Air Jamaica & Caribbean Airlines-Soaring on Broken Wings

“The insistence in retaining the airline in Jamaican ownership, desirable and patriotic though that might be, does not take precedence over these two fundamental considerations and cannot be pursued at any cost or regardless of the risk to the Jamaican economy,”

—Prime Minister Golding

My last post on the selling of Air Jamaica “What Else Can Jamaica Sell to Trinidad and Tobago?- A Look at the Trini-Invasion and the Sale of Air Jamaica” have elicit some very interesting responses. In this post I am going to highlight some of those comments. I will also touch on a few questions and examine some of what was said by bloggers on the topic.

Caribbean Airlines & Air Jamaica-Two Dying Birds?

We are all familiar with the death debt Air Jamaica is loaded with. Caribbean Airlines is itself greatly subsided by the government of Trinidad and Tobago. According to budget papers in the twin island republic, the Trinidadian government provided subsidies to Caribbean Airlines amounting to $225.37TT million to Caribbean Airlines during the 2008 financial year. In 2009 financial year $270TT million and the 2010 estimate for the airline is $250TT million.

Here we have two airlines in similar situations. They are both losing money and being held up by their respective governments through the life line thanks to taxpayers. I know some might argue there is a bigger economic value that airlines bring to the economy especially in tourist dependent countries in the Caribbean, but how can this be reflected in the profitability of the actual airlines that brings this value. Below is an interesting comment by Jamaican-Trin:

……….. everyone in Trinidad thinks buying Air Jamaica is a bad move too. Caribbean Airlines is also bankrupt and kept afloat by government bail outs. I suppose they think one airline controlling the area will do better than two half-dead ones both sinking……

As I write this it occurred to me that if Air Jamaican is selling most of the aircrafts in the fleet, cutting routes, closing booking offices, selling properties and will spend a pretty penny to make a great deal of it’s staff redundant then maybe Caribbean Airlines is simply buying the rights to be the exclusive- primary carrier for Jamaica, which would be a silly idea-open skies, open competition. It is ironic that the present government was opposed to the previous government selling of the Heathrow route (was it?) to Virgin Airlines., isn’t this deal with Trinidad just a bigger step in a similar direction.

One airline in trouble- Air Jamaica being sold to another Airline that is also losing money and is being subsidized by it’s own government, Caribbean Airlines. From the out set the acquisition does not make sense or does it. I don’t know what kind of optimistic projections or creative business economics will be used to make this thing work.

Air Jamaica is so indebt that there was a threat that the Internal Revenue Services (IRS) could seize a couple of our planes to pay off a $40 million dollar bill we owe the US government. What a national shame that would be for Jamaica. My understanding is that the Jamaican government had to use diplomatic channels to fend off the threat of having the planes seized. The government is also trying to sell a few of the aircraft to help out the situation.

I am sure the Internal Revenue Service (IRS).-which Air Jamaica owe money, must be pissed when they hear that we spent over half a million Uncle Sams on sponsoring the “Air Jamaica Jazz & Blues” festival much to the ire of many Jamaicans who wonder why a state own company is putting up so much cash for an event that water the coffers of private profiteers and worst an airlines making it’s final approach.  Below is an excerpt from a newspaper in Trinidad about the IRS almost taking away the planes:

The Jamaica government is trying to sell two of Air Jamaica’s eight planes to pay outstanding debts to the United States Internal Revenue Service (IRS) and avoid both embarrassment and seizure of aircraft. Prime Minister Bruce Golding made the revelation in the House of Representatives yesterday when he delivered a statement on the progress of negotiations on the privatisation of the state-owned airline. “We owe a lot of money.

We’ve had to use diplomatic channels to avoid our planes being seized for non payment of fees that are owed to the American government, the IRS in particular. It has been proposed to dispose of those state aircraft in order to discharge that obligation,”he said. Golding did not reveal the size of the debt, but the Jamaica Observer newspaper today quoted the airline’s president, Bruce Nobles,as saying that the debt to the IRS stood at more than US$40 million at one stage, but that amount has been reducing based on payments being made. Nobles also revealed that the planes went on the market since last summer with an asking price of US$17 million each. Another sale is also in the works to ensure the airline can continue its operations until it is divested. Golding said five floors of the Air Jamaica headquarters building will be sold and the proceeds pumped back into the airline.

