Caribbean Airlines-Air Jamaica merger
By Vernon Khelawan Thursday, January 14 2010
IN spite of the highly secretive talks between Jamaica’s Prime Minister Bruce Golding and the Trinidad and Tobago government regarding the future of debt-strapped Air Jamaica and to a certain extent the future of state-owned Caribbean Airlines, speakers at a UWI forum Monday opened up the discussion and has somewhat helped to lift slightly, the veil of secrecy which has been thrown around the issue.
Title of the forum, the first for the year by the Sir Arthur Lewis Institute of Social and Economic Studies (Salises) at St Augustine, was “Meeting the Challenges of the Aviation Industry in the Caribbean — Whither Air Jamaica”.
Contrary to public feeling, two Caribbean aviation experts believe that Caribbean Airlines buying out, or into Air Jamaica was not such a bad idea, provided certain concessions were written into any agreement.
Both Professor Norman Girvan, who although stuck in Kingston, had his notes read at the forum by Head of UWI’s Department of Economics, Martin Franklin and former BWIA Chief Executive Officer Ian Bertrand, now a consultant, presented strong cases, not only for a solution to the Air Jamaica dilemma, but also for a rethink of the aviation industry in the Caribbean – not just Caricom, but the entire Caribbean.
It is no secret that the International Monetary Fund (IMF) is pressuring the Golding administration to privatise Air Jamaica as one of the conditions of a (US)$1.2 billion loan under the IMF Standby Facility.
Professor Girvan believes this situation gives the TT government “considerable leverage in any negotiation for Caribbean Airlines to acquire Air Jamaica.” And he lists the major issues surrounding such a deal –
• cleaning up Air Jamaica’s balance sheet and of course determining who would foot that bill;
• valuation of Air Jamaica’s assets, including brand recognition, routes aircraft, facilities etc.;
• continuation/elimination of Air Jamaica’s tourist and diaspora routes; possible subsidies from the Jamaican government to sustain desirable routes; and
• the degree of operational integration of Air Jamaica with CA – staff, check-in, fleet, procurement, brand name etc., in order to effect economies while retaining the goodwill of Air Jamaica’s diaspora customer base.
“Ideally,” says Girvan, “a CA acquisition of Air Jamaica should be used as a stepping stone to establishment of a truly Caribbean airline; or a Caribbean Airlines Group (as distinct from a company). LIAT and Bahamas Air could be potential participants in this group.
“The big question is: Can a networked Caribbean airline at one and the same time (i) serve regional interests for intra-regional and extra regional travel; (ii) meet the competition from low cost, no frills airlines; and (iii) be profitable?
In his turn, Bertrand, answering his own question whether CA should take over Air Jamaica, talked about the need to stay away from Air Jamaica’s (US)$900 million debt and any tourism obligation to Air Jamaica, a perennial demand of the Jamaican government. “If after all that, it makes business sense, I don’t see why not, provided you have enough money to capitalise.
“Interestingly, this is not a bad time technically for the merger, because CA is looking to see what it should do with its B737 fleet and Air Jamaica has to renew or change its Airbus fleet. But there is absolutely no reason why Air Jamaica and Caribbean Airlines should have different aircraft types flying the same mission,” he added.
Bertrand suggested that the time was back now — it was there some 18 years ago while he was in charge at BWIA — where even if they do not come together to at least approach the manufacturers together and get some economies of scale — in the unit purchase price, one set of spares, one set of pilots — those are the big costs in the airline.
“Whether it will make a profit? I don’t know. Somebody will have to work out the figures, but you have the potential and if the CA board, from purely a business point of view, seems to believe that a merger with Air Jamaica makes sense and somebody else, not the TT government, because that will mean you and me, pick up the (US)$900 million debt, you may start to do something about Caribbean aviation,” said Bertrand.