CAL on auto pilot – Staff query who’s in charge at national airline as losses multiply

(Trinidad Express) Who’s minding the store?

Yesterday, the Sunday Express reported on the million-dollar write-off at national carrier Caribbean Airlines (CAL) in the midst of the company’s financial turbulence.

Part 2 today considers whether CAL is being run in the best interest of its shareholders, the governments of Trinidad and Tobago and Jamaica, by the people appointed to manage it.

It’s the question being asked by the company’s staff in the face of mounting million-dollar losses and a potential $200 million write-off on cargo revenues and possible credit card fraud.

Several executives have raised concern about the degree to which the company is being mirco-managed by its board, aided by management officials and the negative impact certain decisions have had on the company’s bottom line, contributing to lack of profitability.

While the CAL board has fiduciary responsibility, the airline’s top management has a responsibility to operate in the best interest of the airline, the Express was told.

Some executives have questioned whether the airline is carrying out its responsibility to its shareholder, the Government, or whether it is carrying out the ruling People’s Partnership’s agenda.

For instance, when CAL was first launched, it was a leaner, cost-efficient operation that had replaced the debt-riddled BWIA.

But the six-year-old company now resembles its predecessor, from taking on old, abandoned routes such as London, to adding new ones without a view to profitability.

This, the Express understands, has put CAL in the red with its financial statements for 2010, 2011 and 2012, in stark contrast to its break-even position achieved in 2008.

Apart from millions in losses that CAL will have to write off, the State carrier has lost millions more in questionable decisions which were the collective responsibility of the board and the company’s senior management.

Among those decisions are the cash payment for CAL’s ATR aircraft; the integration of Air Jamaica’s operations; the wet leasing of aircraft due to delays experienced in the start-up of CAL’s London route; and the company’s response to competition.

These decisions were taken at the board level with top management who sat in on board meetings.

The Express understands that the board and management approved the last-minute “wet-leasing” of aircraft at high prices to fly routes and to fly more frequently.

It has cost the company close to US$31 million in 2012.
“No other options such as lease by the hour or re-routing flights or cancelling flights were even considered,” one executive told the Express.

The Express learnt that CAL’s board has now mandated its management “they will not support any wet-leasing going forward unless it is critical”.

“Management is now forced to come up with ways to operate without these expensive wet leases. Staff in CAL are now confused why this was not done before by management instead of using the most expensive option,” the source explained.

With regard to Air Jamaica operations, the acquisition of the airline’s routes was costly to the company.

“There were no plans to build upon and improve these routes, to grow this brand which has very strong nationalistic appeal.

Instead, management let it die a slow painful death which is now causing growing rifts,” said the executive, who spoke on condition of anonymity.

But the investment which set the company back financially was the cash purchase of five ATR aircraft.

The Express understands that ATR has offered CAL an operating lease agreement, which is similar to what CAL has with its other airline manufacturer, Boeing, but that no such recommendation was made to the board and it was not explored by CAL’s management.

Instead, after Cabinet approved the acquisition of the aircraft, the company used its cash in hand to make the purchase.

“With no financing arrangement secured by management mere weeks before delivery of the aircraft, the last option to purchase using cash was approved by the board, which many believe has been and continues to be unfairly blamed as the former chairman’s (George Nicholas III) directive and which threw the company into cash flow chaos,” a senior executive stated.

It has cost the company US$116 million.

Another bad decision was CAL’s pricing strategy to stave off competition which led to it running major losses.

“Management kept these low prices even after the competition left. Why didn’t they give the competition the low end of the market?

“They used the easy approach of price warring and then kept prices low after,” the executive observed.

CAL had introduced new flights to compete against Barbadian low-cost carrier RedJet, but then uncompetitively left these flights with low loads even after RedJet discontinued service.

Several CAL executives are seeking to distance themselves from the decisions which have led to the present state of affairs.

One pointed out that it was difficult for an executive to challenge the decision of a board because many were concerned about job security.

The Express was unable to get chief executive Robert Corbie to comment on the issues, but current acting CEO Captain Jagmohan Singh stated that CAL’s transformation plan was in effect to fix these issues and the company was aiming to be at break-even by the end of 2013.

Cognizant not to compromise the company’s strategy, Singh said CAL has rolled out several projects, including managing air fares more aggressively on all routes; route and fleet optimisation; cost cutting throughout the organisation aimed at removing close to US$55 million in costs involving the Jamaica operations; wet leasing strategy; and catering.

When pressed further on the losses and leaks at CAL, Singh indicated that it has always been CAL’s intention to be a profitable organisation and plans are now in place to do so.

Singh also stressed that if the taxpayers of Trinidad and Tobago are being called on to fund CAL’s past losses, the company will now need to be fully transparent going forward on what it is doing.

After publication of CAL’s financial state in a Sunday Express exclusive, the Express learnt that its chief financial officer Shiva Ramnarine presented CAL’s transformation plan to Ministry of Finance representatives, foreign suppliers, bankers and employees to appease its vendors and to be transparent.

 

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