, supported by the government of Dubai’s investment arm, has been accused by its global competitors of benefitting from hidden state subsidies, maintaining a too cozy relationship with Dubai’s airport authority and its aviation regulator – both of which are state-owned entities – and benefitting from reduced borrowing costs by taking advantage of its government shareholder’s sovereign borrower status. But the allegations against Emirates have been debunked, with the airline pointing to the bailouts provided by the United States government to US-based airlines as a substantial form of state assistance.

What was more bemusing was Sirika’s declaration that Nigeria Air would fly on 162 routes! How was this predetermined without the input of investors? Shouldn’t that be the responsibility of the advisers and investors to determine the viability of routes? Rather than dissipate energy on the establishment of a new national carrier that will never see the light of day, Sirika should focus on the low hanging fruit right in front of him. For all intents and purposes, Arik Air, Aero Contractors and the remnants of the defunct Air Nigeria (successor of Virgin Nigeria) currently belong to the Nigerian government. With the still operational Arik and Aero Contractors under the control of the Asset Management Corporation of Nigeria (AMCON), the latter, with the assistance of reputable international consultants, should begin the process of underwriting the liabilities of both airlines, hiving off and disposing of their non-core assets, and merging the airlines into one entity. After the corporate restructuring process, which must include a share restructuring strategy that leaves the owners of the legacy airlines with some minority stake in the emerging entity, the new airline should be sold to a core strategic investor capable of injecting fresh capital into it and expanding its fleet and operations.

This avenue available to Sirika is a surer bet of getting an airline with a Nigerian identity off the ground. He needs to bury his ill-fated attempt to start an airline from scratch. The Nigerian government does not need a 5% stake in any airline, nor does it need to provide a take off grant of $300 million. Instead, more resources should be deployed in improving airport infrastructure and the concession of Nigeria’s viable airports to the private sector. As it stands, the Federal Airports Authority of Nigeria (FAAN) has proven to be a basket case. Like the phantom Nigeria Air, it needs to be buried and confined to the dustbins of history.

*Ijeoma Nwogwugwu/GEE

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Omatek: A requiem for Nigerian SME

Features@ITRealms:

Barely four months after the death of the founder of Omatek Computers, Mrs. Florence Seriki, a bank has taken over the company property, thereby bringing to a halt the sad tale of a dream of another Small Medium Enterprise (SMS) in Nigeria. REMMY NWEKE in this report for ITRealms Online, wondered if this is not a requiem for Nigerian SMEs?

Prelude:

Driving through the former Oregun Road and now Kudirat Abiola Way, Ojota, Lagos, one thing that caught my attention at the Alausa Bus-Stop, was the notice of take over of Omatek Ventures Plc, the parent company of Omatek Computers Limited, the Solar energy subsidiary, among others; I have to turn at the next available route, parked and walked to the entrance of what has become the headquarters of Omatek.

According to the notice, my fear was confirmed as the premises have been taken over by an order of a court, with a boldly written notice: “FHC/L/CS/590/17 – Possession Taken Today 18/7/17 by Court Order.”

Takeover:

Omatek prides itself as a Nigeria SME and the first factory to locally assemble computer cases, speakers, keyboards and mouse, in other words, computer systems and notebooks with a good number of network for other system builders and resellers across Africa.

The takeover news, ITRealms recalled was initially in the air, a year ago and precisely in May, 2016, when  it was gathered First Bank of Nigeria (FBN) Limited filed a wind-up petition against Omatek, seeking recovery of a loan worth N838,337,562.69, granted the firm, two years earlier in 2014.

N838m bank loan and wind-up genesis:

According to the petition at Federal High Court, Lagos, the bank counsel, Mr Ade Oyebanji had alleged that Omatek Computers, between May 20, 2014 and November 12, 2015, applied for and was granted various type of loans in the sum of N743,224,440, supported with personal guarantee of then Managing Director, Mrs. Seriki who also is an alter ego of the company, in addition to corporate guarantees from two sister companies, namely Omatek Ventures Plc and Omatek Ventures Distribution Limited.

Although Omatek initially objected to the petition via its counsel, Professor Taiwo Osipitan, a Senior Advocate of Nigeria (SAN), urging the court to dismiss the petition on the ground that it was incompetent and also contended that it did not comply with company winding up rules, because as at the time of filing the petition, the tenor of the loan had not expired. Eventually the case went on and gave birth to the takeover by the Bank of Industry (BoI) on July 18, 2017, now accumulated to the tune of N838,337,562.69.

Loan brought forward:

As at the time of filing this report, ITRealms reports, all Omatek Computers signpost at the promises have been removed, as security officer on site was quick to reveal that employees ever since have been barred from entry  into the company premise.

Also, ITRealms gathered that earlier in July, the Nigerian Stock Exchange (NSE) had suspended trading on the shares of Omatek Ventures over failure to submit its account statements and operational reports as required.

Seriki foresaw bank takeover:

Obviously reacting to the bank’s wind-up petition that broke the camel back, late Mrs. Seriki, berated the banks on their inability to understand the difficulties of SMEs in trying to grow and entrench their businesses, mostly when loan is involved.

On probable secrets she may have adopted on managing bank loans, Seriki had noted that they work very hard and believe in production of standard products, in addition to having credibility, which is critical, but lamented that hitherto, Nigerian bank policies messed her company up at a time, leading to sack of so many of workers. Hence, she said they don’t know the ripple effects of some of their policies.

