The BWIA Bail-out

Does Trade and Industry Minister Ken Valley’s statement last week that Government proposes to convert US$30 million of BWIA’s debt to the State into equity mean that Government is today once again considering seeking majority control of the cash strapped airline? Or was Valley’s announcement at a Media conference on April 6 that Government had agreed to restructure the BWIA balance sheet by converting some of the debt on the balance sheet into equity designed to reassure investors in the airline?

Government retained a 33.5 percent shareholding when it privatised BWIA in 1995. Some 51 percent of the airline’s common stock was acquired by a group of United States and Caribbean investors, while the remaining 15.5 percent was allocated to BWIA employees. BWIA, which lost an accumulated total of US$51 million between 1995 and 1997, and recorded a net profit of US$9.153 million in 1998, was severely hit by the September 11, 2001 terror attacks in the United States which resulted in a worldwide fall off in air travel. In addition, BWIA’s potential revenues have been hit by a proliferation of low cost charters on several of its routes, including New York, Washington, Toronto and Miami.

Meanwhile, in an effort to overcome the resistance to airline travel, provoked by the commandeering by terrorists of two aircraft and slamming them into the World Trade Centre on 9-11 and the hijacking of a commercial aircraft, charter fares from Piarco to New York have slipped, for example, to $1,700. Admittedly, when BWIA entered into the then mushrooming charter market in 1970, with charters to New York, London and Toronto, it had been a relatively lucrative one, what with the airline enjoying a considerable market share. Since the 1990s, however, and increasingly since 2001 a substantial portion of the charter market has been won over by foreign airlines. And although, many of the foreign operated charters have been no frills flights with less foot room than on BWIA aircraft, the extremely low fares appealed to the pocket.

Did Government consider all of these factors which continue to impact adversely on BWIA revenues before it designed and agreed on its policy of converting BWIA’s debt into equity? But while the Administration may have thought the move necessary at this time, inasmuch as the airline’s losses over the past few years had the effect of eroding its equity capital, does it intend to go yet further and reacquire controlling interest in BWIA? This will mean re-entering an industry (as majority shareholder) at a time when the market is down, save for the July-August high season, and in addition to competing low priced charters have represented a loss of revenue. In addition, the continued high price of fuel and the airline’s fleet renewal programme developed in 1998 and/or aircraft lease arrangements have added to BWIA’s operating expenses and its loss position.

In November of 1961 Government had purchased BWIA from the then British Overseas Airways Corporation to continue to provide inter island airline transportation and an air link for Trinidad and Tobago, Barbados and Jamaica with New York and London (which had begun the previous year). BWIA’s importance today, inter alia, is its opening up of routes to the Dominican Republic, Cuba, Costa Rica and South American members of the Association of Caribbean States with a view to expanding markets for business opportunities. Would it not be more practicable for Government to market the idea to local businessmen and investors wishing to trade with these countries of taking up shareholding in BWIA, than doing this itself?