Massive $$ woes for CAL

(Trinidad Express) Caribbean Airlines (CAL) is seeking financing from local banks to deal with a TT$1.4 billion (US$234 million) debt the company now faces.

CAL chairman Rabindra Moonan confirmed that the airline has reached a “delicate stage” in its negotiations with a bank for long-term financing.

He said the Ministry of Finance would act as a guarantor for a loan. He also confirmed that it wasn’t the first loan sought by the airline to deal with its liquidity woes. In its balance sheet for 2012, under non-current liabilities for long-term financing, is US$65,365,328.

CAL’s cash crunch was at a critical point in February which led the International Lease Finance Corporation (from which the airline gets its commercial jets), to seek a meeting with CAL’s management to attempt to repossess the aircraft because the company was defaulting on its payments.

According to its financial statements for 2012, CAL’s losses moved from US$43,647,732 in 2011 to US$83,780,546 in 2012.

Rabindra Moonan
Rabindra Moonan

CAL has been constantly faced with cash flow challenges of late and is now working on a transformation plan for the six-year-old national carrier.

Last May, the company was deemed to be facing “operational risk” by its management in the face of mounting debts.

One aspect of dealing with the cash crisis, explained Moonan, was to look critically at its Air Jamaica (AJ) operations and reduce the frequency of unprofitable routes.

But other CAL sources told the Sunday Express that the acquisition of AJ was a “bad investment” which had cost the airline and Government more than US$100 million.

The sources said the airline was actually looking at closing the Jamaica operations because they were proving challenging.

Moonan, who recently returned from India having signed a code share agreement with Air India, told the Sunday Express that while CAL has “suffered heavy losses” in Jamaica, the acquisition was a government-to-government relationship and the Government should comment on it.

Apart from an initial US$50 million for acquisition of routes, former finance minister Winston Dookeran had disclosed to Parliament that AJ recorded an unaudited loss of US$38.1 million ($245.2 million) for 2011.

Some of CAL’s investments (US$149 million) have had to be liquidated to address the costly operations of Air Jamaica.   The government of Jamaica owns 16 per cent of CAL following the consummation of a Shareholders Agreement which was signed on May 26, 2011.

The Sunday Express learned that CAL will cut jobs in its Jamaican operations this week.

The Sunday Express obtained copies of emails from its chief financial officer (CFO) Shiva Ramnarine, sent to the airline’s management in February, which addressed the company’s critical cash flow and its attempt to manage it.

The company’s current liabilities amount to US$209,988,622 from short-term financing, unearned transportation revenue and accrued expenses.

In his e-mail, Ramnarine said the company’s team “together with the finance treasury folks have been working diligently to avert an immediate cash crisis facing us. Fortunately we are well on our way to doing so and giving ourselves a bit of cash coverage relief for the next four to five months. However, it is important that we stop/check this and appreciate why we got into this situation and potentially what this means going forward for continuity.

Here are some salient points to note:

1. Based on our operations, CAL generated a cash flow deficit of TT$234 million (cash inflow of TT$591 million and expenditure/obligations of TT$825 million)

(Sunday Express note: CAL’s finances are calculated in US dollars)

2. This cash deficit of TT$234 (million) has directly contributed to our recent inability to meet vendor obligations (despite a TT$114 million fuel hedge) and consequently has put us at severe risk of not being able to continue as a going concern business.

3. As we extrapolate our cash flows for the next 12 months using the anticipated revenues and cost models, we anticipate we will revert to this crisis mode in Jun/Jul if we do not change our current patterns of spending and revenue strategies.”

Ramnarine told CAL’s mangement that there is an immediate call to action and “in order to remediate and prevent this issue going forward we have determined as a first step that we need to impact our spending immediately. Working on a month to month basis we would need to slow or cut expenditure for the month of March by TT$7 million. This is a significant amount but will avert an immediate slipping back into a pattern of cash deficit cash.”

Immediate cost-cutting steps proposed by Ramnarine are:

1. Cease all non-regulatory training e.g. Lok Jack GSB’s Budgeting Workshop, Managing the Media etc.

2. Review with HR all incentive payments due or payable for 2012 performance (TT$3 million); and determine likelihood and opportunity to deliver on these incentive plans.

3. Freeze on internal vacancies—case by case approval,  freeze on capital expenditure, freeze on non-operational duty travel, purchase of furniture and office equipment and IT equipment.

4. Review security services and contractual terms and rationalise accordingly.

5. Review telecommunications charges—implement caps on telephone usage by staff category, monitor excess usage.

6. A budget for the procurement of stationary supplies.

7. A review of crew requirements when flights are cancelled.

8. A review of expiring apartment leases and determination for CAL’s contracts.

9.  Review the contractual requirement for accommodation and negotiate better rates and cost effective locations for CAL.

The Sunday Express understands that while CAL had made payments to the Children’s Life Fund, it has not kept up with regular payments. On November 30, 2011, former CAL chairman George Nicholas III had committed US$5 million to the Life Fund. Then,  Prime Minister Kamla Persad-Bissessar had explained that CAL had raised the US$5 million by donating US$5 paid on every passenger flight ticket to the Fund.

Moonan acknowledged that CAL’s out-of-pocket acquisition of five ATR aircraft had put a dent in the company’s finances from which it is still trying to recover. It sold four of the aircraft which it had ordered from France’s Aviones de Transport Regional (ATR).

CAL paid the US$1.8 million commitment fee—calculated as  a TT$200,000 deposit on each aircraft—out of pocket on September 13.

By January 2011, CAL management approached the Ministry of Finance for money for the ATR purchase but was told that no funding had been requested on the Cabinet note and CAL was forced to utilise its own internal funding to pay fully for the first two aircraft.

Moonan said the company was now taking “an aggressive approach to make the airline leaner and trimmer but at the same time provide for the social need of having this facility”.

The Sunday Express understands that the Government tried unsuccessfully to change the composition of the CAL board when their term of office expired.

Multiple attempts to contact Finance Minister Larry Howai for comment at his office last week and on his cellphone yesterday were futile.

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