Caribbean Airlines (CAL) chairman Rabindra Moonan said yesterday the airline used part of the US$149 million in cash left by the PNM-appointed board of the airline to acquire Air Jamaica and purchase two ATR aircraft.
Moonan was responding to a newspaper report yesterday which stated the previous CAL board had left the airline with US$149 million in cash when the board, which was chaired by entrepreneur Arthur Lok Jack, resigned in June 2010. He said: "Part of the merger plan with Air Jamaica required some of that money to be put there. Remember that we have a lot of expenditures to pay out. "This money is collected over a period of time... you have high peak periods, you have low peak periods. It is a fund which will go up and down most of the time. It is a revolving fund. You save when you have and you spend when you don't have."
Speaking with the T&T Guardian yesterday, Lok Jack said no money was paid by CAL to acquire Air Jamaica. He said the T&T Government provided CAL with US$50 million in equity to finance the integration of the two airlines.
Lok Jack explains that the Jamaican Government absorbed Air Jamaica's sizeable debts and severance costs to ensure that CAL acquired a debt-free airline. The Jamaican Government also provided CAL with US$19 million to indemnify pre-paid tickets. Lok Jack said under his watch a decision was made not to take up all Air Jamaica routes but only the ones that were viable and profitable. Part of the reason for the depletion of CAL's cash reserves was because of the bad route structure which changed after his board resigned, he said. Regarding the purchase of ATRs, Lok Jack said the previous board's plan was to buy four ATRs and not the nine that the airline eventually contracted to purchase. He said the CAL board was in negotiations with aircraft manufacturer ATR, which is partly owned by the Governments of France and Italy, to buy the four aircraft using export credit financing with a small downpayment and the balance to be paid over 12 years at an interest rate of one to two per cent.
The board under Lok Jack was able to negotiate these terms because, at the time, CAL's balance sheet was sound, the airline was owned by the Government and T&T had an investment-grade rating from the credit rating agencies. Newspaper reports last year indicated that instead of this favourable arrangement for four aircraft, at least the first two of the nine ATRs acquired last year were paid for in cash at a cost of US$19 million each, which would have depleted CAL's profits. One company, two brands were definitely not the direction to go as that would mean increased costs to market the two brands, said Lok Jack. Mariano Brown, former T&T finance minister, said yesterday the Air Jamaica acquisition was a "non-cash" transaction. He added: "The board of CAL and the Government of T&T in consideration were taking over the routes, what we consider to be the 'profitable routes, and therefore expanding and increasing the profitability of CAL. "We would give the Government of Jamaica a ten per cent shareholding, that was it. "The Government of Jamaica signed an indemnity agreement to pick-up any residual cost that may have been incurred by CAL, that was not as a result of its own making, that the Government of Jamaica wouldn't pay," he added.