“Then, taking loan from banks is a major challenge. Sometimes, the banks thought we were fighting them, but in actual sense, we were not fighting anyone; we were only trying to explain our line of business to them,” she declared.

On some of the harsh business decisions she has taken to move Omatek forward, Seriki pointed out that if she had a choice, borrowing from Nigerian banks will be a last resort, explaining that on three occasions, they have threatened Omatek over a loan.  Prophesying that “Instead of them to work with us to see how to get their money back, the only thing I saw on the wall was how to take over our company.” She lamented, Nigerian banks have to understand that business is deeper than what they think.

Banks wanted us liquidated:

On the short-lived success of the Omatek listing at Stock Exchange, late Mrs. Seriki emphatically blamed banks over persistent pressure to take over SMEs. According to her, that incident happened because one of Omatek partner banks tried to liquidate it. Stressing that although the company was able eventually to raise capital to pay their money back, adding that initial offer was oversubscribed, “the stock exchange called us that we had broken a record and encouraged us to get listed; I didn’t initially plan to do so. Shortly after that, the stocks crashed but I never regret any decision I take through God. Everything I do, I first commit it into the hands of God, so no regrets. If we didn’t take that step, the banks would have taken over this company.”

She maintained that as SME, Omatek did not get the type of funding needed from the bank, because it would require huge collateral which was not available at the time. That was the issue, reiterating that if she had her way, “I would never borrow from the banks.”

Sunday Takeover debate:

For an industry observers, its alarming how Nigerian banks like taking over businesses entrepreneurs have laboured to build only for them to allow such effort die naturally without thinking beyond mere take over to recover their fund or better seen as loan.

It took a question from an industry observer, Otunba Ebee, at a Sunday roundtable on the state of Omatek now the banks have taken over, perturbed by the thinking that even government should have done something. Reminiscing on the situation, Ogbuefi Machi, another industry observer, lamented “It's very unfortunate how bank loans kill SMEs in this country.”  Yet another observer, Mallam Isaka asked since they took over the company, will it not be in the best interest of the country, the business and even employees, to introduce their own management team instead of wasting the company with attendant job loss, without a blink.                       

For Machi, Omatek should have traded softly in going for another bank loan after what happened in 2009 when Saudi purportedly forced banks to recall their loans to companies, which led to the Central Bank of Nigeria (CBN) decision that seriously affected the fortunes of the company. He insisted that “It's always better to function small than taking bank loan in this country. If you want bank loan, please take loan from abroad.” Arguing that the interests on the loan in Nigeria is killing companies;  saying that Commercial banks give double digits interests, although Bank of Industry (BOI) is better because the loan is single digit, but would not go beyond 9 per cent

As said by Machi, “A bank gives you loan to run your business, it is up to you to manage the funds. If you don't manage it well and start repaying according to the Memorandum of Agreement (MoA) signed, it will go to court to enforce the takeover of the collateral deposited so that it will recover its money. It's core business is to give loan not to run your business for you. “

He posited that if the company involved is a ‘Too Big To Fail institution,’ there could be some intervention via the regulators to appoint new management to run and stabilize the place prior to sale to new investors. Omatek's key assets, he noted, is the landed property and warehouses on the land.                       

Whilst Ebee insisted and hoped that something could have been done to keep this Omatek dream alive.  Machi was quick to add that despite investing the loan including into solar energy, the returns on investment was not convincing. Thus, debts started piling and banks do not listen to excuses.

Be wary of bank loans:                  

“It is unfortunate that one of the Information Technology (IT) industry iconic businesses has to go that way. This is a company every ICT stakeholder has benefited from one way or the other in the last two decades,” he further decried.                      

This position, Otunba Ebee could not agree less, postulating that sometimes Small Medium Businesses (SMBs) take up loans without proper insight and planning, hence, “You hear people say the most important thing is just to get the loan first. But you must have a plan on how and period for repayment. Let's be wary of loans, especially bank loans.

Conclusion:

Submitting, Machi believes the CBN and Federal Government (FG) policies in the last two years finally killed Omatek, explaining that loans were taken in Naira but the products were to be sourced from China, which requires converting Naira to Dollar at very exorbitant cost and “when you get to China you convert to Yuan to make purchases. Import duties are so high at the airport and seaports.”   Insisting that only if FG had implemented the agreement it signed with China on Remnibi which is the legal tender in mainland China, the Chinese Yuan would have been available to Nigerian banks as one of the forex currencies.

“Cost of mobile phones wouldn't have even skyrocketed,” he alleged, contending that as at time of filing this report, One Chinese Yuan is not more than N40, but Dollar is now N370. Grieving that Omatek is taken over via bank loan, noting that every day he passes in front of the company premises, he is filled with nostalgia.                      

 

For Isaka, he maintained that although the loan went awry, is not enough to take over a promising enterprise like Omatek for the sake of takeover. Positing that there are other assets beyond the landed property which he thinks the bank should also be concerned about. Wondering if it should not have been more beneficial to have a management team takeover the remains of the company, and try to run it back into profitability. “So that instead of job loss, we have more investment” Mallam Isaka insisted, just like was lately done to Arik Air or even Etisalat among others.

He called on the National Information Technology Development Agency (NITDA) to do something as respite for Omatek and likes before more SMEs find themselves in the Omatek shoe. Arguing if the National Information Technology Development Fund (NITDEF) should not have been used to save the situation?

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