The state owned national carrier Air Jamaica has been getting a lot of attention as the country grapples with what to do with the perennial loss making carrier during testing financial times.
Since it began operating in 1968, it has experienced its share of expansion and contraction and only once recorded an operating profit in 1986, equivalent to $6.8 million on revenues of $115.4 million. And the trend of loss and indebtedness is expected to continue through 2010.
Originally started in 1963 as Jamaica Air Services initial shareholders were the government of Jamaica (51 percent), BOAC in association with the Cunard Line (33 percent), and BWIA (16 percent). BWIA’s employees in Jamaica were transferred to the new airline. The arrangement continued until 1968 when the government decided to partner with Air Canada (40 per cent) although the operating arrangement with BOAC and BWIA (aircraft) did not expire until 1969.
With the national economy in shambles, the government has turned to the International Monetary Fund (IMF) for help, but a condition of the US$1.25 billion loan approved last week is that, loss making state enterprises must be divested, Air Jamaica among them.
No government should be in the business of owning and running an airline. A government’s primary duties are (and should be) to protect its citizens and to establish rules and regulations by which society and the various sectors within it operate/function.
In selling the airline it should be understood that any potential owner will be on the hook for all future obligations unlike in the past where debt incurred under private ownership was passed back to the government who reacquired control.
In the later 1980/early 1990s, a merger of Air Jamaica with other Caribbean airlines was proposed by CAICOM tourism interests fearful of the growing dominance of and dependence on American Airlines. British Airways was invited to take a 25 percent holding in the venture. In the first stage, Air Jamaica was to have merged its operations with those of Trinidad and Tobago Airways, parent of BWIA. Bahamasair, Guyana Airways Corporation, and Leeward Islands Air Transport (LIAT) would be included in the venture later.
In the intervening years Air Jamaica Acquisition Group (AJAG), that included National Commercial Bank and Mutual Life Insurance Company, and the Moo-Young family, succeeded in partnering with government when Sandals Resorts boss, Gordon ‘Butch’ Stewart, stepped in to save the deal by taking 30 percent of the airline. The group dropped it under continuing losses although loads and revenues increased
Since then measures such as cutting back on service and routes has not made Air Jamaica anymore profitable.
I had surmised that in the merger option, even with minority government interest, the venture would do well based the model of to the old SAS airline that served Sweden, Norway and Denmark. I had even suggested calling it Caribbean Airlines or Caribbean International Airlines but the latter may have inspired intrigue: “I took a CIA flight from Washington to Montego Bay or Port-of-Spain.”
A merger of these three airlines still seems a good idea with the private sector being the majority owner and employees the rest. This merged airline would have hubs in Trinidad, Jamaica and the Cayman Islands and would connect the English-speaking Caribbean with the rest of the world. It would also be in a much better position to compete, in just about every aspect, with other foreign (i.e. non-Caribbean-based) airlines that currently serve the Caribbean. There would also be the synergies and economies of scale to be realized in such a merger.
The drawbacks would be personnel issues such as pilot seniority and possible layoffs and the sentimental/nationalistic feelings they would engender as witnessed in the Jamaican and Trinidadian news media over the current merger proposal of Air Jamaica with Caribbean airways to meet the IMF condition.
Some folks fear that without a national airline Jamaica would be at the mercy of foreign-based airlines. With all the cutbacks in service and routes, Jamaica is now, more than ever at the mercy of these carriers which fly in most of its tourist traffic – a fact not lost on the Tourism Minister, Ed Bartlett.
The truth is that whatever happens, Air Jamaica will cost some serious money. Any potential buyer will be reluctant to take on the debts and the government will likely never realize a profit if it were to sell the airline. One can draw a parallel between the Jamaican government trying to sell Air Jamaica and a homeowner who’s ‘under water,’ when the balance on his/her mortgage is more than the house is really worth.
To those worrying about redundancy costs should Air Jamaica go out of business, look at what it has cost taxpayers to keep it around – not exactly chump change. The inconvenient truth is that the Jamaican taxpayer should not be asked to continue throwing good money after bad.
The option of letting the employees become the owners of the airline could be explored. However, this demands more than enthusiasm and sentiment by them and their supporters. So, they line up the financing to buy Air Jamaica but, in these demanding economic times, can they still rely on the largesse of the investment/financial community to continue to provide financing if there is no sign of a profit in the immediate future.
The other option is for Air Jamaica is to wind up its operations. At a time when we all want to see government be a better steward of our finances, asking that it to support money losers on one hand and spend to take care of society on the other simply cannot continue.