The Virgin Dilemma

With a debt profile of about $214 million and possible withdrawal of the Virgin brand by Virgin Atlantic Limited, Virgin Nigeria may soon be 'forced' out of Nigerian skies
By George Umunnakwe
True to the submission of crit-ics in the aviation sector that Virgin Nigeria Airways (VNA), touted as the nation’s national carrier, nay flag carrier, will not last in the country, the pampered airline may well be on its way out of the Nigerian skies.
Notedly weighed down by a $203 million debt owed the United Bank for Africa (UBA), and another $11 million owed Virgin Atlantic Limited (VAL), shareholders of the debt-ridden airline have opted to sign off most of the airline’s properties in Nigeria and London in order to offset the debt.
This decision came after six expatriate directors of the VNA led by its managing director, Clifford Conrad, resigned their appointments, unceremoniously. Thereafter an agreement was reached with Richard Brandson, chief executive officer of VAL, to withdraw the company’s Virgin brand by the first week of July, 2009, weeks after the resignation of the directors seconded from VAL would have become effective.
Consequently, Air Nigeria or Nigeria Eagle-two names dangled at the time the airline was being formed in 2005 – have again been presented by the promoters.
The huge debt profile and the withdrawal of the Virgin brand are however not the only problems besetting the troubled airline, as its fleet of aircraft have been drastically reduced, while some shareholders are insisting that they would rather the airline go down than have the Tony Elumelu led bank buy into the airline. The revolting shareholders, The Source learnt, are positioning for First Bank of Nigeria (FBN) to rather buy the 49 per cent share of VAL.
Positioned as the best airline in Nigeria to take over the now liquidated Nigeria Airways Limited (NAL), Virgin Nigeria has had a plethora of problems beclouding its operations. Not only were industry stakeholders against the new outfit being highly pampered by the administration of former President Olusegun Obasanjo, they at a time vowed to truncate moves by the outgone administration to cede some lucrative routes of NAL to the airline. Parts of the routes are the now-rested London and United States of America (USA) routes.
The administration of ex-President Obasanjo had, in an agreement with Brandson whose airline is Virgin Nigeria’s technical partner, agreed that VNA should use the International wing of the Murtala Muhammed Airport, Lagos, for its Domestic, regional and international flight operations. By so doing, the Murtala Muhammed International Airport (MMIA), became the airline’s hub in Africa.
For a long while and to the consternation of a cross-section of stakeholders in the sector, particularly the industry unions, the relationship between the ex-President and Brandson remained rosy.
However, with the signing of a concession agreement between the government and the management of Bi-Courtney Aviation Services Limited, operators of the Murtala Muhammed Airport Terminal two, otherwise called MMA ‘2’, the many woes of the airline began. For, while operators of the terminal waved the concession agreement entered into with the Federal Government, which allows for all domestic flight operations in the country to begin and terminate at the terminal, they also insisted that both Virgin Nigeria and Arik Air vacate the International wing of the Lagos airport and relocate to the MMA ‘2’.
With the forced ejection of the airline from the MMIA, a court case was instituted which was eventually lost. This led to Virgin Nigeria licking its wounds as it grudgingly began operations at the MMA ‘2’. But not with the way the administration of President Umaru Yar’Adua handled the issue, Brandson withdrew his support for VNA. He took with him the part of the agreement which gave Virgin Nigeria the right to fly into London on the wings of Virgin Atlantic Limited.
The dust raised by the pull-out led to the sack of the airline’s Chief Financial Officer (CFO) and 300 other staffers, allegedly on the orders of UBA which had been the airline’s financial partner. Since 2005 when Virgin Nigeria was formed, it not only has its operating account with the UBA, the salary account of the airline’s staffers are domiciled in the bank. Just as it had co-branding and distribution point of sale agreement with the Elumelu-led bank.
Part of the debt threatening to drop the airline from the nation’s skies was said to have been secured in 2006 through a bridge facility when it became clear that the initial working capital from shareholders would not guarantee the smooth operations of Virgin Nigeria. Therefore, a $20 million loan facility was secured, which in 2007 was restructured to $40 million.
The loan, The Source’s investigations reveal, was agreed on the condition that VNA would not revoke its earlier agreement with UBA in terms of sales proceed generated locally, and for which account is domiciled in the bank and the execution of a right of set-off on the embattled airline’s account also with the bank.
The Source’s investigations further reveal that while in 2007 the airline sought for a re-financing of its operations through a zero coupon bond issue of $100 million for working capital and to pay off outstanding debt to Virgin Atlantic Limited which stood at $11 million, it was agreed that a global facility of an overdraft of about $26.5 million; a bond and guarantee facility of $13.5 million; a bridge facility of $5 million – payable in Lagos and another $20 million payable in New York – should replace the zero coupon bond issue. Another bank guarantee of $10 million for the 2007 Haji operations were also gotten from UBA.
By the last quarter of 2007, The Source gathered, a section of the shareholders, observing that the airline’s loan exposure to UBA was getting high, asked management to look elsewhere for refinancing the airline' s operations. By this time, Virgin Nigeria was already bleeding badly.
An opening for the airline to be refinanced, however, came when in 2008 Brandson hinted of selling off seven per cent of his 49 per cent equity in the airline. But due to infighting in the board, The Source was told that plans to recoup money to run VNA operations thus hit the rocks. Also dissolved into hot air were plans to undertake a private placement and then an Initial Public Offer (IPO) in order to raise funds. Promoters of this, posit out that VNA could raise up to $300 million from the capital market to settle its huge debt and still have enough working capital to take the airline to the next level. Sadly, the situation became worse as plans to sell the shares to Afrivest and UBA became a problem, as each desirous to have an upper hand in the airline, resorted to litigation. It was however resolved through an out-of-court settlement that both could partner to acquire the 42 per cent equity share of VAL being offered for as low as $35 million.
But owing to the global economic meltdown, both outfits could still not raise the money to save VNA from falling off the skies. To stay in operations, the board, The Source further gathered, resorted to and agreed to sign off full assets debenture of all assets. This was part of plans to make UBA to roll over its loan facilities and also to acquire fresh funds for the purchase of a set of Embraer jet aircraft which the airline said will cost it a handsome $35 million. Also, the sign-off of full asset debenture of all its assets both in Nigeria and London, The Source was told, will prepare the board of the airline towards the next line of action to take as the July, 2009 date for the withdrawal of the Virgin brand by Brandson’s Virgin Atlantic Limited, draws.
The move, a source in the Etiebet Plaza, Ikeja office of the embattled airline hinted, is the second phase of the planned withdrawal, as the first phase had already been carried out with the resignation of the six directors seconded by Virgin Atlantic.
Notedly, the resignation of the directors came at a time they were accused of failing in their promise to turn the fortunes of the airline around, four years after they resumed operations. Their resignation is expected to take effect from Thursday, June 18, 2009.
Meanwhile, Virgin Nigeria in a release has announced the appointment of Captain Dapo Olumide as its substantive managing director. He replaces Conrad who is said to have assured a new appointment in Virgin Atlantic as the airline’s Regional manager, Africa.
Olumide, the release stated, has the backing of the entire board. “The board has approved the new appointment,” the release quoted Felix Ohiwerei, chairman of the airline as saying.