Girvan’s plan

‘If the current liquidity
problems of Air Jamaica, BWIA and LIAT lead to
another round of government bailouts... a significant
opportunity will have
been missed’
 Professor Norman Girvan

Even as regional airlines, BWIA International, Air Jamaica and island-hopper LIAT are seemingly going belly up, the Association of Caribbean States (ACS) is plotting a course to try and free up governments’ straight-jacketed approach.

Secretary General of the Association of Caribbean States (ACS), Professor Norman Girvan wonders whether Caribbean governments are ready to capitalise on the opportunity. “If the current liquidity problems of Air Jamaica, BWIA and LIAT lead to another round of government bailouts, a significant opportunity will have been missed,” said Girvan. “ If history is any guide, the airlines will continue to lose money at taxpayers’ expense,” he said. He said a regionally co-operative approach would seek to reconcile support for regional tourism, including airline viability. In early April in Port-of-Spain, the regional grouping concluded its draft air transport agreement. Its aims, ironically, is to  increase cooperation among airlines and by extent helping sustain the growth of economies.

The move comes at a time when the bigger regional aircraft players are turning to their respective  governments to bail them out. If  they don’t cover the holes left by debt and losses, the troubled airlines could face extinction. According to agreement, which aims to unite the Caribbean by air and sea, airlines should have the right to fly across its territory without landing as well as the rights to make stops for non-traffic purposes in its territory. It also makes a case for designated airlines to have the right to set up offices in the “territory of another party for the promotion and sale of air transport.    The severe liquidity problem exacerbated by the 2001 terrorist events in the United States and to a lesser extent, the war on Iraq, has shown up the fragile nature of Caribbean carriers operating independently and who compete against  each other. Worse, there is no real form of a cooperation structure in place. While the big guns are losing hundreds of thousands of dollars daily, member countries of the Association of Caribbean States (ACS) are exploring other options to revive the beleaguered airlines. Girvan believes that the time has come for the airlines to end the competition among them and for governments to support a co-operative, integrated approach aimed at achieving profitable and adequate services.

In Trinidad and Tobago, Government has agreed to bail out financially-strapped BWIA by providing the airline with a $116 million loan but which has come with several conditions including changes to the management. In an audacious move, the BWIA board asked the Manning government to spell out its plan in writing only to be told that they were in no position to do so. “The Government has said to the Board, that as part of any money we are making available, we want this (conditions) done,” Public Administration  Minister, Dr Lenny Saith said. In BWIA’s case, some $25 million will go towards the outstanding lease on aircraft; $56 million towards severance benefits for workers; $12.5 million for US transportation taxes and over $20 million for working capital. Government’s assistance to BWIA is also in the context of a proposed regional airline which it wants the national carrier to be a part of along  with LIAT. Also in April,several Caribbean leaders including Prime Minister Patrick Manning met in Barbados to discuss proposals for financing LIAT (1974) Limited to ensure its continued service to the region, particularly to the tourism-dependent island states.

Central to the decisions taken was the agreement that there will be one carrier operating within the south and eastern Caribbean region. A technical team will be constituted to determine the appropriate structure for the single carrier and how to achieve it. It was agreed that Antigua and Barbuda will provide EC$4.8 million; Barbados EC$3 million, Grenada EC$300,000 and St Vincent and the Grenadines EC$2.5 million. Trinidad and Tobago agreed to make available to the LIAT shareholder governments in the Eastern Caribbean EC$12.5 million. This will take the form of a loan which is interest-free and which carries a five year moratorium on repayment. Across in Jamaica, the PJ Patterson Government is holding negotiations with the current controlling owners of Air Jamaica, Air Jamaica Holdings, a consortium of investors led by hotelier Gordon “Butch” Stewart who has refused to plough more of his own money into the beleaguered carrier.

Finance Minister Dr Omar Davies said the Government which currently has a 25 percent equity stake in the airline proposes to increase it to 45 percent under a debt-for-equity swap being arranged with Air Jamaica Holdings. If the government adds a number of convertible preference shares to that total, it could increase the government’s claim on the carrier to 55 percent, a move that will see Air Jamaica’s management changing hands, going back to its former owner. “The deal will make government the owner of the airline,” said Dr Davies. But in a recent press statement, Stewart was adamant that “although the government will increase its stake in Air Jamaica, it will not take over the operation of the airline.” Although Air Jamaica was privatised in 1994, the government continued to assume the airline’s debt of more than US$300 million. Dr Davies explained that the monies were in the form of “revenues foregone” or funds that were owed to various Government departments. Air Jamaica has been operating in the red for many years with accumulated losses running into hundreds of millions of dollars. In 2002, Air Jamaica racked up US$80 million in losses and is projected to lose US$35 million at the end of this year.

Expressing concern about air access to sustain the tourism based economies in the Caribbean, Secretary General of the Caribbean Tourism Organisation (CTO) Jean Holder said the business model used by the major scheduled carriers is severely flawed and that they must return to the drawing board if they are to remain viable and profitable. “ It goes without saying that the Caribbean region must find solutions and quickly to the problems of its own regional carriers if they are to be saved from liquidation in the very short term,” said Holder, adding that it was a crucial factor to the tourism industry. Under the heading Granting of Rights in the draft ACS air transport agreement, member countries can grant rights to other ACS states for the conduct of international air transport by designated airlines. Among them, the right to fly across its territory without landing; the right to make stops for non-traffic purposes in its territory and the right to operate third and fourth freedom traffic rights separately or in combination, on regular flights of passengers, cargo and mail.

Countries will also consider requests by designated airlines to operate non-scheduled passenger and/or cargo flights whenever these do not affect nor constitute unfair competition for scheduled flights. For the purpose of promoting multi destination tourism countries can grant stop over rights and direct transit traffic between their territories to the designated airlines. Maybe this is the light at the end of the tunnel whenever the BWIA, LIAT and Air Jamaica sort out their current difficulties.