Andrew Green, Staff Reporter
NORMAN GRINDLEY, Staff Photographer -
An Air Jamaica plane at the Norman Manley Airport last week.
"WHATEVER HAPPENS I'll be damned," the Air Jamaica chairman said. "I'll be damned if I do, and damned if I don't."
This was not Gordon 'Butch' Stewart at the airline's press conference on Tuesday. The year was 1991 and the chairman was R. Danny Williams discussing an earlier refinancing strategy to keep the airline flying.
"In its 21 years of existence, Government's support for the airline in the form of equity contribution was approximately J$368 million," Mr. Williams said. Of that $368 million, he said J$202 million was received in 1990. A foretaste of things to come was that the equity contribution consisted of J$152 million in debt converted to equity and J$50 million in budgetary cash allocation.
The dates have changed, and so have the faces, but the basic problem remains that the national carrier costs more to keep in the air than it earns from doing so.
On Tuesday the figures were substantially higher. Chief executive officer Christopher Zacca announced that an agreement is to be signed with the government for J$6.6 billion in fees and taxes to be converted to equity. This time around the airline was seeking $1.8 billion per year in support.
DEBT BURDEN
Everything about the airline is now bigger. Minister of Information Burchell Whiteman disclosed in the Senate last Friday that Air Jamaica had lost more than J$34 billion since its privatisation in 1994 and was also carrying a debt burden of almost J$42 billion. Of this amount, $8.5 billion is owed to government. "I lost my investment in Air Jamaica a long time ago and I don't have any regrets," Mr. Stewart said.
The die was cast on April 1, 1969, when Air Jamaica Limited was founded with the Government of Jamaica holding the majority of the shares. "It is the largest economic tool for Jamaica," Mr. Stewart said in an interview earlier in the week. "It was created as a defence against the real threat that the U.S. airlines serving the region might pull out and refocus on their domestic routes," said John Gilmore, an airline expert. He said, "The recession and the fuel crisis had seriously battered the airlines."
TOURISM TOOL FOR JA
As a government-owned airline, Air Jamaica saw its early role in developmental terms developing tourism for Jamaica. Mr. Gilmore said that the airline started service to London and soon after began marketing in Germany. It developed that marketing programme into a once weekly and then more frequent service via London with plans for a daily service to Germany.
"Its main focus was not on ma-ximising profit," Mr. Gilmore said. "It tried not to lose money."
However, airlines are capital hungry and governments are parsimonious, Mr. Gilmore said. Gradually the airline became 'threadbare', as marketing was cut back, traffic dropped and losses increased.
Ultimately, there was no capital to turn the situation around, Mr. Gilmore said.
"We have a responsibility to make sure that there is an adequate service," Air Jamaica president Mike Fennell told The Gleaner in 1991. He said this was "not just for tourism, but for business and the ordinary Jamaican." Without Air Jamaica, Mr. Stewart said of the massive Harmony Cove project being developed on the North Coast, "you can write that off."
THE BIGGER PICTURE
Mr. Stewart likened the airline to "a service department loses a lot of money," in underpinning the country's economy. He said, "the bigger picture is that when you draw a line at the bottom, you have made an enormous profit." At the time the airline started, it operated non-stop flights from Kingston and Montego Bay to New York and Miami. Originally Air Canada held a minority interest and provided equipment, technology, training, pilots, and some top management.
Through a 'buy back' agreement concluded in 1984, the Jamaican Government acquired the Air Canada shares. On its quest to serve the national interest, the airline later expanded to include gateways in Atlanta, Baltimore, Chicago, Philadelphia and Toronto as well as service to Europe and Nassau.
Carol Dukharan nominated Air Jamaica for the 1990 Gleaner Honour Award. She said the staff had given Jamaica a first class airline.
But during this expansion, the airline was flying into trouble. This was evident from the losses outlined by Mr. Williams in 1991.
The airline operated was operating in a hostile industrial relations climate where anyone who could strike did. Security shortcomings at both international airports meant that it developed an unsavoury reputation with regards to the transport of narcotics and baggage handling.
Jamvac, the charter arm of the Jamaica Tourist Board, decided to stop using Air Jamaica out of Los Angeles and Orlando their contract expired in 1991.
John Cooke, chairman of Jamvac, said his company would not renew the contract with Air Jamaica because the chronic late flights were costing them too much. He also wanted the airline to take responsibility for the bills for passenger accommodation caused by the late arrivals.
Then the Gulf War started in early 1991. A global fallout in the airline business followed prompting massive cuts in routes and staffing.
Responding to the falling passenger loads, Air Jamaica deferred the decision to lay off staff by sending a large number of them on leave. President Mike Fennell, said the airline was operating with a 50 per cent load factor, which was 18 per cent down from the previous year. It also cut back one scheduled flight to Miami and two to New York.
"Our traffic is 50 per cent tourist and 50 per cent ethnic and the ethnic market is holding firm," Mr. Fennell said. "I feel very strongly that if we allow the Gulf situation to make us all lock up shop ... then everything will come to a dead halt."
