Banks Should Understand Airline Business Before lending – Ahmed Kuru

7th January 2020

The increasing number of bad loans recorded by banks in the aviation sector has been attributed to poor understanding of airline business by banks rushing to lend to the sector, Managing Director/CEO Asset Management Corporation of Nigeria (AMCON), Ahmed Kuru has said.

The AMCON chief said failure of many airlines in Nigeria and why those that are still operational are struggling for survival is attributable to several problems including greed exhibited by airline owners, financial rascality, overbearing charges and taxation by regulatory agencies, unpredictable and unstable forex, non-existent good corporate governance principles and lack lack of due diligence procedure among others.

Kuru spoke in Lagos at the weekend also heaped further blame on banks who rush into the business of funding aviation without the requisite knowledge or understanding of the aviation business. He was speaking at the Aviation Leadership CEO’s Roundtable to commemorate the 10th anniversary of Aviators Africa magazine in Lagos.

Delivering the keynote address at the event in a paper titled “Aircraft Financing: The Issues & Challenges of Asset Management Corporation of Nigeria (AMCON),” the AMCON boss, who was represented by Tajudeen Ahmed, a top official of AMCON also called on the federal government and indeed all stakeholders to take a wholistic review of the business of aviation in Nigeria because of the critical role the sector plays in the growth of any economy.

He said, “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.”

According to him, a sector as strategic as aviation must be given all the necessary policy backings by the government to enable the sector to take its pride of place in Africa. He disclosed that AMCON’s experience with its intervention in aviation has made it clear to him that there was need for a total overhaul of the modus operandi in the sector.

In a passionate submission, the AMCON CEO, who was a former managing director of a bank, said, “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 the 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.