INSIGHT: Shaky finances rattle Nigeria's airline safety

LAGOS (Reuters) - Passengers arriving at Murtala Mohammed airport in Lagos could be forgiven for thinking they had stumbled into a refugee camp.

In a big white tent a throng of people struggle with luggage in the sapping heat and humidity. In front of makeshift service counters they form something that might be a queue but looks more like a scrum.

The only clue that this is one of the most important domestic air terminals serving Africa's second-biggest economy and top oil producer is that many wear business suits.

Terminal Two, where Arik Air has operated out of a tent for a year while repair work goes on, is not the only evidence that Nigerian aviation is in chaos.

In the last four months, Nigeria has seen a plane crash kill 163 people, the collapse of one of its main international airlines and a central bank order banning lenders from giving its main carriers more cash until they repay burgeoning debts.

Documents obtained by Reuters from now defunct Air Nigeria suggest financial mismanagement was largely to blame for its collapse last month, though its owner Jimoh Ibrahim disagrees.

Insiders say other airlines are also in dire financial straits, which could soon have grave consequences for air safety in a country that already has one of the world's worst records.

'Last flight to Abuja', a film about a plane crash caused by mechanical failure, is the longest running box office smash in 'Nollywood', Africa's answer to Hollywood and the world's third biggest film industry.

That film was eerily ready for release just days before a Dana Air flight from Abuja smashed into an apartment block in Lagos in June, killing 153 people on board and 10 more on the ground in the worst airline disaster in Nigeria for two decades, and the first major one for six years.

An investigation into the causes has yet to be completed, though a preliminary report blamed dual engine failure. For some it simply added to the litany of misery in a country already reeling from Islamist insurgency in the north, massive oil theft and multi-billion-dollar corruption scandals.

"I don't fly these days unless I really have to," said Dayosola Odunsi, 56, a businessman, after watching the film. "It raised important air-safety issues. But will anyone listen?"

"FLYING COFFINS"

Nigeria's government has long cherished ambitions of making Lagos a regional transport hub. When British billionaire Richard Branson set up domestic and international carrier Virgin Nigeria in 2000, that dream seemed within reach.

Branson pulled out in 2010 in frustration at what he said was interference by corrupt politicians and regulators.

Yet the economics that lured Virgin to Nigeria still look promising on paper; it has Africa's biggest population, economic growth of around 7 percent year after year, a growing middle class and a small but hugely wealthy elite.

Lagos, the commercial hub, is about 330 miles (530 kilometres) from the political capital Abuja, and both are hundreds of miles from oil-producing regions in the southeast. Roads connecting them are poor. Many Nigerians, as well as foreign oil workers, bankers and other business people have little choice but to fly.

Even with two major airlines suspended in the past four months, nearly 200 domestic flights a day cross Nigeria's skies.

International carriers such as British Airways and Virgin Atlantic are making huge profits out of Nigeria.

Yet two years after Branson's exit, the airline he created, rebranded Air Nigeria, closed last month. Ibrahim told Reuters he shut it down because of "unreliable staff".

But former finance director John Nnorom says the company collapsed under about 35 billion naira of debt and could not even pay its staff. He thinks such financial woes are widespread and a real danger to air safety.

"The aircraft we have in Nigeria are flying coffins," he told Reuters. "Many are too old. The ones that aren't are often poorly maintained," he continued, adding that he had tried to petition the aviation ministry after quitting Air Nigeria.

"I told them, if nothing is done ... there will be a plane crash imminently. Days after my mail, Dana's plane crashed."

John Obi, a spokesman for Aviation Minister Stella Oduah, admitted the Dana crash was a "wake-up call" but said safety standards now were more stringent than ever.

"Safety is a process," he said. "We are working day and night to try and ensure Nigerian skies are safe. The Dana crash was tragic, but it was a reminder we still have work to do."

FINANCIAL TURBULENCE

Airlines the world over are suffering from high fuel costs and the weakness of the global economy, but small national flag carriers and private rivals in Africa also have to compete with global giants controlling 70 percent of traffic.

A central bank document shows Nigeria's only other two major domestic carriers are deep in the red. The biggest, Arik, owes 85 billion naira to state-backed "bad bank" AMCON, set up in 2010 to stem a financial crisis.

