Dr. Omar Davies, Finance Minister with portfolio responsibilty for Air Jamaica, tabled the airline's accounts in Parliament in late November. - File

Air Jamaica Limited has accumulated more than US$220 million of tax credits, which converts to more than $14 billion, but is denied the benefits because of its depressed financial performance.

"The company has a potential tax asset of US$220.2 million," said a note to the airline's financials for year ending December 31, 2005.

"However, this amount has not been recognised in these financial statements, as it is not probable that taxable profits will be available against which deductible temporary differences can be utilised."

The airline also has until year 2015 to utilise US$596.5 million of tax losses accumulated in the past decade, assuming it can return a profit during the period.

Tax freedom

However, given the airline's accumulated losses of US$953 million and no clear sign of it flying in the black in the short-term, it appears unlikely that Air Jamaica's accountants will be called on anytime soon to use these provisions to keep profit in the pockets of its shareholder.

The airline's 2005 financials, released at the end of November, indicate that it still has three years of tax freedom - 15 years less the expired period under the 1994 concession agreement that Government had struck with the Air Jamaica Acquisition Group at privatisation of the airline - meaning it is exempt from corporate tax on any profits or gains made in the period.

At expiration of the concession period in 2009, it has six years to 2015 to utilise the tax losses.

Losses

Another US$64 of tax losses accumulated prior to privatisation are also available for set-off against future taxable profits, but this amount can "be carried forward indefinitely."

Ironically, Air Jamaica's financial losses of US$119.9 million for 2005 were almost equal to the accumulated tax assets.

Those losses - which were inflated by a one-time charge of US$29 million for restructuring that followed government's reacquisition of Air Jamaica from the Gordon 'Butch' Stewart-led AJAG - were partially offset by a US$20.95 million grant pumped into the airline by government, well below the US$30 million cap on new funds committed annually for five years to service the airline's debts.

The carrier's total liabilities of US$642.8 million were also partially offset by a US$6.8 million ($442 million) write off of its debts in 2005, following settlements with creditors, and the conversion of US$416.8 million of debt to 12.84 billion preference shares issued June 2005 boosting the airline's share capital to US$564.1 million in the review year (2004: US$147.3m).

Another US$1.84 million of debt is also due for conversion to redeemable preference shares, but were unissued at balance sheet date.

Government, the sole shareholder, has opted to take zero returns on its preference A shares up to December 31, 2008, after which it will earn a coupon of 3.0 per cent up to year 2013 and beyond that 8.0 per cent, but only if "all previous losses have been eliminated by profits."

Finance minister Dr Omar Davies, who has direct portfolio responsibility for the airline, has the option of converting the shares after 2008.

AirJ's liabilities comprise US$336.7 million of new borrowings, including a US$125 million loan floating rate loan from RBTT Merchant Bank repayable at LIBOR plus 5.5 per cent (the 2005 rate amounted 9.7 per cent); another US$200 million of amortising notes at 9.375 per cent backed by government guarantee; a 7.0 per cent loan of US$11.71 million, the source of which was unspecified but which is repayable in three years up to January 1, 2008.

Other outstanding loans totalling US$65 million plus interest that was owed to National Commercial Bank, US$15 million owed to CLICO Investment Bank Limited of Trinidad, and US$4 million plus accrued interest owed to the National Insurance Fund, totalling US$7.33 million, were all repaid during the review year.

The airline's income/expenditure statement indicates finance costs for the year of US$39.3 million.

As for the airline's financial performance, its largest earner passenger revenues, which totalled US$342 million, was down 19 per cent (2004: US$421.7m), reflecting a loss of market share.

Net revenues were off as a consequence by US$57 million or 16 per cent, ending the financial year at US$305.5 million, compared to 2004's US$362.4 million.

The airline did manage to strip 10 per cent off operating expenditures, but its operating losses of $72.6 million were still higher than in 2004 though only by 1.4 per cent or US$978,000.

Its current liabilities of US$222 million was almost double current assets of US$130 million, resulting in a current ratio of 0.58, which means the airline can only cover 58 cents of each dollar of current liability, if pressed by creditors.

That outturn, however, is substantially better than the 2004 position when the ratio was 0.27.

lavern.clarke@gleanerjm.com

Breakdown of share issue and paid-up capital