Aviation faces plunge as Air Peace boss battles fraud charges

• Why int’l deals may go awry, by financial analyst
• Expert blames sector’s woes on poor oversight

Hard times could hit the local air travel sector following fraud and money-laundering allegations against Air Peace airline’s boss. Although the industry is not new to such allegations, this is the gravest accusation against a major airline that has over 50 per cent dominant share of the local market and its operations.

The fresh claims, which came to the fore at the weekend, have sent shivers down the spines of stakeholders who have begun pondering the fate that awaits the airline amid other implications for local, regional and international travels in the country.

Experts specifically feared a ripple effect on the airline and its operations, imminent cancelation of $20 billion worth of aircraft acquisition deals with Boeing and Embraer, higher credibility hurdles against Nigerian operators overseas, and the future of over 5000 direct and indirect employees of Air Peace, should the trial not go in favour of its chairman, Allen Onyema.

The United States Department of Justice indicted Onyema for fraud and laundering more than $20 million from Nigeria through United States bank accounts in a scheme allegedly involving false documents for the purchase of airplanes.

Onyema, 56, and the airline’s Chief of Administration and Finance, Ejiroghene Eghagha, 37, were indicted on November 19, on a one-count charge of conspiracy to commit bank fraud, three counts of bank fraud, one count of conspiracy to commit credit application fraud and three counts of credit application fraud.

In total, Onyema was charged with 27 counts of money laundering, while Eghagha was charged with one count of aggravated identity theft.

Onyema has, however, denied the charges of fraud and laundering. A statement issued by his attorney denied the report and said plans were on by Onyema and the co-accused to “vigorously defend” themselves against the charges.

The chief operating officer of one of the local airlines told The Guardian that it was not the first time such accusation would be made against a Nigerian airline. He recalled the cases of Aero Contractors and Arik Air, with the later indebted in excess of over N300 billion prior to their takeover by the Asset Management Company of Nigeria (AMCON).

But “it got us more worried to see that this is coming from the United States and directed at the only airline and our sole representative on the international route.

“I know of international aviation politics and it is real. But in this matter, such an argument begs the question. This is the United States’ system that we are dealing with. My main worry is what will happen to the industry, should the allegations creep in on the airline’s operation.

“We are certainly going to be in for capacity crises that will trickle down to the traveling public and the economy at large. That is why I think the Federal Government must wade into the matter, understand whatever it is and manage the situation,” he said.

The officer’s concern stems from the comparative edge in fleet capacity the embattled Air Peace airline has over other operators, put together. The other eight airlines have a total of 28 aircraft compared to Air Peace’s over 30 in operations, and another 42 on firm order.

In jeopardy already is the acquisition plan for 10 new B737 MAX state-of-the-art aircraft signed with Boeing last year. Each plane costs between $99.7 million and $134 million depending on specifications. Altogether, the planes would cost the airline roughly $997 million.

On April 4, 2019, the carrier announced it had signed a $2.1 billion (N756.5 billion) worth of agreement with Brazilian aircraft manufacturer, Embraer, for the purchase of 30 new planes. According to the airline, the order was for 10 brand new Embraer 195-E2 aircraft and comprised purchase rights for a further 20 E195-E2 jets.

Last week, at the Dubai Air show, Embraer made the announcement that Air Peace had signed a contract for three additional E195-E2s. According to the carrier, these were part of Embraer’s 2019 fourth-quarter backlog with a list price of $212.6 million.

In total, an investment of over $2.6 billion could go down the drain as airlines make a significant amount as a down payment of the cost of aircraft when they make firm orders.

An ex-banker and financial analyst, Bolaji Akinpelu, said people in the banking sector would not find it difficult to place the Air Peace matter in perspective.

Akinpelu said more often than not, businesses embark on such deals, which are “normal under the Nigerian system but fraudulent in the United States.”

He said: “It looks like a matter of over-invoicing. Imagine trying to buy an aircraft that actually costs $1 million for $2 million through bank loans. Banks need this invoice to grant the loan. Since the manufacturer will not give any invoice far more than the actual cost, our business guys here would rather go through a third party company that they had set up overseas to do the buying. So, they are buying and selling to themselves!

“That way, an invoice of $2 million is issued for a $1 million dollar plane. Half of the sum buys the plane, the other half is kept in a private account overseas, and everyone is happy. It looks normal here but it is laundering in the U.S. despite the fact that no one has complained about missing money.”

The Secretary-General of the Aviation Safety Round Table Initiative (ASRTI), Group Capt. John Ojikutu (rtd), also expressed the fear that the allegations might have far-reaching consequences for the aviation industry in Nigeria.

Ojikutu said the situation could push back the daily traffic by about 50 per cent or more if the CEO does not defend himself without involving the airline. He also noted that the case could seriously affect the airline being a single ownership management carrier.

“The airline business is a cut-throat business that survives on very thin margins. So, when an airline is blooming in naira while expending in dollars, you have to ask questions. Trust me, the questions in the minds of those who know the industry did not start today and this has nothing to do with where he (Onyema) is from.

“The U.S. does not suffer these issues lightly. It is a shame though that we may possibly face another reduction in the already low stock of commercial passenger aircraft.

“More so, hard times await any politician that has a hand in this pot of mess. The U.S. report says, ‘Known and unknown persons’ are connected. They have not mentioned the names of the known persons but I am sure those are individuals, who are under separate money-laundering investigations,” Ojikutu said.

The former commandant at the Murtala Muhammed International Airport, Lagos, also said that the new allegations further exposed the complicity of the Nigerian Civil Aviation Authority (NCAA), which has both safety and economic regulation oversight in the industry.

“That is why I put the blame on airlines’ commercial flaws on NCAA’s table. There has never been serious NCAA oversight of commercial regulations on airlines. That is the major reason why most of them have a low lifespan. Aero cannot claim a longer lifespan than even Air Peace or Arik because less than two years after the technical partners left the company, it nosedived into government aviation intervention funds, and it is yet to recover.”

Meanwhile, a youth group, Coalition of South East Youth Leaders (COSEYL), condemned “in strongest terms the cheap propaganda circulating in the media that Onyema and Eghagha have been indicted for bank fraud and money laundering.”

In a statement by President General Goodluck Egwu Ibem and Secretary-General Kanice Igwe, the group said: “This is the handiwork of mischief makers with international contacts in the U.S., who are jealous of Onyema’s success in the airline business and popularity among Nigerians at home and in the diaspora, and are scared that he might use his popularity, love and the admiration of Nigerians to come into politics in 2023.”

Source: The Guardian