A noble master plan for Air Jamaica

[Karl]

Better yet, just like how the Concorde is now a museum piece on the Intrepid in NY, we can always send an Air Jamaica plane down to Shady Pines

Don't allow Sass to draw yuh into running off at a tangent! The question is waiting to be answered.

[Karl]

A noble master plan for Air Jamaica - Part II

A noble master plan for Air Jamaica - Part II

By Al Edwards
Friday, June 26, 2009

The president and CEO of Air Jamaica, Bruce Nobles has outlined a master plan for Air Jamaica - greater utilisation of aircraft, reduction of routes, wait for the airline to become better capitalised and then grow it exponentially. All indications are that bookings look good for the summer and the national carrier appears to be on the right track. So why then divest it and at the height of the summer season to boot, at a time when the country needs every tourism dollar it can get its hands on?


Bruce Nobles, president and CEO of Air Jamaica.
Nobles is pursuing an aggressive cost-cutting excercise and favours subleasing the more expensive Airbus planes and then leasing cheaper planes. Today that is proving problematic, with Air Jamaica subleasing an aircraft to China and now finding it increasingly difficult to get that aircraft back. Nobles' predecessor, Michael Conway, had planned to change the fleet out to used Boeing 757s, citing their greater economies. Nobles can see the logic of the concept but sees a problem with the implementation. The way he sees it, the maintenance costs would be higher because essentially the planes would be older, and the fuel burn would be about the same.

Selling Air Jamaica
The Jamaican Government has made it unequivocally clear that it has to sell Air Jamaica as it has become a financial burden that the state can ill afford. For some time now there has been speculation that Air Jamaica was to be sold to a Chinese interest. Nobles addressed this issue: "The process was to hire
the International Finance Corporation (IFC) and then they went out and spoke with 300 people, airlines, travel companies, and financial companies and some of these were in China. In fact, I contacted an airline in China that I knew of. There was never any serious interest there. We haven't said who was interested but there has been interest from around the world."

Nobles would not be drawn on reports that both Caribbean Airlines and Thomas Cook have thrown their hats into the ring. He did say, however, that his team and the government are having confidential conversations with two parties.

"We are very close to finalising a decision. The privatisation committee is working on all the alternatives as to what is the best scenario. What I can tell you is that we will have this done by the end of the month. Now the deal will not be closed and done by the end of the month, but we will have a decision as to what will be done. You have to remember there are about five or six alternatives but two serious offers."

Capitalising the airline
The Air Jamaica CEO supports the privatisation initiatives for two fundamental reasons. "Air Jamaica's biggest problem is that it has never been adequately capitalised. Air Jamaica has three basic missions: 1. To support the people of Jamaica by flying to places Jamaicans want to go to. 2. To support the tourism effort because it is the biggest industry in Jamaica, and 3. To support business and trade. When it was first created, the airline even back then was not adequately capitalised. When Butch Stewart acquired it and ran it, he immediately ran into the issue of Jamaica being designated Category 2.

"In 1999, I led a PriceWaterhouse team who did an evaluation of the company's business plan. Our primary recommendation was that the balance sheet needed to be capitalised. I remember making that recommendation to the Board of Air Jamaica and some board members saying, "OK, what is recommendation Number 2?" Now the purpose of the privatisation effort going on now is to capitalise the balance sheet and that needs to be done because we are spending more money than we should be. For example, we have to pay over US$100,000 apiece for three aeroplane generators. Now we can't afford that so we are renting them. Over time we have ended up paying far more money in rent than the actual price of the generators. Because we do not have any money we cannot get any credit. As funny as it may sound, Air Jamaica spends too much money because it does not have any.

"If the government puts cash on the balance sheet, that's cash they could be using for schools, roads, healthcare etc. The government has decided to sell the airline to someone who can put cash on its balance sheet and that makes a lot of sense. Now when I came here as CEO I was told we just need you to reduce the bleeding and help the privatisation effort. But it became clear to me that we were not going to survive unless we did something radical. So the business plan we came up with, which was approved in Febuary of this year, was not a fundamental restructuring of Air Jamaica but to get the company to operate more efficiently so we could survive until we get through the privatisation process, and get more capital into the airline."

Breaking even this December
Nobles is of the opinion that governments do not do a good job of running businesses of any kind let alone airlines. People ask him what has changed from the last time he was at Air Jamaica back in 1994. His answer: there has been some changes and in some cases there have not.
The difference between the governance of the airline when it was privately owned by Butch Stewart and its return to being publically owned is really dramatic.

We have done a number of things to improve its infrastructure. The facilities in Montego Bay and Kingston are now far superior than they were a few years ago. But some things still remain the same, like the size of our overhead is essentially the same when we had 24 aeroplanes back in 2004."

He points to the fact that recently the government approved a further injection of US$100 million into the airline which caused many people to balk at more tax dollars going to the beleaguered airline.

However, Nobles says that in the airline business US$100 million is a drop in the ocean and the nature of the business is that it is a very expensive one. He further added that Air Jamaica now generates US$300 million in revenue a year. "If we can get this airline adequately capitalised and with the
right profit-and-loss operation there's nothing to say Air Jamaica cannot be profitable going forward," declared Nobles, who further added that the airline is expected to break even this December.

In July and August, Air Jamaica tends to have good revenue flows. This is followed by a noticeable dip in September into the fall and then it proves problematic for the airline to pay its bills. This is when you need to have money on the balance sheet and typically what Nobles likes to assume is you need at least 45 days of revenue sitting on the balance sheet in cash that can be used.