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.

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.

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