Never a Caribbean airline?

[Karl]

<TABLE cellSpacing=0 cellPadding=1 width="100%" border=0><TBODY><TR><TD><SPAN class=TopStory>Never a Caribbean airline?</SPAN>
<SPAN class=Subheadline></SPAN></TD></TR><TR><TD>Sir Ronald Sanders
Sunday, November 26, 2006
</TD></TR></TBODY></TABLE>
<P class=StoryText align=justify>A year ago in a commentary entitled Time to Ground National Airlines, I observed that: "The national airline option has not worked for the CARICOM area. And, if it continues to be pursued, air traffic into and out of the region will pass to carriers of other countries with little if any regard for CARICOM's development goals."<TABLE cellSpacing=0 cellPadding=5 width=110 align=left border=0><TBODY><TR><TD></TD></TR><TR><TD><SPAN class=Description>Sir Ronald Sanders</SPAN></TD></TR></TBODY></TABLE><P class=StoryText align=justify>On November 21 this year, Caribbean Airlines, the proposed successor company to BWIA, the Trinidad and Tobago state-owned airline announced that it was entering a 'partnership' with British Airways from March next year.<P class=StoryText align=justify>Under this 'partnership', Caribbean Airlines will give up BWIA's current lucrative slots at London's Heathrow Airport in return for code sharing with BA from Gatwick Airport, a considerable distance from London. BA will clearly be the senior partner in this proposed relationship, controlling the inventory and pricing.<P class=StoryText align=justify>My observation in November last year echoed the views of several regional airline experts, and reflected the conclusion of the 1992 West Indian Commission which stated in its report, Time for Action, that a single CARICOM airline, in some form, was vitally necessary and the national airline option should be abandoned.<P class=StoryText align=justify>The calls for a regional airline came against the background of severe financial losses by all the national airlines, and even the privately-owned Caribbean Star, which was competing with LIAT in the Eastern and Southern Caribbean.<P class=StoryText align=justify>At the time, three government-owned airlines that serve multi-destinations within the region, were all undergoing major restructuring exercises. This followed a decade during which they collectively incurred losses in excess of US$1.5 billion funded by taxpayer's, money. These airlines were Air Jamaica, BWIA, and LIAT, though it should be mentioned that Bahamas Air, the national airline of the Bahamas, and Cayman Airlines were also doing poorly.<TABLE cellSpacing=0 cellPadding=5 width=360 align=center border=0><TBODY><TR><TD></TD></TR><TR><TD><SPAN class=Description>Air Jamaica stands mightily aloof from the developments surrounding the other nationally-owned airlines. </SPAN></TD></TR></TBODY></TABLE><P class=StoryText align=justify>The restructurings of the three airlines are expensive and are being funded by taxpayers. US$400 million was spent on restructuring Air Jamaica, the Jamaica state-owned airline. Yet, last year, the airline lost another US$136 million, which will have to be picked up by the government. This questions the value of its restructuring.<P class=StoryText align=justify>In the case of BWIA, the Trinidad and Tobago state-owned airline, the government was backing the airline's borrowings and other transactions with guarantees. Finally, this year, the government decided to close down BWIA and pump US$250 million into a successor company, Caribbean Airlines.
Caribbean Airlines is essentially BWIA with all the old union contracts gone. This means some of the employees will be severed and others offered new relationships with the new entity.<P class=StoryText align=justify>With regards to LIAT, the restructuring figure bandied about l

[Karl]

RE: Never a Caribbean airline?

<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR vAlign=top><TD height=54><H4>Justifying Air J's public soaring</H4>

By Wilberne Persaud, Financial Gleaner Columnist</TD><TD height=54><DIV align=center></DIV></TD></TR></TBODY></TABLE>

Twenty-two years ago, the late Aston Preston, University of the West Indies vice-chancellor, Air Jamaica board mem-ber and finance commit-tee chairman, asked me to review the airline's finances and assess the benefits it provided Jamaica. Completed in 1985, the study was presented to Air Jamaica's board with recommendations.

It was later published as 'Justifying a National Airline: The Case of Air Jamaica' in the journal, Caribbean Finance and Management, Summer 1987.

While today that study's empirical results derive from 'old' data which could be made current, its methodology was efficient, cost-effective and indeed, sound for its purposes - a decision was needed on the airline's continued existence. The International Monetary Fund and World Bank were breathing down our necks.

STILL CURRENT
A few quotes provide salient points for discussion: "In the case of Air Jamaica, from its very inception the notion of externalities was central. It was seen as a means to improve the tourist industry, to provide employment opportunities in a highly skilled area for Jamaicans and, of course, it was seen as 'an instrument of national prestige'."

There is nothing dated about this. Air Jamaica is still thought to be central to fulfilling these roles. Then as now, debate, or rather controversy, surrounded the idea of its continued existence and levels of government support.

Our conclusion in 1985 was that Air Jamaica represented a net positive benefit to the people of Jamaica. Distribution of that benefit, however, was uneven, perhaps unsustainable politically.

Specifically, in the area of provision and savings of foreign exchange, it was established that "by using Air Jamaica as a means of obtaining foreign exchange and balance of payments support, the cost to the country - (was) - below the ruling exchange rates for the period."

As it was put then, "Air Jamaica contributes vital services to the Jamaican economy. The list ranges from foreign exchange earnings and balance of payments support, provision of employment and technical skills, an indispensable link in the maintenance and development of tourism and other qualitative benefits. Nevertheless, it is imperative that Air Jamaica maximise efficiency, minimise losses and in general endeavour to reduce the costs of the benefits it provides to the society."

This imperative remains urgent, vital.

In assessing Jamaica's national airline, its internal or private bottom line cannot be the only criterion, but all contributory elements to that bottomline must be examined. Yet, public discussion often misses important, major financial facts. From inception, Air Jamaica was never adequately capitalised.

To undercapitalisation, add the fact of its never having true independence of action - even in its period of surreal privatisation - and governing boards too often reflecting the Jamaican buddy syndrome and patronage rather than inherent competence and potential contribution to governance.

These conclusions are not at all new. Another study, this one by a consortium of famous foreign firms peppered with experts, Lehman Brothers Kuhn Loeb Inc, Lazard Freres Paris/New York and SG Warburg Limited put it this way: "in the past, the government (as stockholder) has never provided Air Jamaica with the capital resource available to successful private carriers nor has it allowed Air Jamaica the operating freedom enjoyed by its private competitors (e.g., employment and wage policies, the full choice of points to be served, etc."

Their comment retains validity for airline