Where to Hub?-Montego Bay or Port of Spain?-Di Ting Set a Way

This comment has my asking the question, assuming the deal which seems inevitable between Air Jamaica and Trinidad and Tobago’s Caribbean Airlines goes on. Which location would be more suitable hub for the new “regional airline”? Richie  posted this comment:

It pains me to see Air Jamaica go, but in the long run, I think it will be good for Jamaica. Let’s face it, AJ has been losing money for way too long. And it was just too much for Jamaica to continue bearing, especially when we have so many other issues to attend to. On another blog, I proposed that CAL make Mobay their primary hub (many Trini lambasted my idea, saying this doesn’t make sense).

Well, I think, Jamaica makes a better hub than POS. That is so because Jamaica is centrally located to more islands/countries in the region and because the air travel market in Jamaica is almost 5 million compared to 1.7 million passengers in Trinidad. For this deal to work, it is best for operations to be rationalized. That means that there should be an aim to fill flights as much as possible. So funneling flights and passengers into Mobay and then connecting them to their regional destinations makes more sense than doing this in POS. Imagine a flight from New York or anywhere north for that matter, going first to Trinidad at the top of South America to connect to Cayman Islands or even to Barbados? The passengers would be flying past Cayman or Barbados, then going back up from Trinidad to arrive at their destinations. From Jamaica, they would only be going in one direction……..

This is a solid and rational observation in my opinion, other comments HERE disagree. If the passenger load to Jamaica annually is around 5 million and in Trinidad 1.7 million then it makes perfect sense economically to make the hub for the new airline to be Montego Bay or Kingston. The blogger stated that after making such a proposal on a Trinidad and Tobago blog it was met with much resistance. I would hope in the end the new airline does not make the same mistake most “experts” opined was/ is Air Jamaica’s ultimate downfall of hanging on to a losing hand by holding on to the sentiments.

Imperialistic Fantasies, TRINIDADIZATION of the Jamaican Economy  or Scrambling  to Diversify

My good friend ESTEBAN used a phrase I think is fitting to the trend of Trinidadian companies buying up Jamaican companies “TRINIDADIZATION of the Jamaican economy” As I mention in detail in the previous post Trinidad is making big strides in acquiring Jamaican companies in major industries.

Another blogger had an interesting perspective. Looking forward with the world focusing on renewable energy, oil rich countries are diversifying in preparation for the impending lost of oil income. Dubai is a perfect example of an oil rich country branching out in other industries. Maybe T&T is diversifying through Jamaica and the rest of the region.

PM picks Jamaican Airline Pilots’ Association (JALPA) Acquisition Proposal to Shreds

The Prime Minister’s Response

“JALPA has not up to now presented any credible evidence of its ability to secure the financing required to operate the airline which it estimates to be US$100 million. US$40 million of that amount is to come from redundancy payments to which the workers will be entitled. It has submitted the names of two overseas private equity firms that it claims have offered to source the remaining US$60 million…..”

“In its letter to the prime minister dated January 26th, JALPA admits that these private equity firms have not yet reviewed its business plan. It is therefore a gross exaggeration to suggest that it has identified sources of financing if this is to mean anything more than identifying sources that it hopes will seek to indentify sources of financing. All of this is subject to a review of its Business Plan and the necessary due diligence, neither of which has yet been done,” the prime minister argued, adding that he was also yet to receive a promised letter from an investor who JALPA said had indicated an interest in partnering with them”.

The estimated cost of redundancy payments is US$27 million, not US$47 million. Even with an 85 per cent participation rate, there would be a cash shortfall of US$17 million which would severely undermine the viability of its operational plan.”

“lean but focused workforce” ran “counter to the implied intention to retain 85 per cent of the current workforce of 1,607 to operate a fleet of seven aircraft”.

“This would result in an employee/aircraft ratio of 195, an uneconomic ratio when compared to American Airlines (113), United Airlines (126), Delta Airlines (109), Continental Airlines (116), Southwest Airlines (65), Northwest Airlines (91), US Airways (92), Air Trans (61) and Jet Blue (72). Caribbean Airlines operates with a ratio of 96 which is diluted even further if its 5 Dash 8-300 inter-island planes are included in the calculation,” Golding pointed out, adding that the associations forecasts regarding passenger loads, unit costs and revenues were also “overly optimistic”.

