CAL-AirJamaica deal on hold.
By Vernon Khelawan (Newsday).
In the last few weeks there have been several assurances, both in Kingston and Port-of-Spain, that the debt-ridden, state-owned Air Jamaica would be either merged or sold to Trinidad and Tobago’s Caribbean Airlines. Now there is word that nothing would be made public until April 01 2010.
As a matter of fact there are reports that the Bruce Golding administration last week signed a non-binding letter of intent with Caribbean Airlines. Finance Minister Audley Shaw, while admitting negotiations were still going on, he would have nothing to say about the deal until he delivers his 2010/2011 Budget Speech now scheduled for April 01.
Hinting that his government was not about to look at any other proposals, the finance minister said the focus of his government right now was to negotiate with Trinidad and Tobago, notwithstanding that there was a proposal from the Jamaica Airline Pilots Association (JALPA) as well as another from an unnamed overseas investor.
He said the only way the Jamaican government would consider talking to JALPA was if talks with TT broke down.
Shaw said the pilots association had been sending correspondence to both himself and the prime minister, but he said their letter of interest had come too late in the day and as such could not be allowed to supersede the procurement process which had been clearly established.At one time the International Monetary Fund (IMF) which last Thursday approved a 27-month standby facility of (US)$1.27 billion to assist in the country’s economic reforms, was insistent that the Air Jamaica issue had to be settled before the facility would be considered.
That is no longer the case since (US)$640 million of that money has now become available to Jamaica although there has been no conclusive arrangement regarding the sale or merger of Air Jamaica.
Shaw disclosed that under the agreement being negotiated Caribbean Airlines would have an equity stake in Air Jamaica, but would not contribute any cash.
Air Jamaica last year lost (US)$90 million and is currently carrying a debt of (US)$900 million. The airline would need (US)$300 million to take care of severance benefits for about 900 staff, who will be laid off and aircraft that would be taken out of service.
Meanwhile it was revealed last week that Caribbean Airlines had made a (TT)$34 million profit in 2009, following losses totalling (TT)$117 million in 2007. This was disclosed when the Consolidated Financial Statements were laid in the Upper House last week Tuesday.
Ex-BWIA executives quarrel
By Vernon Khelawan (Newsday).
A WAR of words has erupted between a former vice-president of BWIA and a former Board member of the same airline.
Peter Hill, who served as a management executive for Customer Service and Operations, has challenged some of the statements made by William Lucie Smith in a recent newspaper column.
He stated that Lucie Smith, who was part of the BWIA Board when it was closed down, attempted to defend several things:
1) the government’s use of the Treasury to the tune of $2 billion to close BWIA;
2) the decision to sell (undersell?) the grandfather route rights on London and cause Trinbagonians and other Caribbean people to suffer as second class citizens to get back and forth to Europe and beyond;
3) the government’s fuel “hedge” which any third party professional investment analyst would admit is nothing more than a “Government subsidy”, since there is no financial consideration paid for the fuel hedge (which is what BWIA purchased and paid for in the open market for its fuel hedges when it was making profits in 1998-2001);
4) the on time performance of Caribbean Airlines; and
5) the supposed financial success of CAL.
Hill explained that the Trinidad and Tobago government spent (TT)$2 billion “to close one airline (BWIA) and then opened another (CAL) giving it (TT)$735 million in cash, provided a subsidy for any fuel costs in excess of (US)$50, railroaded the employees into “imposed” contracts, with the brilliant result that it is still losing money.”
Hill, who now lives in Ontario, Canada, forecast that the “supposed financial success of CAL, which when the audited accounts come out (if they ever do), will likely reveal the numbers to be net losses.”
However, according to the Consolidated Financial Statements (2009) laid in the Senate last week, Caribbean Airlines last year recorded a profit of (TT)$34 million a major change from its recorded loss in 2007 of $117 million. The profit thus reduced CAL’s accumulated deficit from $117 million in 2007 to $83 million.
On the other hand Hill pointed out that BWIA West Indies Airways produced three consecutive years of profit from 1998 through 2000 amounting to (TT)$88 million, even after absorbing interest costs of some (TT)$75.3 million on debt which was inherited from the previous Acker and Filiatreault management teams’ failures.
“In fact,” Hill continued, “until the 9/11 tragedy in 2001, which decimated the airline industry, BWIA had already racked up a (US)$9 million profit and was enroute to a fourth consecutive year of profit. The Iraq war and SARS which came soon after 9/11 were further financial blows which could have flattened any airline.”
He reminded Lucie-Smith that BWIA’s 1998 profit performance was the first in 62 years and added that in 2000 BWIA was financially damaged to the tune of (US)$5 million when the government gave Air Caribbean permission to fly to Miami with a proliferation of charter flights.
In that same year, according to Hill, BWIA trashed Air Jamaica’s open competition on the Port-of-Spain-Kingston route and despite these challenges was able to still make a profit without a single cent from the government.
Making a comparison, the former executive said if BWIA had a fuel subsidy to cover prices over (US)$50; cash in the bank of (US)$115 million instead of inherited debt of more than (US)$40 million and “imposed” labour contracts rather than contracts negotiated in good faith, “think of where BWEE could have been today.”
Making reference to the two A340 aircraft which operated the London route and which was claimed not to be financially viable, Hill explained that those aircraft were acquired to operate not only London, but New York and Toronto as well. However, they were compelled to be used only on the London service when the TT government lost its Category One status and Bwee was banned from flying this new aircraft type to the US or though its airspace.
He described the sale of the slots at Heathrow and both Airbus aircraft as “short-sighted” since TT has regained its Category One status and now there is no wide-body aircraft to service the US and Canadian routes.
While Hill commends CAL’s on time performance, he said most airlines can be on time if they are prepared to lose money to do so. “Flying from point A to point B, padding buffer minutes to the historical flight operating times, scheduling a long enough turnaround time at point B and returning directly to point A should always produce a great on time performance, but you can’t make money that way,” said Hill.
He stated that in a small market like the Caribbean there is need for a larger network of intermediate island stops and connecting flights to have enough passengers to generate the revenues required to make money and you must have high utilisation of the expensive aircraft. “The risk, he added, “is that delay of one flight could cause another delay and so on, which invariably will happen.”
