House Approves Loan for Air Jamaica

The House of Representatives yesterday (July 5) gave approval for government to guarantee a US$335 million loan to Air Jamaica for financial restructuring.
The amount comprise US$125 million, which will be borrowed from the RBTT Merchant Bank at an interest rate of under nine per cent with a 10-year tenure; a US$10 million revolving facility from National Commercial Bank (NCB) and a US$200 million bond raised by the airline on the international capital market last week.
Finance Minister Dr. Omar Davies, who brought the motion to the House, pointed out that the major challenge to financial restructuring was the conversion of the short term high interest loans to longer term financing, with more favourable interest rates.
He noted that any advancement could only take place within the context of the management team being provided with the financial restructuring, which would allow for the entity’s viability.
Turning to the restructuring process, the Finance Minister said there was much more work to be done, including the hiring of specialist management team beginning with a Chief Executive Officer with specific airline experience and a Chief Financial Officer, while noting that the refinancing was absolutely necessary for the airline to be able to attract any management “worth its salt”.
Dr. Davies said that over the first five months of the restructuring period, December 2004 to April 2005, the airline lost US$64 million compared to the budgeted US$36 million.
Contributing to this was grounding of some 10 of the company’s aircrafts earlier this year by the Civil Aviation Authority, until the company achieved the required maintenance levels. Dr. Davies noted that this action resulted in revenue loss of US$21.2 million due to the severe disruption in schedule, in addition to direct costs of US$16.5 million.
Where transparency in terms of expenditure and revenues was concerned Dr. Davies, said reports would be made to the House on a six monthly basis.
Meanwhile, Opposition Leader Bruce Golding, while in support of the motion, said there was need for a business plan for the airline in addition to a realistic forecast for achieving viability. “We need to determine how important Air Jamaica is to the country and make some hard-nosed realistic projections as to how Air Jamaica is going to be able to perform over the short to medium term,” he told the House.
He said that the plan should be developed within the next three months, as the country needed to be made aware of the burden of the commitment to be made towards the recovery of the airline.
Mr. Golding said that while he did not think the airline could perform profitably in the current environment, the question was how the losses could be minimized and efficiency achieved.
The Finance Minister, agreed that there was need for additional information on the status of the airline and informed that details would be made available through a report, which will be tabled in the House and published.
He noted also, that a draft business plan was ready for presentation to the airline’s board. When submitted to him, he said, the plan would be taken to Cabinet and then tabled in the House.
Furthermore, Dr. Davies said that the government was willing to commit to the formation of a joint select committee involving members from both Houses of Parliament, with specific terms of reference to assess the airline’s past and present situation and make recommendations.
The Jamaican government resumed total control of the airline just over six months ago.