House Approves Gov’t Guarantee of US$125 Million Loan to Air Jamaica

A resolution, to allow the government to guarantee a US$125 million loan to Air Jamaica, was passed on (June 5) in the House of Representatives.
Minister of Finance and Planning, Dr. Omar Davies, in piloting the resolution, explained that of the sum, $60 million will be used to clear outstanding debts, while the remaining $65 million will go towards financing the company’s operations between 2007 and 2008.
He noted that the loan, as well as a revised business plan put forward by the Air Jamaica management team, was part of efforts to restructure and improve the company’s financial performance. “This plan seeks to charter a course towards improved financial and operational performance over the period 2006-2009, within the context of a fixed annual subsidy of US$30 million from the government of Jamaica,” he stated.
Among other initiatives, which are being implemented to improve operations, Dr. Davies outlined the further rationalization of existing routes; the commencement and implementation of a re-fleeting exercise; securing additional long-term financing; enhancement of maintenance systems; re-organisation of Air Jamaica Vacations; and the further consolidation of operations.
“These developments are connected and should be viewed in tandem with the government’s overall objective for Air Jamaica, that of restructuring its operations to improve its financial performance,” he told the House, adding that the administration’s medium to long-tern priority for Air Jamaica is to restructure its operations so as to reduce reliance on government financing and attract equity capital from the private sector.
Turning to the decision to discontinue service to London, the Finance Minister explained that the aim was to cut the huge losses, which were being recorded on that route.
“In 2006, the company recorded a loss of approximately US$27 million on that route and projections are that the figure would have exceeded US$30 million or approximately US$170 million per month in 2007. The company’s operations could not continue to support such losses, therefore other arrangements had to be made,” he pointed out.
Defending the choice of Virgin Atlantic over British Airways in the subsequent code share agreement for the London route, Dr. Davies said that while the two airlines “presented comprehensive proposals, which were subjected to intense scrutiny, the final decision to go with Virgin Atlantic was due to the fact that its proposal was superior on several counts.”
“These included the cash payment for the Heathrow slots, the tenure of the agreement, the arrangement for passenger hand-off and gateway links with North America,” he said.
“The best deal that would provide cash and enable Air Jamaica to continue to earn revenues. the range of other benefits derived from the Virgin agreement was significant and that was the basis on which that decision was made,” he added.
On whether the slot at London Heathrow Airport should have been leased rather than sold, the Finance Minister pointed out that none of the proposals received had offered to enter into a lease agreement with Air Jamaica.
“For both Virgin Atlantic and British Airways, the level of investment which would be required to secure tenure could not be afforded within the context of a lease arrangement. The slots are granted on a use or lose basis, therefore the suggestion to hold the slot in case Air Jamaica decides to re-enter the UK market, is not an option,” he pointed out.
Meanwhile, Opposition Spokesperson on Finance, Audley Shaw while expressing concern about Air Jamaica’s revised business plan and the code share agreement with Virgin Atlantic, called on the government to examine more fully, the operations at Air Jamaica and implement strategies to prevent similar problems from occurring on other non-profitable routes.