LIAT is on the wrong track and needs a course correction

Dear Editor,

Over the past three months, I have been pained by the performance of LIAT and the level of service that it has provided to the travelling public in the Caribbean. The re-fleeting programme and the 2013 to 2017 Business Plan were introduced with great fanfare. We know that the summer peak was a disaster from the service, operational and financial standpoints; and we wonder what measures LIAT’s shareholders will introduce to hold the board and management accountable for the company’s blatant failings. I know that the Chief Executive Officer re-signed, but I find it difficult to believe that he alone should pay the price for the structural, policy and operational failures that have so obviously manifested themselves recently. The entire board and executive management should be held accountable for what the company described as a “meltdown,” but what can be better described as a fiasco that has reduced LIAT to the status of ‘laughing stock’ of the region.

Are these issues being swept under the carpet? Is it to be business as usual now that the CEO has departed? Are the principles of ‘responsibility’ and ‘accountability’ being sacrificed because the shareholders find it expedient to do so? My feelings are a mixture of pain, frustration and disappointment at the way in which the LIAT issues are being handled by the shareholder governments, whose role should be to safeguard the interests of the taxpayers, who are the ultimate owners of the airline and in whose interest governments must act.

There are five fundamental questions to be answered:

a. Following the summer problems, are the governments prepared to insist on the structural and operational changes that will make LIAT an efficient and accountable organization?

b. Is the business plan creative and revolutionary enough to achieve needed change?

c. Is the business plan realistic?

d. Can the existing board / management and the business plan deliver the results that were identified in the document?

e. Since the implications of underperformance by LIAT are dire, are the governments prepared to insist on performance  –  in other words, will the board’s feet be held to the fire?

There has been some debate in the media on LIAT’s summer performance, but I feel strongly that there are other important issues to be ventilated:

1.  The greatest concern is that at this time of austerity, the Barbados government has undertaken to subscribe 17 million Barbados dollars in equity; and guarantee approximately 60 million dollars of a loan from the Caribbean Development Bank for on-lending to LIAT to finance its re-fleeting programme. These commitments have been given at a time when financial strictures are being applied to vital social service providers such as the Queen Elizabeth Hospital, Transport Board, UWI Cave Hill and Sanitation Service Authority.  Is this the best use of scarce resources?

2.  The jury is out on whether the business plan can achieve the objectives that underpin it. The financing plan for the new fleet was justified by a business plan that was presented to the regional press on Friday 7th December 2012. In that plan, LIAT committed to increase average seat occupancy from fifty six per cent in 2012 to seventy five per cent in 2013 through 2017. This increase in seat occupancy was highlighted by LIAT as a critical strategy to reverse losses of 20.2 million EC dollars in 2010; 43 million EC dollars in 2011; and 23 million EC dollars in 2012; moving to profits of 7.2 million EC dollars in the current year 2013 and rising sharply to 40 million EC dollars in later years through 2017.

Instead of the promised increase in traffic, passenger numbers have fallen this year and costs have been significantly higher than budget. In other words, both of these prime financial performance indicators have moved in the wrong direction. If the company is so far off of its financial projections in the first year of the business plan, what is the likelihood that it can reverse negative trends and achieve its projections for profits in future years? Was the company prudent and realistic in drafting its business plan?

3.  Presumably, the business plan was produced by the management; approved by the board and endorsed by the shareholders. It was then used to raise US$60 million in loans from the CDB; and US$22 million in equity. However, in a recent interview with Beverly Sinclair of CC6 TV Grenada, which was published on You Tube on the 10th September 2013, the chairman of the shareholder group of LIAT, Dr Ralph Gonsalves, expressed doubt as to whether LIAT can generate sustained profits. This position varies starkly from the business plan. It also further undermines confidence in the business plan and what it can achieve.

4.  Antigua hosts LIAT’s headquarters and it therefore reaps a disproportionately large share of the economic and strategic benefits from the company. Dominica and St Vincent and the Grenadines depend very heavily on LIAT as an air link to the outside world – LIAT perhaps accounts for eighty per cent of air traffic into those islands. By contrast however, LIAT is of comparatively less economic and strategic importance to Barbados, but Barbados shoulders most of the financial burden for keeping the airline in the air. Because Barbados has the most at risk, it is imperative that its government should insist that LIAT is restructured to become more efficient. Barbados must insist on performance and results. The first question that has to be answered is whether this business plan can deliver the radical change that is required. The results achieved this year indicate that that is most unlikely under the current management, policies and strategies.

The Government of Barbados has an obligation to be dispassionate and decisive with LIAT. Business as usual will prove to be very costly. A hands off approach will be very damaging. All indications are that LIAT is on the wrong track and that it requires a radical course correction before it is too late.

Yours faithfully,
Rufus J Letang 

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