The other, Aero Contractors, owes AMCON 32.5 billion naira.

Arik's director did not respond to a request to speak to Reuters, and other officials were not available to comment.

All three airlines have one thing in common: ownership by powerful oligarchs, usually with core interests in other things. Ibrahim's Nicon investments is in everything from oil to hotels to insurance. Arik owner Johnson Arumemi-Ikhide has lucrative interests in oil and engineering. The super-rich Ibru family own Aero Contractors but also banks, deluxe hotels and newspapers.

Nnorom accuses Ibrahim of running Air Nigeria like a personal slush fund, even diverting Air Nigeria's share of a 35 billion naira central bank emergency fund set up in 2010.

Ibrahim denies this. He told Reuters Nnorom was a disgruntled employee whom he sacked for embezzling $100,000. Nnorom said it was a spurious, politically motivated accusation and the charges had been dropped.

Nnorom showed Reuters a Nigeria Civil Aviation Authority letter explaining its decision to suspend Air Nigeria in June.

The letter quotes a senior employee as saying "we owe virtually all outstation hotel bills, fuel money, handling charges, facility bills. We do not pay ... for fuel even at the hub here in Lagos. We never depart on time due to finance".

It adds that the company struggles to pay night-stop allowances to staff and that key "service providers are withdrawing their services because we are not paying".

"We sent aircraft for checks, but they came back due (to lack of) funds," the staff member adds.

The authority concludes that such evidence plus Air Nigeria's "cash-and-carry mode of refuelling your aircraft were considered by the Authority as indicative of a situation of dire financial distress, which endangers safe operation".

Ibrahim denies Air Nigeria's debt was his fault. He says it had $370 million of debt when he took it off Virgin and that there had been no impact on safety. He told Reuters he suspected the civil aviation authority suspension was political.

"VANITY PROJECTS"

Nnorom thinks airlines routinely lack money to pay for spare parts, maintenance, hangars or handling agents. Air Nigeria had 11 aircraft, 10 of which should not have been flying, he said.

"We could not afford repairs or the changing of engines."

A letter dated September 2010 sent by Air Nigeria to the managing director of United Bank for Africa in Lagos, provided by Nnorum, shows a request to transfer $27 million from the airline's account into the accounts of companies owned by Ibrahim's Nicon Group in Nigeria and Ghana.

Nnorom listed another 6 billion naira worth of transfers he had recorded going from Air Nigeria into Nicon in 2010 and 2011.

"He was taking money out of a company of which he owns only 50 percent and spending it like it was his money," Nnorom said.

When shown the transfers, Ibrahim told Reuters it was above board and he only made them to Nicon to pay it back capital it had sunk into Air Nigeria, on which it had made a huge loss.

Analysts say Nigeria's poorly run airlines reveal a failure by the private sector to make something of deregulation.

"The systematic failure of Nigerian carriers to generate money in a conventional way, as successful companies, highlights something: airlines there have always been treated as a kind of vanity project," said Antony Goldman, head of PM Consulting.

"The companies operating international flights to Nigeria on a commercial basis ... are making huge amounts of money."

Aviation minister Oduah has also been criticised for her handling of the sector's various crises.

Carriers like Ibrahim say her inexperience in the sector - she was in the haulage industry before President Goodluck Jonathan hired her - has led her to focus on the wrong things, like a slow, state-run renovation of the airport, instead of improving finance and tightening up safety standards.

Two months after the Dana crash, she led a delegation to the United States, China and Canada on a "road show" to drum up foreign investment into aviation. Critics called it insensitive and a waste of money. Some officials refused to join her.

Oduah's spokesman John Obi said critics were wrong to blame the sector's woes, especially safety, on her lack of experience.

"When we had those with more technical experience, we had more crashes, so that argument doesn't hold any water," he said.

He added that she was working with the central bank to try to extend cheap finance to the capital-intensive industry and import tax waivers that would help ease the airlines' distress.

If, as industry officials say, the clock is ticking to the next disaster, she has no time to lose.

Source: http://news.yahoo.com/insight-shaky-finances-rattle-nigerias-airline-safety-093540594--finance.html

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