PM insists JALPA's proposal flawed

Thursday, February 18, 2010

PRIME Minister Bruce Golding yesterday insisted that the most recent proposal submitted by the Jamaican Airline Pilots' Association (JALPA) to take over Air Jamaica provides little evidence that the association "is or will be able to" sustain the services currently being provided by the national carrier.

According to Golding, the proposal "is based on key assumptions that are factually incorrect".

In a statement yesterday, Golding said that although the campaign being waged by the association "has aroused much emotion", it has "obscured any rigorous analysis of the proposal".

"JALPA has not up to now presented any credible evidence of its ability to secure the financing required to operate the airline which it estimates to be US$100 million. US$40 million of that amount is to come from redundancy payments to which the workers will be entitled. It has submitted the names of two overseas private equity firms that it claims have offered to source the remaining US$60 million," Golding said.

"In its letter to the prime minister dated January 26th, JALPA admits that these private equity firms have not yet reviewed its business plan. It is therefore a gross exaggeration to suggest that it has identified sources of financing if this is to mean anything more than identifying sources that it hopes will seek to indentify sources of financing. All of this is subject to a review of its Business Plan and the necessary due diligence, neither of which has yet been done," the prime minister argued, adding that he was also yet to receive a promised letter from an investor who JALPA said had indicated an interest in partnering with them.

Meantime, the prime minister said that the association's estimation that redudancy payment to staff -- the majority of which it expects to be pumped back into the airline -- would amount to some US$47 million, was flawed.

Said Golding: "This assumption is incorrect. The estimated cost of redundancy payments is US$27 million, not US$47 million. Even with an 85 per cent participation rate, there would be a cash shortfall of US$17 million which would severely undermine the viability of its operational plan."

Additionally, he said JALPA's plan to have a "lean but focused workforce" ran "counter to the implied intention to retain 85 per cent of the current workforce of 1,607 to operate a fleet of seven aircraft".

"This would result in an employee/aircraft ratio of 195, an uneconomic ratio when compared to American Airlines (113), United Airlines (126), Delta Airlines (109), Continental Airlines (116), Southwest Airlines (65), Northwest Airlines (91), US Airways (92), Air Trans (61) and Jet Blue (72). Caribbean Airlines operates with a ratio of 96 which is diluted even further if its 5 Dash 8-300 inter-island planes are included in the calculation," Golding pointed out, adding that the associations forecasts regarding passenger loads, unit costs and revenues were also "overly optimistic".

Government, over the past few months, have been in active negotiations with Trinidad-owned Caribbean Airlines to take over Air Jamaica, which it plans to take off its books by March as part of its loan agreement with the International Monetary Fund.

On Monday, JALPA indicated that it would consider starting its own airline should it fail to acquire the national carrier.The pronoucement came a day before the Office of the Contractor General warned lawyers representing the association that acquiring the airline by any means other than the Govenrment's tendering process would be unlawful.

Yesterday, Golding reiterated that Government's efforts to divest the airline primarily rested on the necessity to relieve taxpayers of the burden and the need "to ensure continued operation of the routes that are of strategic value to the economy".

"The insistence in retaining the airline in Jamaican ownership, desirable and patriotic though that might be, does not take precedence over these two fundamental considerations and cannot be pursued at any cost or regardless of the risk to the Jamaican economy," Golding said.

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COMMENTS (18)

Stephen F
2/19/2010

At this point there should be no talk of awarding Caribbean Airline "national carrier" status when is foreign owned. If the JALPA are to be unsuccessful in acquiring Air Jamaica then perhaps they should buy the two nationally owned airplanes and start their own airline. I like that idea alot. They would have the redundancy funds, no debt, and the routes that Air Jamaica has abandoned. sounds like a sweet deal to me, hmmm Jamaica Air. Miami and Los Angeles supplemented by cargo.
Let the competition begin. I would bet on that horse.