After reading the PM response to the Jamaican Airline Pilots’ Association (JALPA), I am convinced they are just not ready-I wish they were.

I hear alot of people say the government should sell Air Jamaica to the Jamaican Airline Pilots’ Association (JALPA) but they just don’t seem ready. I understand their passionate plea but the thing has to make sense. History have shown that cooks are not necessarily good restaurant owners and restaurant owners are not necessarily good cooks.

I think one of the greatest fear the government has along with other Jamaicans is that this Jamaica owned airline will fail yet again and hoards of taxpayers dollar will have to bail them out.

I want to express my appreciation to all Trinidadians. This post is not intended to criticize my friends from Trinidad but only to express my own personal observations and concern in my country. I hope you can understand this concern. I am open to a discussion in a friendly and candid manner surrounding this topic.

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~ by RB on February 20, 2010.

5 Responses to “Air Jamaica & Caribbean Airlines-Soaring on Broken Wings”

  1. You seem to have a good grasp of the situation. MOST commentators and letter-writers seem unable to realise or accept the fact that Air Jamaica will simply cease to exist, that Caribbean Airlines and Air Jamaica are not merging, that there will be no Jamaican financial participation in Caribbean Airlines, and that Caribbean Airlines – still a 100% Trinidadian airline, NOT a regional entity – is merely seeking to pick up revenue from the Jamaican routes on an exclusive basis, something (as BWIA) they have tried to do in the other eastern islands for decades but were thwarted by other Prime Ministers’ “Open Skies” policies.

    The biggest concession I see to Jamaica is one seat on the Caribbean Airlines Board. In business terms, that merely means they will only discuss critical Jamaican business at Board Meetings when the Jamaican Director cannot be there for one reason or another, whether that absence be accidental or contrived.

    FYI, I am following as much Air Jamaica news as I can on the Caribbean Regional Aviation Network – CRANe – here..

    http://www.caribbeanavenue.com/aviation/viewforum.php?f=52

  2. bimjim-I think most of the misunderstanding stems from the way the story have been covered in the media, maybe intentionally misleading or just wishful thinking. I do think that the increase in revenue that the Jamaican routes will give to CA-Keeping in mind we have 5 million travelers to our shores annually-then a considerable amount of influence on the CA board should be afforded to Jamaican representation.

  3. Article in the Jamaica observer..read the comments section too

    http://www.jamaicaobserver.com/news/Rotary-JALPA–printed—-p4

  4. The JALPA bid is doomed for several reasons, not the least of which is the apparent inability of the JALPA Executive to look forward and plan even their own business. That they were unable to see the present circumstance coming shows an incompetence that is unforgiveable for professionals elected to represent fellow professionals.

    They never previously expressed an interest, publicly or privately, they missed all of the bidding deadlines (while apparently also missing all of the implications), now they appeal to Jamaican national pride – while claiming another country is backing them financially – and have refused (or are unable) to provide the vendors (the Jamaican government) with any valid or reasonable clues that their already-disqualified bid and ability to manage that bid is even meaningful.

    Yet in the face of King Bruce having shaken hands with King Patrick, MOU’s and agreements having been signed, Caribbean Airlines already calling the shots and JALPA’s competence even to run their own Association in serious doubt, the JALPA Executive continues to behave as though there is a chance that they will be awarded possession of the airline.

    As many journalists, letter-writes and Commentators have stated, all this is too little, too late. Caribbean Airlines, “The National Airline of Trinidad and Tobago”, will soon rule the skies of Jamaica, and – if the past has anything to do with it – all the carefully negotiated and hard-won agreements, contracts and assurances in the world will not stop them from doing exactly as they please with the former Air Jamaica’s routes after they officially have it in hand.

    I do understand that King Bruce wants one seat on the Caribbean Airlines’ board… I am also willing to bet that is being fought tooth and nail behind the scenes by both the Trinidad politicians and the management at Caribbean Airlines. Our past experience with Trinidad, BWIA and Caribbean Airlines was that they wanted no less than 100% of anything they touched, and would do ANYTHING to achieve that.

    A Jamaican “fly on the wall” in the Caribbean Airlines boardroom would be a problem to be solved as soon as possible, by fair means or foul!!!

  5. Your blog is very informative indeed. Can you plz provide me with the finanacial statements of Air Jamaica and Caribbean Airline would appreciate it :)

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