The Mike Conway-led Air Jamaica will float a US$125 million (J$8.56b) bond on the international market to retire some of the old debt on its books and as a source of financing for its loss-making operations.
But the airline needs lawmakers to vote on a government guarantee before it can give the go ahead to lead arranger Bear Stearns to proceed with the placement.
Normally, such guarantees are endorsed by Parliament without too much debate, but this time, the request in the form of a Ministry Paper taken to the house by Finance Minister Dr. Omar Davies, has got little notice so far, with the House caught up in a move by the Opposition to have a vote of 'no-confidence' against the airline's current management.
Yet to be voted on
The airline has been under fire this week for not being more forthcoming about the loss-making London route, the rights to which it has now sold to Virgin Atlantic for an undisclosed price.
The guarantee request was tabled Wednesday, but is yet to be voted on by lawmakers.
Davies did not specify when he would seek the vote.
Under Air Jamaica's 2007-2009 business plan which was signed off on by both sides of the House several months ago, the airline already has broad approval to seek the external financing.
The sign-off occurred only after Air J president Conway and chairman O.K. Melhado had sat in the hot seat for weeks justifying the plan as workable.
Conway said after the process that Air Jamaica, with the financing agreed, could breakeven after 2009. The figures tabled in the House by Davies Wednesday projects a reduction in losses from US$68 million in 2007 to US$11 million in 2009.
Of the US$125 million, the bigger portion of US$65 million will be used to defray operational expenses, which Air Jamaica projects will range between US$439 million and US$478 million over the three years. The financing would cover US$17 million for fleet change, capital expenditure of US$18 million and cover US$30 million of losses over two years.
The other US$60 million would serviceoutstanding debts.
Refleeting expenses will range up to US$34 million of costs, the airlines managers project.
Davies, in the guarantee request, said Bear Stearns won the contract to arrange the issue from among 10 domestic and foreign investment houses, saying the New York-based company "provided the most competitive and cost effective proposal."
The bond will have a life of 20 years, with repayment starting in 10, but little is known of the terms of the issue.
Air Jamaica already has one corporate bond on the market, which matures 2015, a US$325 million issue, reflected on the external debt stock. Another J$675.4 million is incorporated in the domestic debt stock (US$1=J$68.21).
Its long-term liabilities, according to Finance Ministry data published in April, runs to US$462 million, of which US$381 million are in the form of long term loans.
Its current liabilities push its total debt above US$700 million, against estimated annual income of US$392 million.
The airline hopes to boost earnings to US$407 million by 2009.
lavern.clarke@gleanerjm.com
