Monday, October 20, 2014

Southern Air: Airline's $2.1m Loan Expansion 'Milestone'

A Bahamian airline believes it has achieved “a major milestone” by obtaining a $2.1 million loan from an Inter-American Development Bank (IDB) affiliate, which will enable its fleet to more-than-double in size.

Anthony Hamilton, Southern Air’s director of administration, told Tribune Business it hoped its financing arrangement with the Inter-American Investment Corporation (IIC) would “break the door open” for other Bahamian-owned airlines to obtain much-needed capital.

Mr Hamilton said Southern Air, which has been operating since late 1998, would use the funding to purchase around three new aircraft and expand its fleet’s size to five - a more than-100 percent increase.

He told Tribune Business that these planes, once purchased, would give an “immediate improvement in the quality of service” on Southern’s existing scheduled routes to Eleuthera and Ling Island, plus the numerous charters it operates throughout this nation and the rest of the Caribbean.

And, apart from allowing the carrier to exploit expansion opportunities as they arose, Mr Hamilton said the financing might also allow Southern to re-hire some of the staff it recently released.

He also called for Bahamas-based financial institutions to “reform” their attitude towards the aviation industry and local businesses, saying Southern had been “slapped in the face” trying to obtain local debt financing.

Emphasizing that the airline would use the IIC’s financing to expand its operations, with a focus on airlift to the Family Islands, Mr Hamilton said “the timing is appropriate despite all the challenges facing the domestic operators” - and with Value-Added Tax (VAT) looming on the horizon.

“We kind of bit the bullet to finance this,” he told Tribune Business. “We’re a leader in domestic aviation, and this [the IIC financing] is a major milestone.

“Hopefully, this will break the doors open for others to find the same kind of favour. I think this is a major accomplishment, and this is the first for a Bahamian. It sets the stage for some other things we want to accomplish.”

Mr Hamilton, in common with many Bahamian-owned businesses, criticised local financial institutions and established capital sources for their tendency to shy away from providing funds to event established businesses.

“Overall, we need reform with regard to financial policies as far as the country is concerned,” he said.

“This should make a statement, as we’ve really been hitting a brick wall locally for financing..... Oftentimes, we get slapped in the face. They say: ‘It’s a risk’, but every business is a risk. Local financial institutions seem afraid of the aviation industry.”

Mr Hamilton described the financing from the IIC as “basically a done deal”, with some “tidying up” work still being completed.

Indicating that the loan was in the first phase of a three-phase strategy developed by Southern Air, he added that the airline was currently “shopping around” to see what type of planes it could source using its financing.

It was aiming to acquire two-three new aircraft, bringing its existing two-strong fleet to around five, and “other things on the drawing board” may give the carrier access to other planes and funding sources. Beech 1900s will be the main aircraft type sought.

“It speaks to improving the quality of service we provide to the current routes,” Mr Hamilton said of the IIC loan.

“Certainly, as opportunities present themselves, this puts us in position to allow us some flexibility to expand.”

Southern Air currently employs 52 persons, and Mr Hamilton said the new financing might allow it to “reinstate” staff recently let go, depending on how the Bahamian economy performed.

He added that those released did not make up “a large percentage” of the workforce, with the airline previously having to make “some serious sacrifices”.

“We were talking to them from some time last year, and working through the process,” Mr Hamilton told Tribune Business of the IIC.

“We really had to cover some good ground in getting ourselves in position for consideration. It was not too much of a rough ride. Once in the door, we worked extensively to move this along.

“We always wanted to make sure we were doing ourselves proud, both us as an airline and the Bahamian nation at large, and this is a major plank in that regard.”

Mr Hamilton said Southern Air decided to move forward despite knowing it will soon “stare VAT in the face”, and continuing questions over arbitrary government policy decisions that impact the domestic aviation sector specifically.

Referring to VAT, he added that “new information” seemed to appear at every turn, adding of the airline’s plans: “We know it’s a risk, but have been working at it for a long time.”

The IIC, in its own statement, confirmed it had approved the $2.1 million loan “to partially finance the growth of its fleet, in order to increase its operations and to meet the growing demand for flights”.

“This IIC loan supports the growth of a company from the air transport sector in order to improve inter-island connectivity in the Bahamas, which is key for the economic development of these islands,” said Rodrigo J. Navas Oreamuno, IIC’s lead investment officer in charge of the operation.

Southern Air operates from the Sir Lynden Pindling International Airport, offering scheduled flights to a number of Family Island destinations, and charter flights to national and international destinations.

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