Winston G
2/18/2010

Richard Edwards:
Can I just call you Richard? (It sounds like tracing when I call your full name [smile], and I'd like to think we are TALKING).
I did not mean to be simplistic at all, I did not just mention ICI's. I realize and MENTIONED that the pilots, the Air J staff, and OTHER JAMAICANS WHO LOVE AIR JAMAICA (AS I DO) will be affected.
The other concerns you raised are not to be ignored, BUT AT WHAT PRICE, Richard?
You concede that Air J has been a heavy financial burden FOR DECADES. I am sure that the government would love to keep it in Jamaican hands, but, Richard, I am discussing THE CURRENT ISSUE.
The only Jamaicans who are CURRENTLY at the table are the pilots, and (1) THEY ARE LATE and (2) THEY DON'T [REPORTEDLY] HAVE A CREDIBLE BUSINESS PLAN.
I don't believe that the Jazz and Blues festival is funded by taxpayers - but let us, for the sake of this argument ASSUME that it is.
1. Is the festival bringing in a return? Is it making a loss like Air Jamaica?
2. Let us (again, for the sake of this argument) ASSUME that the Jazz festival is leaking us too. (I am not saying it is)
That would not help Air Jamaica's cause. All it would mean is that we need to shed the jazz festival AS WELL.
The point - Richard - is that money being wasted in one area cannot justify money being wasted in another.
Conclusions.
1. Air Jamaica needs to go
2. The Pilots are not ready.
3. The government is bound by its own policies.
4. There are no other Jamaicans at the bargaining table right now.
Maybe - just maybe - something can be worked out, but AS OF NOW. The government must get rid of Air Jamaica and it cannot consider the pilots at this point.

Norman Edmonson
2/18/2010

Hello everyone,
it's nice to be back, see some familiar faces.
I hold the postion that JALPA wouldn't be able to do a good job because the employees didn't quite measure up in their performance. They were lousy employees in the past who intend to retain the majority of their workforce, which in my humble opinion is a lose, lose situation.

Richie L
2/18/2010

Richard Edwards and Winston G,
Here is a solution: For all those people who need flights to places that won't be served when AJ goes out of business, I say have them, collectively, approach an airline, perhaps, Caribbean Airlines, and ask them to start flights to those destinations.
I imagine such an airline would look at the potential business they would gain from such a venture and reply with to the ICs how much the cost will be.
Let say with AJ the amount the ICs pay for fare did not cover cost for the flight, then this would lead me to think that this can be remedied by raising the price of tickets.
Would the ICs be willing to pay the true cost of flying to Panama, Curacao and other shopping destinations?
I say if they are then they have no problems. An airline would be more than willing to serve their needs. They are business people and the airline is a business.
My point is why should one business (the airline) run itself into the ground to protect other businesspeople?
This makes no sense. And this is why we as a nation are so backwards and impoverished. This "gimme a bly" mentality has got to stop!
COPA Airways of Panama and ALM used to serve these routes, where are they now? Do they still fly into JA?
Richie

Richard Edwards
2/18/2010

I made reference to the ICI's Winston as a passing reference, but I am sure you know that its effects will be much wider than the ICI's, it will affect the air travel between Jamaica and some other destinations, many persons will be made redundant etc, so it not just to say it will make the ICS's happy, that would be a rather simplistic analysis of the whole situation. I don't know that there are any other alternatives, but I suspect there has to be. Yeah, I agree that Air Jamaica has been an albatross around the necks of tax payers, put we pump thousands of tax dollars into Jazz Festival every year, so that a few could benefit, not the country at large, so if we want to talk about tax dollars, I could point you in many directions, not that you don't know them already. I don't know that JALPA's offer is not credible, but you are probably privy to more information than I am, so I cannot comment with any authority on that. But understand this Winston G the sale of Air Jamaic is far from a done deal, that much I know, simply because there is fierce opposition to it in Trinidad. But we will see how ig goes I guess
Richard Edwards. New York City.
betterlifeforjamaicans@yahoo.com

Joel Cummings
2/18/2010

J.
This is the problem that constantly brings us to our knees; in a global market there is not room for emotion in business. If JALPA were serious, they would have laid all their cards on the table before the Jamaican people to see the truth and to galvanize support for their cause. The reality is the airline is a burden on those of us that actually pay taxes; lord knows I would love some taxes back in these tuff times.

bayreuth lewis
2/18/2010

I shed no tears for AJ. Over the years AJ was used as a another government entity to provide jobs for overcompensated fat cats and their friends. I know group of people in new york for years travel on AJ for free, get put up in hotel under the guise of marketing. Air Japan went bankrupt, British Airways is also on the verge of being insolvent, Air India is only flying on nationalistic pride etc.The moral of this is that the older leagcy model desinated carriers are all in bankruptcy with a few exception like Air Emirates and Lufsthana. And their profitability is hinged on the long haulage route.
The next assests that need to be disposed of after AJ is the Sugar companies and the merger of port authority with the Airport authority.

