Min. Wehby Offers Full Support for Air Jamaica’s Restructuring Efforts

Minister without portfolio in the Ministry of Finance and the Public Service, Senator Don Wehby, has come out strongly in support of efforts to get Air Jamaica on a sound financial footing. In a statement issued today, the Minister emphasized that the combined set of actions which are being implemented at the airline are designed to save the country an average of US$150 million/approximately J$12.8 billion per annum and will help turn a loss-making situation into a break-even one.
In a clear reference to both the measures outlined in Air Jamaica’s 2009 Business Plan which was announced earlier this week, as well as to plans to privatize Air Jamaica by March 31, Senator Wehby noted that the efforts to resolve the situation once and for all were deserving of a supportive national response. “The real cost to the country of the over J$12 billion which are spent on the airline each year can be measured in terms of the number of schools that those funds could build, the improvements that could be made to our health services, the additional assistance that could be given to our security forces to protect the citizens of this nation and such other critical social services. When looked at in this way – and in terms of the overall decrease in the public debt – every well-thinking Jamaican would understand the need for what must be done,” he added.
Senator Wehby noted that the measures outlined in the airline’s recently-announced Business Plan for 2009 were intended to bring operational costs in line with international norms and to put the airline on a path toward sustainable development. He said he was well aware that, given the current economic conditions, this was a tough time to be cutting jobs; however, if the structure of the airline were left unchanged, it could lead in the future to a situation much worse for workers. He added that, while tough decisions had to be made concerning matters such as which routes to keep and which to let go, the reality of the “enormous and unsustainable cost” of continuing to provide public funding for the airline had to be a primary consideration.
“We see it as an imperative for the airline to be turned over as swiftly as possible to a strategic investor who has vast knowledge of the airline industry, is financially secure and can reverse the negative trends in the airline’s operations,” he said. At the same time, he moved to dispel fears about whether the best deal would be negotiated for the airline and Jamaica as a whole. He emphasized that the privatization team is ensuring that the process for selecting a strategic investor is guided by transparency, fairness and flexibility, and that it adheres to international professional and operational standards.
Senator Wehby also noted that the negotiations are being conducted on the premise that Air Jamaica remains an attractive asset. According to him, Air Jamaica’s identity as “the little piece of Jamaica that flies” is directly related to the strong customer loyalty which the airline enjoys among Jamaicans at home and in the Diaspora. “That identity is a strong asset, and is being presented as such to investors, as we believe the asset can provide positive returns for a strategic private investor,” he said.
His assertion is also based on the findings of the International Finance Corporation (IFC) – the private sector arm of the World Bank which is advising on the privatization of Air Jamaica – and the group of specialist consultants who are part of the IFC team. Sen. Wehby pointed out that one of those specialist firms – an airline consultancy called GRA Inc. – had conducted a private-equity type due diligence of Air Jamaica in which the company concluded that the airline represents a significant turnaround opportunity for an airline investor. In particular, the consultancy pointed to a series of “quick wins” which it felt could deliver cost savings equivalent to 17 percent of revenue relatively quickly. The report also noted that, despite the current uncertainty in the aviation industry related to oil price, US-Jamaican routes are run profitably by many carriers competing with Air Jamaica. “GRA Inc. believed that this suggested that the key success factor is cost control,” he said.
Privatization Committee Chairman Lalor also pointed out that, since the Privatization process began approximately 9 months ago in March 2008, the full focus of the privatization team has been on all-out efforts to attract serious investors within the deadlines already set. However, he said that, if at the end of that period some credible registered investors request additional time in which to present their proposals, “such requests will be considered by the Privatization Committee.”
The bottom line, Mr. Lalor added, is that, given the extent of Air Jamaica’s debt and current high operating costs, the privatization of the airline remains the most viable option for its future. Nonetheless, recognition of the critical role which Air Jamaica plays in supporting Jamaica’s tourism industry has influenced the Government’s decision to have the airline sold as a going concern, as well as its commitment to partner with an experienced airline investor in order to ensure the sustainable continuation of the airline. “The current suite of adjustments at the airline is part of the plan to enhance its viability,” Mr. Lalor said.
The spokesmen also reiterated that the Government does not intend to abandon Air Jamaica, although it will no longer be involved in the day-to-day management of the airline or in financing it. They outlined the several areas in which the Government of Jamaica would be prepared to continue to be involved – inclusive of assisting the investor, where possible, in the post-sale restructuring programme at the airline and in facilitating consultations with relevant bodies, prior to the closing of the transaction.
Currently, there are two “very interested potential investors” in the airline. However, the Privatization Committee Chairman has declined to say who the prospects are – pointing out that agreements which prohibit disclosure of the identity of potential investors cannot be violated, as this could negatively affect the privatization process. According to him, “the confidentiality of ongoing discussions is a necessary requirement in order to achieve the privatization timeline that the Government has set, as well as to ensure flexibility of the sale process.” He added, however, that once the winning investor is selected, “the Government has committed to undertake the appropriate political process and communicate on the main terms of the agreement reached.”