Andrew Green, Staff Reporter
BEFORE IT was privatised, Air Jamaica had rejected the conservative strategy followed by international carriers in the wake of the 1991 Gulf War.
As a state-owned entity it had defended the national interest, trying as much as possible to maintain its operations, even as its competitors cut back their service. The airline gained market share as a result but its president, Mike Fennell, said in 1992 that although it was making an operating profit, this was not sufficient to offset its non-operating expenses, and particularly its interest costs.
The Gordon 'Butch' Stewart-led Air Jamaica Acquisition Group (AJAG) which took control of the airline in October 1994 decided on a more aggressive strategy. They decided to invest in a major expansion taking on new aircraft to fly new routes.
FOREIGN EXCHANGE REVENUES
"This will make the single most (important) difference in foreign exchange revenues in the history of Jamaica and (give) a significant boost to Jamaica's tourism industry," Mr. Stewart said at an October 1995 press conference to mark the receipt of the first of six new A310 aircraft.
The new aircraft would increase the number of passenger seats by 300,000 each year, a growth of 31 per cent, and were expected to lead to a 22 per cent increase in stop over visitor arrivals, The Gleaner was told.
The airline planned to open flight gateways in North America and Europe, beginning in December of that year. Connections were also to be established to Newark, Chicago, Los Angeles, San Francisco, California, London and Manchester in the following year as the new aircrafts were delivered.
"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," said John Gilmore, an international airline expert.
According to R. Danny Williams who was the airline's chairman in 1991, Air Jamaica had nothing tangible to sell', yet the AJAG group invested US$26.3 million and, in return, acquired 70 per cent of it. The Government took 25 per cent of the shares, and the staff got five per cent, according to reports at the time.
"The divestment is completed. What's happening now is an accounting process," Mr. Stewart said in another October 1995 interview. "The investor group owed the Government money, (and) the Government owed us money, but they owe us more money than we owe them."
The sticking point preventing a conclusion had been differences over accounting. Mr. Stewart said, "Nothing the old Air Jamaica said was really so. Once we got in we found that all the figures were wrong, so we sorted that out and called the Government to pay up several months ago."
The airline resolved the issue by ceasing to pay fees to a number of other government agencies and statutory bodies. Mr. Stewart said then that, "six or eight months ago Government told us not to pay. The trouble is they didn't tell the statutory bodies they'd told us that."
TOURISTS
But importantly for its Government backers, the airline was delivering more tourists to the island's shores. And, Mr. Stewart promised, "We're going to increase the staff by 25 per cent, and make twice the money."
In November of that year, AJAG acquired 52 per cent of Trans-Jamaican Airlines, the internal domestic carrier. John Cooke, a past chairman of Air Jamaica, took 15 per cent; former director of Air Jamaica, Delroy Brown, took 10 per cent; the employees retained five per cent while the Government kept 18 per cent of the carrier.
The Trans-Jamaican purchasers were to inject $40 million in cash to liquidate some of its debts, estimated at over $180 million, Mr. Stewart said in a press conference.
The Government was to get $84 million from the airline's profits at a later date, and would also receive preference shares to offset some debts.
Trans-Jamaican changed its name to Air Jamaica Express later in 1995.
Minister of Public Utilities and Transport, Robert Pickersgill, speaking in the Sectoral Debate in Parliament during 1996 said that with its 25 per cent stake in the airline, the Government expected to get profits from the funds it had expended to save Air Jamaica. He said the airline was no longer weighed down by excessive debt and had successfully secured more than US$500 million in development capital.
With this funding, in addition to the six new A310 wide-body jets, it was also taking on four new A320 aircraft, bringing the fleet to 12. Speaking on the takeover of Trans-Jamaican by AJAG, the Minister said the domestic carrier had begun regular scheduled flights, and there were plans for its further development.
ADVERTISING CAMPAIGN
Air Jamaica launched a multi-million dollar marketing and advertising campaign in North America ahead of the introduction of 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 this service. New York would be the first gateway, but service from Atlanta was to begin later in 1997.
For the new Eastern Caribbean service, the new Montego Bay hub was to prove vital. Officially launched in June 1997, the hub linked North American cities through the Sangster International Airport to the Caribbean islands.