Evan Archer
2/18/2010

The Prime Minister is blasting JALPA's proposal from the ' bully-pulpit ' !.
Mr.Golding's comments, could be merely defensive ( in support of the move forward, with the Air Jamaica ' fire-sale '). It would be helpful if the Observer saw it fit, to seek counter arguments from the JALPA team, for publication in the papers.
So the proposal is flawed !. Most are, if you look closely enough. That's why people negotiate.
The previously published government position, was that the offer was not being considered and would only be, if the Caribbean Air negotiations failed. Why this ' tabloid ' response , at this time - is Caribbean Air's deal about to unravel ?.
In being fair to JALPA's desire to acquire Air Jamaica, under ESOP, some of the questions would be: were the representatives of the employees initially briefed on the terms of the sale ?. If so , were the terms similar to what is now being considered from Caribbean Air ?. Were the reps. apprised at the various stages of the negotiations, as the terms became more favourable ?. This, could have been considered an equitable procedure, allowing the employees to participate. If in affording them this opportunity, they failed to follow-through, then the onus is theirs.
It should be remembered here also, that the present Government in Trinidad, reneged on a promise to supply Jamaica with liquid natural gas, for a bauxite project , crucial to the Jamaican economy. They followed-through with a similar project with China, to construct a plant in Trinidad. They appeared, to have not considered the facts that, Jamaica has the raw material, the ports and a strategic shipping location. Considering other factors, involving the movement of quality Jamaican goods, within the Trinidad market, it appears that the current Government(Trinidad) has very limited concerns about the Jamaican economy. Maybe, they see us as ' good consumers '. It would not be surprising, if they were to scuttle the Air Jamaica operations, after succeeding at the " fire-sale '.

2/18/2010

The Golding administration should do their best to try and keep Air Jamaica a fully owned Jamaican subsidiary.
Regardless of past frustrated remarks of not going to fly Air J because of poor service, we all have great pride in the airline. Jamaica is one of a few countries its size that has a nationally owned airline.
Forcing Butch Stewart's hand in divesting the company after he was very successful in operating it, has come back to bite the government in the rear. Stewart brought respect and excellent service to the Air J, which in turn brought financial profitability. The government thought they could do just as good, or a better job than Butch--how wrong they were.

Winston G
2/18/2010

Richard Edwards:
Let me see, in order to satisfy the wishes of Informal Commercial Importers, I must continue to pay taxes - heavy taxes to keep Air Jamaica flying?
Ok, so ICI's are satisfied. Pilots are satisfied. Air J employees are satisfied. Other Jamaicans who love Air Jamaica (as I do) are satisfied.
But our children and their children continue to suffer under the albatross of taxes, and the economy continues to decline.
ARE THERE ANY OTHER ALTERNATIVES?
At this time. No. The government is BOUND by its own procurement guidelines. The foundation of this discussion is the JALPA bid. Remember??????
WHY ARE WE IN A RUSH
We need to get rid of the albatross around our necks YESTERDAY!!! How much longer should we continue to bear this burden???
WHY CAN'T WE MAKE IT PROFITABLE?
I am confident that Air Jamaica can be turned around - BUT THOSE WHO ARE CLAMORING FOR IT ARE LATE AND THEIR BUSINESS PLAN LACKS CREDIBILITY - and, again, there are procedures to be followed.
This is not rocket science. Why is it so hard to understand?
I am not suggesting that Air Jamaica is not important. But we have MORE IMPORTANT THINGS to focus on now - like turning this economy around (something that requires that we get rid of Air Jamaica)

Gene Knall
2/18/2010

Grateful as we are for the Prime Minister's very clear and plain response and even though it makes perfect sense, there will still be people who are going to just ignore the facts and keep beating the dead horse. Nothing short of a reversal will satisfy them.

This is Jamaica - more talk shows than any country on earth of our size. Facts are mere obstacles to overcome in pushing our own convenient agenda. If we produced goods and servcies half as much as we talk, we would have a national surplus enough to rebuild Haiti and still have enough to splurge.

