(Trinidad Express) Caribbean Airlines (CAL) is the most indebted State entity, as well as the largest recipient of Government’s transfers to the State enterprises.
In 2014, the Government spent just over $1.1 billion on CAL—the airline had received a $719 million transfer from the Ministry of Finance and the Economy for debt servicing, as well as $400.7 million as capital for restructuring.
In 2015, the Ministry of Finance proposes to transfer $718 million to the cash-strapped airline.
This sum for a seven-year-old airline that once had its balance sheet wiped clean when it succeeded its predecessor BWIA.
Finance Minister Larry Howai yesterday explained the sum allocated to CAL came with conditions.
“A new business model is being articulated, supported by a number of turnaround action plans which have either been identified or are underway at the current time.
“Key aspects of this plan will be its focus on maximising the opportunities of the main Caribbean routes and alignment of its fleet profiles, given the capacity and level of average fares on these routes.
“The business model will detail the core options and investment priorities for providing cost-effective solutions for increased regional connectivity,” he told the Express in an emailed interview yesterday.
In May 2013, Howai fired the former CAL board, chaired by Rabindra Moonan, following massive losses and breaches in corporate governance. He subsequently disclosed in Parliament that CAL incurred losses of US$110 million ($704 million) for 2012.
“For a number of years, Caribbean Airlines has operated with the financial support of the Government by way of two subsidies, a fuel subsidy and a per-passenger airbridge subsidy.
“Recently mandated to become viable without the $250 million fuel subsidy, CAL has been engaged in streamlining its operations in order so to do. The sizable adjustment is
of necessity, taking some time, and the Government continues to provide some assistance during this period of adjustment for the airline,” he said.
“Even as CAL is adjusting to operating without the comfort of the fuel subsidy, it has faced increased competition from JetBlue, WestJet, Rouge, COPA, et al, which combined, represent an increase in available seat capacity of over 23 per cent in markets where CAL previously was the dominant provider,” he added.
He noted on top of all the challenges, the Tobago airbridge remains a loss-making venture for the Government, but “it is obvious that for CAL, it cannot be business as usual”.
“It is clear that the calculation of the airbridge subsidy on a total seat availability basis, as opposed to a per passenger basis, will have to be reconsidered as CAL is not at present being recompensed at true economic cost.
“In the context of all of these challenges, Caribbean Airlines has found it necessary to request additional funding to the tune of $718 million,” he said.
He said this allocation was arrived following:
– Recapitalisation of the balance sheet to replace the capital eroded in prior years
– The need for restructuring the management of the airbridge operations
– Capital required to progress towards the minimum liquidity required in this industry
– To fund a number of the underlying initiatives to establish a revised operating model that would be financially sustainable
Losses soar
According to the Review of the Economy 2014, Caribbean Airlines’ operating deficit for 2014 amounted to $172.2 million.
For the financial year 2013, CAL’s loss was projected at under $100 million.
