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Implications of Air Jamaica-Caribbean Airlines merger

Published:Sunday | March 20, 2011 | 12:00 AM

A.W. Sangster, Guest Columnist

I wrote recently to Dennis Lalor, chairman of the Air Jamaica Divestment Committee, and subsequently visited him at his offices at the ICWI building. I had written to him to congratulate him at the announcement of the 'deal' that had been arranged between Caribbean Airlines and Air Jamaica.

As one of the persons who had argued for consideration of the 'Pilots' Offer' to buy Air Jamaica, I had to eat humble pie and acknowledge Mr Lalor's success. He welcomed me graciously and showed me the thick file of the papers involved in the operation and the negotiations. He has spoken briefly in public about the exercise, but I urged him to document the event carefully for posterity and as a national learning experience. But there are others to be congratulated.

Second, Prime Minister Bruce Golding has to be commended for his resolution of the divestment proposal, in spite of a great deal of opposition and emotional sentiment against the divestment. The realisation of the ongoing annual financial losses of the company, and the huge debt accumulated over many years, made it necessary to divest the liability of the airline. There was no turning back from the decision and the result has been an important vindication of the prime minister's courage and commitment to the project.

Third, Trinidad and Tobago Prime Minister Kamla Persad-Bissessar has to be commended for her principled position of standing by a previous commitment made by a former Trinidad and Tobago government for Caribbean Airlines to take over Air Jamaica. It should also be noted that former Caribbean Airlines Chairman Arthur Lok Jack played a significant role in the merger project.

We can say that Mr Lalor and Prime Ministers Golding and Persad-Bissessar stand tall in the outcome of this highly successful partnership.

The Outcomes and Gains

As the smoke began to clear from the initial announcement of the Caribbean Airlines-Air Jamaica deal, it was initially unclear as to what would happen to Air Jamaica and its planes? Would those proud and colourful birds be lost to our skies? Here is where the brilliance of the collaboration has resulted in the positive gains for all concerned.

1. By keeping Air Jamaica flying in association with Caribbean Airlines, both airlines have increased their access with the sharing of new routes and two major Caribbean hubs - Port-of-Spain and Montego Bay. This is reflected in the common ticket office recently opened for the two airlines at 7 Trafalgar Road in Kingston.

2. The subsequent permission by the United States Department of Transport to permit Caribbean Airlines to operate flights between Jamaica and the US provides both airlines with the potential to operate with greater flexibility and collaborative efficiency.

3. By keeping Air Jamaica flying alongside Caribbean Airlines, as Dennis Lalor claimed in a speech on the subject: "This union between Caribbean Airlines and Air Jamaica will not only make travel between the islands much easier, but in so doing achieves that which previous attempts: West Indies Federation, CARICOM and the West Indies Cricket Board have so far failed to achieve."

4. There is an additional plus in the merger, which on a financial balance sheet is known as goodwill. The loyalty of Jamaicans to Air Jamaica is well-known and, therefore, the merger will carry with it the support of the Jamaican people.

5. In the deal, a 16 per cent shareholding in Caribbean Airlines will be transferred to the Jamaican Government. Thus the generosity of the Trinidad government in the deal has been clearly demonstrated not only in the takeover of a debt-strapped airline but also in providing a stake in the new deal with the potential of sharing in the profits of the new venture. It also carries with it Jamaica's responsibility as a shareholder to  play its part in the operational efficiency of the airlines.

LIAT and the Eastern Caribbean

In the context of the Caribbean Airlines/Air Jamaica developments, some comments on the other Caribbean airline, LIAT, are appropriate. The recent posturings of St Vincent and the Grenadines prime minister and chairman of LIAT, Ralph Gonsalves, call for some comment in the regional context. The prime minister is recently quoted as saying that Caribbean Airlines should not poach on LIAT routes. At the same time, Senator Allen Chastanet, minister of tourism and civil aviation in St Lucia, is quoted as saying that St Lucia welcomes the idea that Caribbean Airlines will be returning to that island. How do we relate these two statements?

LIAT, popularly known as the Leave Island Any Time airline, is owned by the governments of Barbados, Antigua, and St Vincent and the Grenadines.

At a recent meeting of the regional shareholders in Barbados, the prime ministers of the three territories - Freundel Stuart of Barbados, Baldwin Spencer of Antigua of Antigua and Ralph Gonsalves of St Vincent and the Grenadines - it was agreed in principle to upgrade its ageing fleet and expand its routes. Specifically, the developments for LIAT which were agreed on were:

  1. To replace the 18 ageing Dash-8 turbo-prop planes which are costing US$1.2 million per year for servicing.
  2. To replace these planes with a mix of jet and turbo-prop aircraft. In 2009, the estimate for the replacement costs was US$54 million.
  3. To initiate further studies to determine the best routes to operate and also to do final evaluations on the viability of new and existing routes, the equipment that would be purchased, as well as the methods of financing.

It is clear that the LIAT chairman was speaking with a certain amount of his customary bravado and he may well have failed to recognise the changes that have taken place between 2009 and 2011 and the financial crisis that has overtaken the world and the Caribbean in the interim.

In the light of the successful merger of Caribbean Airlines and Air Jamaica, the board of LIAT could well explore a merger with the new coalition. It would be easier to manage, would enhance regional cooperation in a practical and meaningful way, and would likely be a less expensive venture with the sharing of personnel and facilities and the coordination of routes. In fact, airline mergers are taking place worldwide. This additional Caribbean merger would more effectively challenge the bigger airlines which are operating in the area. LIAT going alone in this day and age would be a tragic mistake.

Perhaps Mr Lalor might use his experience to help LIAT find the best way forward.

Alfred Sangster is a former principal of the University of Technology. Email feedback to