Melhado

Ashford W. Meikle, Business Reporter

Brushing aside suggestions that the deal was undervalued, Air Jamaica yesterday revealed that it earned about 5.1 million ($688 million) from the recent sale of its London route to Virgin Atlantic.

The airline said it also stands to earn additional revenue from the transaction, based on tickets already sold.

"Our price is a fair [one] that reflects the market," Air Jamaica's chairman O.K. Melhado told journalists at a press briefing convened by Minister of Finance and Planning, Dr. Omar Davies, at the ministry's offices at Heroes Circle to explain the code-share agreement to London with Virgin Atlantic.

Two weeks ago, The Gleaner broke the news that the airline was in negotiations with British Airways (BA) and Virgin Atlantic to divest its London route. Yesterday, Dr. Davies said the nod was given to the Richard Branson-owned airline purely as a business decision.

Superior proposal

"The final decision to go with Virgin Atlantic was due to the fact that its proposal was superior on several counts, including the cash payment for the Heathrow slots, the tenure of the agreement, passenger hand-off and gateway links," the Finance Minister said.

The sale of the route to the British carrier is part of the airline's recently drafted business plan, which seeks to plug its accumulated US$100 million ($6.8 billion) loss. Last year, Air Jamaica lost US$27 million on the London route.

"The [London] route has been a significant drag on profitability, with little or no prospects for a reversal of this trend. It is our expectation that the action taken by Air Jamaica, coupled with other initiatives, will put the company on a path to commercial success in the future," Dr. Davies argued.

critical importance

Still, while he conceded that Air Jamaica was of critical importance to the country's tourism interests and to Jamaicans nationally and abroad, the Finance Minister stated that the Government's support for the airline - amounting to an annual subsidy of US$30 million ($2 billion) - was not absolute.

"The administration's commitment to maintaining a national airline is unequivocal [but] that commitment is not at any price. In spite of Air Jamaica's importance, there is a limit to the financial contribution which can be afforded by the budget, given the many competing demands for resources."

Dr. Davies dismissed criticisms from the Opposition that the sale was conducted in secrecy, insisting it was aware of the discussions with BA and Virgin, as well as stated plans to sell the London route to one of the two.

He also defended Cabinet's handling of the transaction.

"We should remember that Air Jamaica is a commercial entity which operates in a highly competitive environment. We fully support the need for transparency and also for appropriate consultations. However, negotiations with private interests cannot be conducted in public and market-sensitive information cannot be aired."

ashford.meikle@gleanerjm.com