Finance Minister Winston Dookeran is corporation sole to Caribbean Airlines Ltd (CAL) in name only. His decisions and recommendations to Cabinet on the cash-strapped airline have been disregarded. So much so that the opposition that Dookeran faces in Cabinet regarding CAL, in one instance, came from his own Congress of the People (COP) party member MP Anil Roberts, who voted against Dookeran's recommendation to allow the Arthur Lok Jack board to stay on.
Dookeran, Sunday Guardian learnt, took the recommendation to Cabinet on the basis of a report, the High-Level Business Appraisal of Caribbean Airlines. The report, which evaluated the financial standing of CAL, was submitted to the Finance Minister on June 22, 2010.
It was compiled by Conrad Aleong, former CEO of BWIA; former finance minister Selby Wilson; former vice-president of General Electric Capital Aviation Services Michael Dolsingh; and chartered accountant Krishna Boodhai. But as Dookeran moved to send a letter to Lok Jack requesting the board to stay on at CAL, he was bypassed.
On the same day the Lok Jack board received Dookeran's letter, the Ministry of Works and Transport issued another letter-accepting the resignations of the board members. A member of the team who did the appraisal on CAL told Sunday Guardian, "Despite the report, they were insisting that the board must go-because the members were appointed by the former administration. It was an embarrassment for Dookeran, especially when his own COP member went against him."
The team member also revealed, "Up to May 2010, CAL still had in the bank the initial capital of US$115 million that the former administration invested in the airline. There were losses-but CAL had money in the bank."
So who are the real decision-makers for CAL?
As the blame game continues, the report listed that for the period 2007 to April 2010, CAL recorded a cumulative loss of US$76 million when fuel subsidies are removed. Questions remain unanswered as to who and what exactly led to the mammoth consolidated unaudited loss of US$52.8 million (TT$339.5 million) for 2011, and the unaudited loss of US$38.1 million (TT$245.2 million) for Air Jamaica.
Meanwhile, the Sunday Guardian in this special report has unearthed that it was only a matter of time before such a "disaster" happened. Sunday Guardian learnt that not only is the advice of Dookeran being disregarded, but the recommendations of the report are also not being followed.
Cabinet sources said that Dookeran and others "were taken by surprise" by Prime Minister Kamla Persad-Bissessar's July 2010 announcement at Jamaica House, Kingston, of the decision to honour the agreement on the US$30 million transition plan for CAL to acquire and operate six Air Jamaica aircraft.
Persad-Bissessar said then: "It took us a while to review the agreement, but we are happy to know that we are partners when it comes to Air Jamaica and CAL." The appraisal report identified significant risk in the CAL/Air Jamaica agreement and strongly suggested the need for mitigation before such a deal was signed (See box).
Despite the warning Government signed the CAL/Air Jamaica deal. "The team never recommended doing the Air Jamaica deal," said the appraisal team member. "We were shocked by that announcement. "What we said was, there are opportunities-but risks. "The biggest opportunity was whether Government was prepared to use one Caribbean carrier. If this was the case, the risks needed to be considered.
"We told Government, if you want to pursue the Air Jamaica deal and reduce the risks, then Government should consider keeping on the Lok Jack board. We felt if the former board recommended the deal, then they should be responsible for what transpired. "Everything happened so quickly. The announcement shocked the entire team. I do not know how the decision was made, based on the report."
Red flags went unheeded
Further investigations revealed that other red flags were also raised but went unheeded. Findings of the report further revealed, while the airline commenced operations with an initial capital of US$115 million, CAL was deemed a burden on the treasury.
In 2010 it was estimated that US$126.12 million was required to meet the airline's financial needs. The report stated: "CAL continues to rely heavily on the national treasury for financial support. The Air Jamaica route operations will require a fuel subsidy of US$11.8 million from May to December 2010 in addition to the additional capital of US$49.2 million into CAL as per the agreement between the parties. The fuel subsidy to CAL (Trinidad route operations) for 2010 is estimated at US$24.98 million."
In addition, the report said CAL insisted that a retroactive January 2007 fuel subsidy payment of US$20.2 million was owed to the airline, on the basis that Government made an error in calculating the amount reimbursed to CAL by using US$1.75 instead of US$1.50.
The estimations were projected as follows:
Fuel subsidy (US$M)
Outstanding 2009 $16.21
Budgeted 2010
CAL $24.98
Air Jamaica operations $11.80
Retroactive fuel claim $20.20
CAL Equity for JA Operations $49.20
T&T airbridge subsidy
Outstanding 2009 $0.47
Budgeted 2010 $3.26
"If you are asking for US$126.12 million from the Treasury in 2010, you cannot say the airline is making a profit," said the appraisal team member. "At this point Government should have known they were headed down the wrong path. Government should have never allowed CAL to be in the position it is now in.
"The sad fact is that Government went even further, to allow persons with no airline experience to lead CAL down the slippery slope at a faster pace. "To add insult to injury, Air Jamaica-a loss-making disaster-was put on top of the pile, with no regard to the plan, which was developed to support the acquisition.
"The pot calling the kettle black is poor comfort for taxpayers and citizens," the team member concluded. Attempts to contact both Dookeran and Roberts proved futile as telephone calls to their cellular phones went unanswered.
Proceed with caution:
Risks identified by the CAL appraisal team and taken directly from the report stated:
• Regulatory risk: The Government of Jamaica still has to acquire the Jamaica route approvals from the United States Department of Transport, the Canadian Department of Transport and others.
During the transition the Government of Jamaica secured waivers of its existing bilateral agreements to permit CAL to operate on behalf of Air Jamaica. The current US waiver expired on July 14, 2010.
• Execution and assumption risks: CAL's evaluation of the Jamaican routes and its contribution to CAL is premised on synergistic cost rationalisation to achieve savings of US$25.2 million and to increase revenues by 60 per cent by the end 2011. The present board of directors has stated that the execution of this integration plan requires a strengthened and focused implementation team. In addition, there is concern that a large portion of the estimated savings of US$15.2 million in respect of fleet renewal and maintenance may not be realisable.
• Market risk: Jamaica entered into an open-skies agreement with the US a few years ago. This means that any Jamaican or US carrier can fly to any destination in the respective countries. At the present time two low-cost carriers-Spirit Air and Jet Blue-maintain routes into Montego Bay and Kingston. Currently American Airlines, Air Canada and Delta fly into Kingston as well as to Montego Bay. In this environment CAL would have to compete aggressively to gain market share. Its low-fare strategy will have to be applied and it may not be sustainable once the fuel subsidy expires on December 31, 2010.
• Fuel-price risk: The Government has agreed to extend the fuel guaranteed price-subsidy arrangement to Jamaican operations from the start of the transition period on May 1, 2010 to the end of December 2010. At the end of this period, CAL, inclusive of its Jamaican operations, will have to pay the true commercial price of fuel, thus affecting its profitability. In the event that prices are increased to unaffordable levels, there may be a call on Government to subsidise the cost of fuel to CAL again.
• Cultural risk: In any merger or acquisition there is a risk associated with the "blending" of diverse cultures: different airline cultures, work/productivity cultures, national cultures and the like that have the potential to cause suboptimal teamwork.