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EDITORIAL - Time to make the call on Air Jamaica
published: Monday | March 31, 2008
We do not know how seriously to take Audley Shaw's disclosure that the Government has been having talks with Air China about its acquisition of Air Jamaica.
From this vantage, ownership of Air Jamaica, partially or otherwise, by a Chinese airline would seem a bad strategic fit - or at least a bit of a stretch.
Nonetheless, we wish Mr Shaw the best of luck and hope that he can soon strike a deal with the Chinese; or with someone else.
The bald fact is that it has been a long time since Jamaica has been able to afford Air Jamaica and the airline is incapable of maintaining itself.
A mild statement about Air Jamaica's viability is contained in the Budget Mr Shaw laid in Parliament on Thursday. It has a grant, as we projected, of $1.95 billion for the airline. In the current financial year, there was a grant of $1.73 billion and in 2006-2007, an allocation of $1.62 billion.
But the taxpayers' cushion does not cover the whole story about Air Jamaica; it does not include the hidden subsidies in airline-landing fees or the failure, or tardiness, over the years, in paying taxes and other statutory deductions.
And that is not all. In recent years, Air Jamaica has lost on average, about US$100 million a year, or over J$7 billion at the current exchange rate. Indeed, over the past 12 years, the airline's accumulated deficit has been more than US$1 billion or in excess of J$72 billion - substantially more than the Government has put into budget-financed capital projects over the period.
The fact is that Air Jamaica is insolvent and perhaps bankrupt. It is able to stay aloft because of the direct taxpayer subsidies and market borrowings, which also impact on the national pocketbook.
Air Jamaica can only borrow because its loans are guaranteed by the Jamaican Government, which means its debts are contingent liabilities of the State, some of which in the past have been serviced as such. These liabilities help to make it more expensive for the Government to borrow to fund other areas of development.
As Prime Minister Bruce Golding recently said about the airline: "It is poor people's taxes we have to be using to maintain it and that cannot continue."
We have done it thus far, primarily for two reasons: Sentiment - we love the idea of owning an airline; and, second, we have convinced ourselves that Air Jamaica is absolutely vital to Jamaica's tourism industry.
Sentiment, however, does not earn cash, and, in the case of Air Jamaica, costs us big time - in money that might have funded the education transformation programme, road repairs, or health-care delivery. Third, markets tend to work decently when they are allowed to work. Rather than coming crashing down in the absence of Air Jamaica, the more likely scenario of tourism movement is that other carriers would fill the slack and compete for the business.
If tourism interests believe that Air Jamaica is vital to their business, they might perhaps bid for it and keep taxpayers totally out of it. Or they may agree to cover the airline's losses for flying outside its defined and clearly profitable routes.
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.
published: Monday | March 31, 2008
We do not know how seriously to take Audley Shaw's disclosure that the Government has been having talks with Air China about its acquisition of Air Jamaica.
From this vantage, ownership of Air Jamaica, partially or otherwise, by a Chinese airline would seem a bad strategic fit - or at least a bit of a stretch.
Nonetheless, we wish Mr Shaw the best of luck and hope that he can soon strike a deal with the Chinese; or with someone else.
The bald fact is that it has been a long time since Jamaica has been able to afford Air Jamaica and the airline is incapable of maintaining itself.
A mild statement about Air Jamaica's viability is contained in the Budget Mr Shaw laid in Parliament on Thursday. It has a grant, as we projected, of $1.95 billion for the airline. In the current financial year, there was a grant of $1.73 billion and in 2006-2007, an allocation of $1.62 billion.
But the taxpayers' cushion does not cover the whole story about Air Jamaica; it does not include the hidden subsidies in airline-landing fees or the failure, or tardiness, over the years, in paying taxes and other statutory deductions.
And that is not all. In recent years, Air Jamaica has lost on average, about US$100 million a year, or over J$7 billion at the current exchange rate. Indeed, over the past 12 years, the airline's accumulated deficit has been more than US$1 billion or in excess of J$72 billion - substantially more than the Government has put into budget-financed capital projects over the period.
The fact is that Air Jamaica is insolvent and perhaps bankrupt. It is able to stay aloft because of the direct taxpayer subsidies and market borrowings, which also impact on the national pocketbook.
Air Jamaica can only borrow because its loans are guaranteed by the Jamaican Government, which means its debts are contingent liabilities of the State, some of which in the past have been serviced as such. These liabilities help to make it more expensive for the Government to borrow to fund other areas of development.
As Prime Minister Bruce Golding recently said about the airline: "It is poor people's taxes we have to be using to maintain it and that cannot continue."
We have done it thus far, primarily for two reasons: Sentiment - we love the idea of owning an airline; and, second, we have convinced ourselves that Air Jamaica is absolutely vital to Jamaica's tourism industry.
Sentiment, however, does not earn cash, and, in the case of Air Jamaica, costs us big time - in money that might have funded the education transformation programme, road repairs, or health-care delivery. Third, markets tend to work decently when they are allowed to work. Rather than coming crashing down in the absence of Air Jamaica, the more likely scenario of tourism movement is that other carriers would fill the slack and compete for the business.
If tourism interests believe that Air Jamaica is vital to their business, they might perhaps bid for it and keep taxpayers totally out of it. Or they may agree to cover the airline's losses for flying outside its defined and clearly profitable routes.
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.