Richard Edwards
2/18/2010

Mr Winston G, Air jamaica is an important issue sir, when you are an Informal Commercial Importer(Higgler), who depend on Air Jamaica to run you up to Panama and you are now told that as of April you won't be able to get there via that route, the only alternative being via Miami, and you don't have a visa, this disrupt many lives, and leave many incapable of providing for their families. I agree with you that Air Jamaica has been an albatross around tax payers neck, but aren't there any other alternatives, why are wwe always in such a rush to sell everything the country owns. You see what happen to JPSCO, now customers are charged whatever the company feels like charging, and they have no option but to pay. If other people can make Air Jamaica profitable, why can't we. Why don't persons who built their empire using Air Jamaica offer to bail out Air Jamaica in its time of crisis. I know there is no point flogging a dead horse, but the horse is not dead yet.
Richard Edwards. New York City
betterlifeforjamaicans@yahoo.com

Cee Dubya
2/18/2010

Jamaica...simply...cannot...afford...Air...Jamaica.
On a related note, where are all those people who, for years, repeatedly vowed "never to take Air Jamaica again!" because that day's 4 or 7 or 10hr delay was the last straw? I doubt many of them even bother to join this debate because they gave up on Air Jamaica a loooong time ago. But here's my $0.02 as a regular traveler. It got to a point where Air Jamaica became synonymous with delays - long ones, too. It was quite a turn-off. They became a 'last resort' for me.

Now, we hear about the unblemished safety record - arriving alive vs arriving late - no choice there. However, there must have been something costly and inefficient going on behind the scenes that gave it the "Air Ja, will delay" distinction. Not so informed that I can spell it all out but, "likkle likkle mek nuff nuff".
Now we see. It clearly all adds up.

Richard Edwards
2/18/2010

I have always said this, and will continue to say, if another entity can take over Air Jamaica and make it profitable, whay can't we. Clearly, Jamaica is a growing market, as far as airl travel is concerned, Jet Blue just added another flight into Mobay, and Air Tran is schedule to start flying there soon, so the business is there, so what is the problem with Air Jamaica, why is it that the other airlines can come into the market and do well, but Air Jamaica cannot. I smell fish, and I am not even near a fish market!
Richard Edwards. New York City
betterlifeforjamaicans@yahoo.com

Richie L
2/18/2010

Mr Golding, "sell "Air Jamaica to Caribbean Airline if you must, but please don't make CAL the national airline of Jamaica. Don't preclude another Jamaican airline from forming in the future. And if possible, don't give up the name Air Jamaica in any deal
I like the fact that you came with figures because I don't think these jokers (pilots) have looked at them. They are planning on keeping 85% of the staff because they want their severance money, but this is a non-starter, still too many workers. I think the pilots should stick to piloting, because these people know nothing about business.
I like the Southwest figure of 65 workers per aircraft. AJ or any Jamaican airline can get even lower. This low worker cost component is one of the aspects of a successful airline.
An airline has to use its planes as much as possible. So flight times have to be set so that a plane can get to its destination and turn around and go back somewhere else in as short a time as possible. This is where Southwest excels. I have used them much and as soon as I deplane, there is a lounge full of passengers waiting to get back on the plane for another flight. For AJ this may mean not getting a large fleet until the route network can support such expansion.
Overhead staff must be cut, so this means that there should be more automation. Entice people to book on the internet with special deals or even discounts. If people insist on using the telephone, then charge them a fee to book. At the check-in counter, have ATM like machines so that fewer check-in staff is needed.
No airline in Jamaica should have their own baggage staff, all that should be subcontracted out. Flights come in and leave infrequently for any one airline to have staff continuously over several hours. Contractors would supply staff as needed per flight.
Service needs to improve. This include in-cabin service. Bring back meals and even a fashion show like they used to do on AJ.
Develop markets. An airline needs to advertise in each market they serve. But before going in, there needs to be market research to see the viablity of the route.
Richie

Winston G
2/18/2010

Thank you Mr. Golding for COMMUNICATING on this matter. My only desire is that you would COMMUNICATE MORE. You have the ability to put things into perspective, and I hope that all Jamaica reads (or hears) your response.
Can we now move on the more important issues? We have an economy to turn around. Enough of the Air Jamaica distraction.
Again, I am pleased to FINALLY see a government that will act on what is in the best interest of the country instead of popular public sentiment.
This is REFRESHING!!

nervous investor
2/18/2010

An excellent rebuttal by the Prime Minister. The PM's arguments make good sense. Emotion is often our undoing.

T G
2/18/2010

Honestly why is the PM even answering questions on this.
The GOJ is talkiing to one partner.
The GOJ rules confirmed by OCG bars it from talking to other partners.
I say let it play out.
The Lead Bird is dead we can't afford it, so someone else is going to own it or it will be buried out in forward somewhere.

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PM insists JALPA's proposal flawed