Air Jamaica, the state-owned carrier which the Golding administration says it wants to divest, is essentially bankrupt, carrying, by the end of 2006, over J$36 billion - US$503 million - more in liabilities than its assets were worth, the airline's latest audited accounts have revealed.

In fact, auditors Mair Russell appended one important qualifica-tion to the 2006 report: the fact that Air Jamaica, with its large and sustained losses, could only continue to operate with government subsidies and other support.

That year, Air Jamaica reported a loss of US$128 million (J$9.2 billion), on revenues of US$390 million. The loss was slightly less than the $131 million it lost in 2005.

The airline's accounts for 2007 have not been released, but it estimated that it ran up another US$171 million in losses last year, bringing its accumulated losses to over US$1.26 billion (J$88 billion).

After more than a decade of private control, the government at the end of 2004 acquired the 55 per cent of airline shares that were held by Air Jamaica Acquisition Group (AJAG), an ownership vehicle that was controlled by hotelier Gordon "Butch" Stewart.

That deal involved the conversion of US$416 million in loans and equity advances to the airline to preference shares. A further US$1.8 million worth of debt was to be similarly converted.

Promised cap

At the time the former People's National Party administration promised to cap Air Jamaica's annual subsidy at US$30 million a year for a maximum of three years, during which time it would be returned to at least break-even position and prepared for a second divestment.

In the event, the carrier's position has worsened, its problems exacerbated by management issues, rising fuel costs, increased competition on its routes and softening of its major market, the United States.

In the face of the growing difficulties, the Golding administration has enlisted the World Bank to help it with the privatisation and has talked often of the possibility of a partnership with Asian carriers, but has provided no details.

According to the 2006 accounts, Air Jamaica, at that time, had net current liabilities that were just under US$200 million and long- term liabilities of just under US$450 million.

Its long-term debt included US$30 million from the Petro-Caribe loan/facility.

Air Jamaica increased in 2006 the amount due for trade and other liabilities to US$157 million.

Tax exemption

The company is exempt from taxation for a period of 15 years from November 1994.

Fuel apart, wages, at US$86 million, was Air Jamaica's largest cost component in 2006. At the same time, the airline paid out a high US$51 million for professional fees.

The fuel and oil bill that year jumped nearly 18 per cent, from US$102 million to US$120 million. Since then, oil prices have jumped by around 70 per cent, which would have had a major impact on Air Jamaica.

Employee costs in 2006 was US$86 million, the second highest cost after 'aircraft fuel and oil' which jumped from US$102 to US$120 million.

Interrupted trips cost the airline over US$4 million in both 2005 and 2006.

However, the cost of passenger meals was reduced in 2006 from US$14 million to US$12 million.

business@gleanerjm.com