Wednesday, November 07, 2012

Expert urges transparency before purchase of new LIAT planes

MONTREAL, Canada, Wednesday November 7, 2012 – Outspoken Canadian-based airline expert John Gilmore has written to the leader of the main opposition Barbados Labor Party (BLP) and former prime minister, Owen Arthur, urging him “to insist on a full, open and transparent debate” of the options available to Barbados and other shareholders regarding the purchase of a new fleet of aircraft by the Antigua-based airline LIAT.

Barbados, along with St Vincent and the Grenadines, Dominica, and Antigua and Barbuda are the main shareholders of the financially strapped regional carrier that has already signaled its intention to replace its aging fleet of 18 Dash-8 aircraft. The airline is reported to be paying an average of US$1.2 million in maintenance costs per plane annually.

In the letter to Arthur, Gilmore said that media reports indicate that LIAT has confirmed that it is in late stage negotiations with a French aircraft manufacturer for six new 50 seat ATR 42-600 aircraft at a list price of US$19.5 million per aircraft exclusive of spares and integration costs.

He said the airline has made it clear that the final cost and financing terms will not be made public until a definitive purchase agreement has been signed with the manufacturer - after a contractual commitment has been made.

Gilmore said that LIAT is also indicating that it intends to replace the balance of its fleet of   DASH 8-300 aircraft with new 70 seat aircraft and will make a decision prior to the end of 2012, “which at a comparable cost per seat to the ATR 42-600 would represent a further US$245.7 million – again exclusive of spares and integration”.

He said as a result, the total fleet replacement cost on that basis will be US$362.7 million at list prices.

Gilmore said that it is “self evident that the current 18 aircraft fleet with an average age of over 20 years is in need of replacement on a priority basis”.

But he said what is less evident “is whether LIAT, as presently constituted, represents a viable economic model to deliver what is clearly an essential intra-regional service through the Eastern Caribbean and beyond”.

Gilmore, who last year had publicly advocated for the Trinidad-based Caribbean Airlines to take over LIAT similar to the agreement it reached with Air Jamaica, recalled that Arthur in 2007 had been “largely responsible for negotiating the acquisition of Caribbean Star ...and the re-financing of LIAT with new equity of US$60 million” via a loan from the Barbados-based Caribbean Development Bank (CDB) that was “subscribed to by its shareholder governments pro rata”.

Gilmore said that LIAT, with an effective monopoly increased prices and apparently was profitable in 2008 and 2009, but has lost money every year since and recently it has been experiencing what “appears to be serious cash constraints suggesting that it has gone through the US$60 million and now needs further direct subsidies”.

Gilmore in his letter, a copy of which was obtained by the Caribbean Media Corporation (CMC), said that LIAT's traffic in the years since 2007 “has been in serious decline” particularly within the sub-regional Organization of Eastern Caribbean States (OECS).

“What the foregoing suggests is that prior to making further significant capital investments or providing further financial assistance by way of subsidies the shareholder governments should undertake a fundamental review of whether the airline as presently constituted represents the optimum and most cost effective way of delivering the intra regional air transportation system that is generally acknowledged as being an essential service.”

He said LIAT itself has complicated any analysis “as it has historically and on a continuing basis adopted a cloak of secrecy about its operational and financial affairs that precludes both informed analysis and comparison of its efficiency with other similar airlines”.

Gilmore said that he has debated “this issue” with LIAT senior management for several years and urged that the airline “publish ongoing operational and financial data as most airlines do to permit the public, who are its ultimate shareholders, to assess its performance”.

He said now the airline needs a huge amount of new capital to cover its fleet replacement and replenish, “such a debate is more essential than ever”.

“Is LIAT, as presently structured, the best way to deliver the essential intra-regional air transport services in the region and who should bear the burden of financing whatever is concluded to be the optimum delivery mechanism?

“I urge you, before the current opaque and secret process becomes too far advanced, to insist on a full, open and transparent debate of the options based on the full disclosure of LIAT's financial and operating data for the past five years which would enable informed analysis and comparison of how well it has been doing and how it might be done better in the future.”

Gilmore said that as a “long term observer of the Caribbean aviation scene” his objective  has always been to support “an integrated, efficient, affordable and self sustaining profitable intra- and extra-regional Caribbean owned air transportation network”.(CMC)

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