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.
~ by RB on February 20, 2010.
Posted in blogging, investment, Jamaica, Media, Personal, Phuckery, Politics
Tags: Caribbean Airlines, Jamaica, Jamaica Observer, Tags: air jamaica, The People’s Republic of Trinidad and Tobago, Trinidad and Tobago