
Apparently unconvinced that the latest restructuring plans at Air Jamaica will turn-around the airline, IMF technocrats have again told the Government to shutdown or sell off the carrier and save taxpayers the big annual subsidy to the business.
The International Monetary Fund (IMF) mission that reviewed the performance of the island's economy last month, in its draft report, raised the Air Jamaica issue in the context of a call on the administration to rein in loss-making public enterprises and the support of the efforts to divest the Sugar Company of Jamaica (SCJ).
"While privatisation of the sugar company will add to the debt in the short-run because of Government plans to take over its debt (on divestment), it should help to improve public finances in the longer term," the IMF team said in a document tabled in Parliament this week by Finance Minister Dr Omar Davies.
"Regards Air Jamaica, given that repeated restructuring plans have not succeeded in placing its finances on a solid footing, the mission recommends considering similar decisive action," the team said.
In a decade under private sector ownership, up to the end of 2004, Air Jamaica has lost nearly US$800 million. Since its renationalisation, it racked up a loss of US$120 million in 2005 and perhaps the similar amount last year.
Although the Government had promised to cap its subsidy at US$30 million annually, a new financing package has been agreed to pump liquidity into the ailing carrier.
The IMF has consistently advocated the jettisoning of the airline, most recently in its previous Article IV Consultation document a year ago.
Strategic asset
However, the administration has defended Air J as a strategic asset, critical to the island's important tourism industry. Officials believe that in its absence foreign carriers would not adequately provide air seats to the island, limiting tourism traffic or causing a steep hike in fares and undermining investment in a sector that has enjoyed robust flows.
It is on the back of such arguments that the administration recently gave the greenlight to Air Jamaica's most recent restructuring plan: one that will include converting its fleet of Airbus planes to Boeing aircraft and require an injection of US$165 million over two years.
Mike Conway, Air Jamaica's CEO says the fleet conversion will save Air Jamaica about US$38 million a year between the cost of maintenance and leases and help drive revenues by 10 per cent, to around US$440 million.
The net gain, on these assumptions, plus otherareas of savings, would be around US$80 million, which would apparently be sufficient for the airline to break even by 2009, Conway argued in talks with the Financial Gleaner.
However, the more immediate concern of the IMF team was Air Jamaica's most recent performance, with losses more than double what was projected and that with SCJ and the Jamaica Urban Transit Company provided a deficit that will this financial year be approximately one per cent of gross domestic product (GDP).
Ensure financial discipline
The IMF technocrats told the Government that it would have to ensure financial discipline at its off-budget entities, if it is to ease its debt burdens and ensure macro-economic stability.
"...The mission believes that there is some scope to reduce expenditures in fiscal year 2007/2008, given the large expansion in their capital spending in the current year," they said. "Such consolidation would also enable more of the concessional PetroCaribe funds that are now going to finance off-budget entities to replace expensive central government debt, further reducing the debt ratio."
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