He said that the consensus in tourism circles was that Jamaica would see a quick tourism recovery. While other airlines cut back their operations, Air Jamaica began an aggressive marketing campaign and established regular flights between Orlando. The airline's market share improved in 1991 but at a price.
By June of 1991, the airline was on a list of 64 public entities which were to be privatised during that financial year.
To fund the airline for the time being, it was decided to sell its equity in two airbus aircraft purchased in 1985. Mr. Williams told The Gleaner that a financial arrangement was being considered which included attracting investments from overseas and from local investors and ultimately shares would be offered on the local stock market. He said Air Jamaica staff will also be considered as recipients of 'a block of shares and a staff trust will be set up.
The Dullum Company, one of the prospective investors, was organising the foreign component of the financial package, Mr. Williams said. No shares were being offered to the Jamaican public, he said, because the airline had nothing tangible to sell.
But Mr. Fennel cautioned in 1991 that even though the injection of new equity capital was being sought for the company, "At least 51 per cent will remain in Jamaican hands."
The divestment expectations proved to be wildly optimistic. There followed a kaleidoscope of bids to take over the airline. The Dullum Company was followed by the NCB-Cochrane Investment Group.
The third offer from a Nigerian billionaire also sank without trace.
It was not until March of 1994 that Minister of Water and Transport Horace Clarke announced that, "Government will be focusing on the successful conclusion of negotiations with the investment team headed by John Issa and Hugh Hart and will therefore not be accepting any new proposals on the privatisation of Air Jamaica, nor will it be conducting discussions with any other group."
In September of that year, the Government and the Air Jamaica Acquisition Group (AJAG) had finalised the deal for the sale of Air Jamaica. Gordon 'Butch' Stewart, a spokesman for the group, said they had received approval for an October 1 take-over.
"We are going to bring back the pride in the airline," Mr. Stewart said. There is no intention to make any loss."
Under this agreement, the Government of Jamaica held 25 per cent of the shares in the airline with AJAG controlling most of the remaining 75 per cent of the shares.
Sweeping changes would soon be underway. Both aircraft and hostesses got new uniforms.
The airline also began adding a number of new routes. Los Angeles to Kingston in 1995 was followed by San Francisco. The London and Toronto routes which had been suspended were once again being looked at.
Minister of Public Utilities and Transport, Bobby Pickersgill, speaking in the Sectoral Debate in Parliament during 1996 said Government, with its 25 per cent stake in the airline, would be able to realise returns on the funds it expended to save the company. Mr. Pickersgill said the airline was no longer weighed down by excessive debt and had successfully secured in excess of US$500 million in development capital.
Air Jamaica had replaced its old fleet of aircraft with six new A310 wide body jets and four new A320 aircraft, bringing the fleet to 12. Speaking on the recent acquisition of TransJamaica by the AJAG, the Minister said the domestic carrier had begun regular scheduled flights, and that there were plans for its further development.
Minister Pickersgill said that in the privatisation process, Government had not lost sight of Air Jamaica's significant contribution to the tourism industry and the wider economy. In recognition of this contribution the status of 'National Carrier' would be maintained, he stated.
Air Jamaica has launched a multi-million dollar marketing and advertising campaign in North America ahead of its direct service from New York to the Eastern Caribbean in February of 1997.
The airline had reached an agreement with the governments of Barbados, St. Lucia and Antigua and Barbuda to provide a direct service from the United States. New York would be the first gateway, but service from Atlanta service would begin later in 1997.
For the new Eastern Caribbean service, the new Montego Bay hub was to prove vital. Officially launched in June of 1997. The hub linked North American cities through the Sangster International Airport to the Caribbean islands.
To fund its expansion Air Jamaica has received a US$30 million cash injection, backed by the Government in 1997. Finance Minister Dr. Omar Davies confirmed that Citibank has loaned Air Jamaica the money, on the basis of a 'letter of comfort' designed to reassure the institution that its funds are secure.
A Ministry paper prepared by the Ministry of Finance's Public Enterprises Division, in 1997 highlighted the fact that in the 18 years prior to privatisation, Air Jamaica lost $1.6 billion. The national carrier lost US$47 million (J$1.6 billion) in the 11 months to November 1996, compared to a budgeted loss of US$3.6 million. Air Jamaica's business plan for 1997 anticipated losses of US$8.6 million, after which profits of US$13 million and US$35.2 million are predicted for 1998 and 1999.
Those profits are yet to be realised.
"The main disadvantage Air Jamaica had was that it was a point to point airline without a broad
North American distribution system," Mr. Gilmore said. "Point to point meant it generated an average use of 7 hours on its aircraft - compared to 10 or more at its U.S. competitors (offsetting its labour cost advantage)."
It tried to rectify these situations with an 'alliance' with Delta and a 'hub' at Montego Bay.
"While more focused on profit, the underlying focus was on expansion, once it became clear this was consistent with government policy and that the government would underwrite it," the airline expert said. "The airline has been reasonably well managed - with a culture that assumes that any losses would be covered by the government and were in the national interest."
