KEITH Senior, the man who fell out with Dr Omar Davies, whose political campaign he managed until June this year, tells a story that gives a rare peek into the financial intrigue involved in the sale of Air Jamaica in 1994 and the bitter dispute over the airline’s pension funds.

Taken together, Senior caused the government to save a substantial $1.1 billion that would otherwise have gone to the Air Jamaica Acquisition Group (AJAG) which bought majority ownership in the national airline; and to the former Air Jamaica employees who fought a battle all the way to the United Kingdom-based Privy Council to claim the multimillion-dollar surplus in the pension fund.

For his work, Senior is claiming an estimated $140 million, but it is a claim which could cost him a 40-odd year friendship with Dr Davies, the finance minister and incumbent in the South St Andrew constituency.

Suspicious of a $7-million claim by the Taxpayer Audit and Assessment Department (TAAD), Senior insists that he will pay the tax but he must collect the money he says he is owed by the government. And he is a determined man, telling the tax department that he is willing to go to jail in his quest for justice.

“In spite of all I have done for my country, these notwithstanding, I step forward with equanimity, pride and courage to incarceration, hunger strike and ultimately martyrdom,” he wrote in a letter to the director general of Tax Administration Services, Vinette Keene, copied to the prime minister and the cabinet secretary.

As Senior tells it, his story began in May 1994, sometime after he returned to the island, having qualified himself with an MBA from Pace University, New York where he became a specialist in mergers and acquisition and a student of corporate raiders. He was working with Lasco Distributors at the time.

Air Jamaica was being privatised to a Canadian entity partnering with Peter Rousseau and Senior was appointed by Transport Minister Horace Clarke to the Technical Committee as one of two nominees for the Ministry of Finance, he told the Sunday Observer. Other members were: Peter Bunting, chairman; Carol Jones of the finance ministry; Basil Sutherland of the National Investment Bank of Jamaica (NIBJ); Mike Fennell of Air Jamaica, Ainsley Campbell of Air Jamaica and Ram Sankar of PriceWaterhouse.

“When I looked at the Privatisation Agreement,” Senior recounted, “it became clear to me that there were hidden assets. Prior to that, it was banded about that according to a PriceWaterhouse study, the government would have to put in $1.3 billion as at March 31, 2004, to make the company’s current assets equal to its current liabilities.”

He told Dr Davies of his belief, saying he could find a way to reduce that figure of $1.3 billion by finding the hidden assets and proposing that “if I was able to do it, he should give me 10 per cent of the value of the money saved”. Dr Davies did not specifically say ‘yes’ to the 10 per cent but told him to go ahead, he said.

In the world of high finance, there is such a thing as “leveraged buyout” and Senior fancies himself a leveraged buyout specialist. Simply put, that means that an investor who becomes aware of substantial hidden assets in an entity, makes a bid to acquire it, knowing that he could end up recouping his investment immediately, in which case, he would have paid nothing for the acquisition.

In the Air Jamaica case, Senior saw an estimated $500 million “hiding” in the Privatisation Agreement. The money, he thought, was in the Pension Fund which, as it turned out, had a surplus of $450 million as determined by legal consultant, John Thompson. He said he was told that only the employees could benefit from the money in the fund. But he knew that all that could change if the relevant Rule 13 of the Pension Deed was changed by the Trustees under the direction of Air Jamaica Board. But time was of the essence.

The Air Jamaica employees would be made redundant by June 30 and the Rule had to be changed by June 14, in order that the surplus should go to the government.

Two developments occurred that left Senior wondering. First, the US$24.6-million acquisition bid by the Canadian-led group collapsed three days before privatisation date. Senior is asking whether a leveraged buyout was anticipated but had failed because of the discovery of the pension surplus.

Second, the change to the pension fund rules did not take place until August 19, 1994, frustrating plans to let the government keep the $450 million surplus.

For their part, the Air Jamaica employees of the fund claimed that they should get all of it. An action was filed in the Supreme Court on August 10, 1994 by Joy Charlton, Clive Goodall, Barbara Clarke and Ian Philpotts on behalf of the former employees. When Air Jamaica contested it, the matter was taken to the Privy Council in London.

In the meantime, a new bid to buy out the airline was launched by Gordon ‘Butch’ Stewart and the National Commercial Bank.

See tomorrow’s Observer for the conclusion of this intriguing story by Keith Senior.