To fund its expansion Air Jamaica received a US$30 million cash injection, backed by the Government in 1997. Finance Minister Dr. Omar Davies confirmed that Citibank had loaned Air Jamaica the money, on the basis of a 'letter of comfort' aimed to reassure the institution that its funds are secure.
A Ministry Paper prepared by the Ministry of Finance's Public Enterprises Division in 1997 showed that in the 18 years prior to privatisation, Air Jamaica lost a total of $1.6 billion. But in just the 11 months to November 1996, the carrier lost US$47 million (J$1.6 billion) 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 would not be realised. The Government wiped out US$115 million of debts piled up by Air Jamaica prior to January 1998, and was seeking to raise US$70 million to finance the airline, president Christopher Zacca announced in April 1998.
But in May of the following year Mr. Stewart announced that while the airline's revenue had increased by 14 per cent, operating losses would be cut in half during that year.
"We are on target," Mr. Stewart said at the dedication ceremony of one of the newest aircraft in the fleet. He said the airline had reduced its operating losses by 60 per cent in the previous year.
HOPES FOR PROFITABILITY
The September 11, 2001 attacks in New York killed off the hopes for profitability. Two weeks after the terrorist attack, Mr. Stewart put the losses sustained by the national carrier at $495 million (US$11 million).
The airline, he said, sustained heavy revenue losses from the shutdown of international flights and the costs incurred for putting up passengers and crew in hotels for nearly a week. Even worse was to follow as the entire commercial aviation industry took a nosedive as traffic collapsed and insurance rates multiplied.
LOSSES AND LAYOFFS
By March 2003, Mr. Stewart said that the airline had lost US$70 million in the wake of the September 11 attacks. He said that the airline's travel agency arm, Air Jamaica Vacations had laid off 76 workers as people opted to remain at home rather than seek holidays in the Caribbean.
And in April, Finance Minister Dr. Omar Davies said the Government had assumed more than US$300 million of the airline's debt since it was privatised more than eight years before. He said the Government was negotiating a deal to increase its 25 per cent equity stake in the airline to 45 per cent under a debt-for-equity swap.
By February 2004 it was announced that Air Jamaica Express had been placed under the operational control of Air Jamaica, in a move to tighten the relationship between the two companies. Separately controlled by AJAG, Air Jamaica Express had not been suffering from the financial difficulties of the national carrier.
Approximately 25 Air Jamaica Express employees were made redundant and Air Jamaica assumed responsibility for the marketing, public relations, ground handling and reservation functions for the smaller carrier.
In early October, Mr. Zacca announced a cost-cutting plan to save US$50 million annually.
Mr. Zacca said, "We are now looking at every area of the airline both strategically and tactically, from fuel management, staff, finance, routes, maintenance, leases and our regulatory framework. We have to find both innovative and aggressive ways to cut down costs."
The latest data from Minister of Information, Burchell Whiteman is that Air Jamaica had lost more than $34 billion since its privatisation in 1994 and was also carrying a debt burden of almost $42 billion, of which $8.5 billion is owed to Government.
FEES AND TAXES
Then last week Mr. Zacca said an agreement was 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.
"All the Government's taxes and fees owed by Air Jamaica have been secured by an agreement to convert them into equity," Mr. Zacca said.
"The losses are no longer sustainable," Mr. Gilmore said. "In addition, the airline is confronted by a new set of airlines in the U.S. that have lower costs by 25 per cent or more."
Air Jamaica has a good operation, solid employees and an excellent brand, Mr. Gilmore said.
But the new competitors such as Ryanair, EasyJet, JetBlue, AirTran, Spirit, Southwest all could make a profit at fare levels that would translate to between US$59 and US$69 for a ticket between Kingston and Miami.
"It has to address its costs to compete," he said. The main difference is in aircraft utilisation with Air Jamaica using its aircraft for eight hours when the low cost carriers utilise their planes for 12.
"Unless it can deal with this unit equipment cost issue, it will be vulnerable," the airline expert said. "My preferred solution is the regional airline option with Air Jamaica as a stand-alone unit in an integrated Caribbean schedule, which would enhance utilisation."
Speaking to an audience of overseas-based Jamaicans in the United Kingdom on Thursday, Dr. Davies said that if the conditions were right, a regional airline could be a future possibility.
