STEWART. giving the Government room to reorganise the airline

Gordon "Butch" Stewart is expected to formally announce today that his AJAG group is pulling out of Air Jamaica, but that even with the departure, he will pump US$20 million (J$1.2 billion) into the troubled airline to help with working capital and to write-down debt.

The Government, at the same time, is expected to back up to US$25 million in new loans to the airline as part of a restructuring plan.

Stewart was unavailable for comment yesterday after Government sources disclosed that Dr Vin Lawrence, the key figure in Prime Minister P J Patterson's kitchen cabinet, will take over as executive chairman from tomorrow and that the recently-resigned group managing director of National Commercial Bank (NCB), Aubyn Hill, will assume a role akin to chief operating officer (COO).

The airline's current CEO and deputy chairman, Chris Zacca, declined to comment, referring the Observer to a press conference planned for today by Finance Minister Omar Davies.

"Dr Davies will speak to the Air Jamaica issues and all will be revealed," Zacca told the Observer last night. "It would be imprudent of me to speak ahead of the minister."

But senior administration sources told the Observer that Davies will announce that the Government will resume sole ownership of the airline after Stewart's group voluntarily decided to withdraw, ending negotiations for a new structure that would have diluted the stake of the private partners to 55 per cent, from 78 per cent. The Government would have owned 45 per cent under that deal.

According to Government sources, Patterson had tried to keep Stewart - whose holdings include the ATL Group, the Sandals hotel chain and the Observer newspaper - in the airline, hoping to further leverage the international credibility he had brought to Air Jamaica during a decade of privatisation.

In fact, Davies is expected at his press conference to highlight Stewart's achievements in rejuvenating Air Jamaica's previously battered image and winning market share. The airline brings 51 per cent of all air passengers to Jamaica and is considered a strategic asset to the island's economy, to which it is estimated to contribute, directly and indirectly, about US$1.2 billion annually.

But in the end, Stewart concluded that given the turmoil in the international aviation industry, with several carriers in, or near to, bankruptcy and Air Jamaica's own financial problems, it made sense to pull out of Air Jamaica.

"The conclusion that Mr Stewart apparently arrived at is that in the circumstance, no individual was in a position to put up the level of resources required by Air Jamaica," said an analyst privy to Stewart's thinking on the issue. "So he has decided to withdraw to allow the Government room to reorganise the airline."

Apparently, there is no obligation under the existing agreements for AJAG (Air Jamaica Acquisition Group) to inject the capital into Air Jamaica, but Observer sources said Stewart agreed to the injection to help ensure the short-term stabilisation of the airline and as a statement of confidence in its future.

"About 20 per cent of that cash will be immediate and the rest paid over 2005," said an Observer source.

When Air Jamaica was privatised, AJAG paid US$27 million for its stake, the bulk of which was put up by Stewart.

A month ago, the Government, in response to questions asked by one of its senators, Dr Trevor Munroe, disclosed that Air Jamaica had debts of US$560 million and had lost US$682 million during its decade of privatisation. A team of management consultants had also projected that it would require about US$270 million in capital over the next five years.

Of the airline's debt, an estimated US$236 million was owed to the Government, the bulk of which was to have been converted to equity under the now redundant restructuring plan.

A decade ago, Air Jamaica had a reputation as an unreliable, second-rate carrier with a mishmash, eight-plane fleet. It now flies 20 modern Airbus aircraft.

But while it now has international esteem and is highly rated for its service, Air Jamaica has failed to make money.

Its managers attributed this, in the early period, to America's downgrading of Jamaica's aviation management system that crimped Air Jamaica's ability to open new routes and fly modern and efficient planes.

More recently, like the world's airline industry, it was dealt blows by the downturn in travel after the 9/11 terror attacks in the United States in 2001, the war in Iraq and rocketing oil prices.

In October, Zacca announced plans to slash US$50 million in costs to bring expenditure in line with revenues of about US$450 million, saying that nothing would be sacred in the cuts.

But unlike major US carriers, Air Jamaica has been largely unsuccessful in coaxing substantial give-backs from staff, particularly pilots who account for 35 per cent of the company's US$100-million pay bill.

It is expected that the new management will pursue these reforms, even as the Government seeks new private partners.

Both Prime Minister Patterson and Davies have, in the past, made clear that it was not the intention of the Government to run the airline, and this point is expected to be repeated today by the finance minister.

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