NATIONAL CARRIER Air Jamaica is expected to turn a profit in 2004, it emerged yesterday as the House of Representatives agreed to the Government guaranteeing a US$45 million loan for the airline.
A Ministry Paper presented by the Finance Minister said the request for a Government Guarantee followed the completion of an in-depth analysis of the airline's operations by a team of specialists from PriceWaterhouseCoopers.
"The review, which was mandated by the Government, sought to evaluate the operations of the company and identify ways of achieving self-sustaining profitability over the medium term. Arising from the exercise, a number of recommendations have been put forward by the consultants, which are currently being reviewed with the management of the airline for implementation.
"The objective is to reduce the company's operating losses and return it to profitability by 2004," according to the Ministry Paper.
It added that Air Jamaica's operating costs were "far greater than industry standards", but that in some areas revenues were better than industry standards.
"A detailed plan of action has been developed in consultation with the airline's management, which is to be implemented over a four-year period."
The hope is that the new plan will cut operating costs and open up new routes which will bring in enough business to cover the new activity.
This news comes as the airline's latest aggressive moves to fly daily to Trinidad has elicited a quick response from regional counterpart BWIA, which has cut its fares on the route in response.
The new loan guarantee will see Belgium's KBC Bank arrange a relatively cheap loan at three percentage points above the London Inter-Bank Offered Rate (LIBOR), which stood at 6.93 per cent yesterday. An effective rate of 10 per cent on the proposed four-year facility is substantially better than the 11.25 per cent the Government offered recently for a US$50 million issue in the local market.
In September, the Financial Gleaner revealed that the US$33 million short term loan would form part of a longer term US$100 million Government-guaranteed refinancing package for the national carrier.
At the time Dr. Davies confirmed that the first tranche of cash was "imminent".
It was understood that the second tranche was still to be finalised but expected to be forthcoming relatively soon.
Dr. Davies said the Government was guaranteeing the debt because it would '
shave'
or reduce the interest the airline would have to pay on the borrowings. Dr. Davies expressed confidence in the airline's management team.
The plan at that time was for the Government to raise an initial US$33 million of short term financing for the airline almost immediately, according to London sources. A second tranche of US$135 million in medium to long term debt was being negotiated, from which the initial US$33 million would have been be repaid.
The Belgium bank-led consortium of European financial houses, which provided the Euro 65 million (US$72m) five-year financing deal for the sugar industry, was expected to provide the Air Jamaica cash.
Instead a US$45 million medium term package had emerged with Belgium finance house KBC Bank N.V. the lead bank in the deal.
The latest deal comes 18 months after Air Jamaica detailed its three-year plan. In the Air Jamaica business plan, which ran from 1998 to 2000, the national airline said it would need US$135 million on top of the US$114 million already laid out by Government.
The US$100 million would be used to tackle well-documented cash flow problems and recapitalise the national carrier.
