Keith Collister, Contributor
COLLISTER
This is the first of a two-part article on the evolution of Air Jamaica
ON DECEMBER 23, 2004, the Government of Jamaica reassumed full control of Air Jamaica Ltd, following its purchase for a dollar of the remaining 72.3 per cent of the outstanding shares of the holding company, Air Jamaica Holdings (AJH) Limited, from the Butch Stewart-led, Air Jamaica Acquisition Group Limited (AJAG).
RECENT PERFORMANCE UNDER GOVERNMENT OWNERSHIP
According to the Ministry of Finance (MOF), for the first five months of this year, Air Jamaica has sustained losses of U$64.33 million relative to budgeted losses of US$36.05 million, a deterioration of US$28.59 million compared to the corresponding period of the previous year. Operating loss was US$54.32 million, or US$30.97 million above budget.
In its most recent fiscal budget, the Government had provided for losses of US$30 million. as part of a key element of its restructuring strategy of allowing for the injection of up to $30 million U.S. annually for the next five years by way of preference shares, an overall commitment of US$150 million. The goal is to achieve a break-even position on operations at the end of the period.
OPERATING LOSS
However, Air Jamaica is projected to realise an operating loss of US$85.0 million for 2005, approximately US$14.0 million over the figure for the previous year, and a projected overall net loss of US$113 million, or US$14 million above its highest ever net loss of U.S. $99 million in 2004. This means that the financial restructuring programme is already off-track, as 75 per cent of the budgeted 'allowable' losses for the five year period will have occurred this year.
FAILED TARGETS
Revenues fell below projections by US$21.23 million, and below actual revenues for the comparative period for 2004 by US$27.76 million.
According to the Ministry of Finance, the failure to meet the revenue target resulted primarily from the underperformance of passenger revenue by US$15.52 million. A key reason was the grounding of the company's aircraft, which resulted in disruptions in schedule (including the non-servicing of some routes), periodic cancellations and significant delays in departure with subsequent fall-out in bookings.
On February 5, 2005, the Jamaica Civil Aviation Authority (JCAA) grounded ten of Air Jamaica's aircraft for maintenance and quality assurance reasons. This resulted in lost revenues due to the company's inability to service routes, and increased costs for "wet leases" of aircraft to service some routes. The MoF's early estimates suggest that this will have caused losses in the region of US$25.0 million for the first four months of the year. As a consequence, the number of passengers flown by the airline declined by 12 per cent relative to the budget and 16 per cent below the comparative period for 2004.
A HISTORY OF CONTINUOUS LOSSES
According to the Ministry of Finance, Air Jamaica lost approximately US$700 million over the ten-year period as a private company, with an accumulated deficit of US$832.9 million at December 31, 2004.
However, it should be noted that even prior to privatisation in 1994, Air Jamaica had an accumulated deficit of US$131.8 million, so that its history of losses is in no sense new, and it should in any case be recognised that the international airline industry overall has been hugely unprofitable for many years.
