Bleeding BWEE

Price Water House Coopers, the auditors for BWIA, were lenient with the airline. In their analysis, the accounting firm concluded that the 2003 financial statements for the airline “present fairly, in all material aspects the financial position of the group as at December 31 2003.” However, the auditors were compelled to “draw attention to Note 2 to the financial statements, which indicates that the Group incurred losses after taxation and extraordinary items of TT$138.2M, and has accumulated losses of TT$559M. Its current liabilities exceed its current assets by TT$48.7M and it has net liabilities of TT$205M.” The auditors chose not to flag BWIA’s 2003 financial statements as “the Group is increasing its share capital by TT$256M through a rights issue with the support of the Government of the Republic of Trinidad and Tobago.”  Despite all financial indicators to the contrary, “these financial statements have been prepared on the going concern basis, which assumes that adequate facilities will be obtained and the Group returns to profitability.”

The reference to the “going concern” concept is key to understanding BWIA’s financial position.  Going concern, one of the fundamental accounting concepts, assumes that an organisation has a long life cycle — one that will allow it to collect on its receivables, pay off its debts and creditors and most importantly generate profits in the long term. BWIA’s 2003 financials is the tale of reneged promises, negative publicity, lost revenues, questionable management decisions, government bail out, retrenchment of staff,  all in an external environment that showed slight recovery from September 11, the outbreak of SARS and increasing fuel prices. On the positive side, BWIA showed  an improved loss figure from 2002. The company lost only TT$67M in 2003, as opposed to the TT$116M loss in 2002.  Loss per share for 2003 was negative TT$2.98,  an improvement of the 2002 figure of negative TT$4.65. BWIA’s management took the customary loss position in stride. Chairman Duprey explained that: “the theme of this annual report is BWIA Bringing People Together: This theme is fitting for the challenges that confronted the airline in 2003; it is more reflective of the fundamental purpose of BWIA and the important role it plays to the people of the region and to the many loyal customers throughout the BWIA network.” 

While this new theme may not comfort shareholders who lost their investment in the airline, it certainly explains BWIA decisions to engage in less than capacity routes to Costa Rica, Dominican Republic and Cuba. BWIA’s auditors’ were clear that as at December 2003, this was a company going bust and an entity facing bankruptcy.  Life for the company at that time was only possible if the government invested millions of dollars in the organisation. And the government did. A cash injection of US$40M came after the 2004 six-month results which show a loss of TT$40.83M, a vast improvement over the TT$85.3M loss for the same period last year. In July this year, the Government of Trinidad and Tobago, (GOTT) underwrote US$30M of BWIA debt — taking more shares in the company and injected US$10M for the rights issue.  GOTT now owns over 75 percent of the shares of the company and has taken control of the company. This is a temporary arrangement, a position reiterated by Minister Ken Valley, the man responsible for the troubled airline, as the intention is to make BWIA profitable and for the GOTT to return to its status of minority shareholder. 

The unanswered response to this statement is: what is the time frame for profitability, who will invest in BWIA and what is the strategy to rebuild confidence in the company’s performance. Deputy Chairman Anthony Jacelon suggests the six-month results “were in accordance with the business plan despite the significant and unprecedented increases in the price of fuel.”  For clarity, the deputy should have indicated the quantum of the loss that was attributable to the fuel price increase, versus what was an acceptable loss position as per the business plan. Jacelon indicates that the company’s focus will be to stabilise operations, improve overall competitiveness through a planned policy of commercialisation and strengthening of alliances and relationships with industry partners. What this means is anyone’s guess. For sure, taxpayers can be assured that the company will limp along, continue to lose money and that they will involuntarily carry the burden of BWIA. Shareholders have given up on the possibility of recovering investments.

GOTT is finally being honest about BWIA’s role. The airline is a tool to woo votes from Caricom and Latin America countries to make TT the FTAA headquarters, and just to exist regardless of the economics of the situation. Taxpayers will carry the burden of this decision since all benefits are derived from these achievements will be for the people of the Republic. What then is the future of the airline?  GOTT has breathed new financial life by classically converting debt to equity, but what are they going to do to stop the annual haemorrhage? If losses continue there will be an erosion of capital and a build up of debt. Neither the Board nor GOTT has spoken in the traditional language of recovery — there is no talk about financial targets, cost cutting, changing culture, improving processes nor working with the union.  Perhaps foreign consultants will again unveil a plan for whose results they are not held responsible and for which taxpayers will pay hefty fees.