After five years of business and in the face of mounting debt, national carrier Caribbean Airlines (CAL) faces "operational risk".
And government will have to intervene financially in the cash-strapped airline to keep it flying.
Finance Minister Winston Dookeran told the Sunday Express that his ministry has asked the State airline for a list of its financial requirements and a business plan for the future.
This, Dookeran confirmed yesterday, will inform the amount and type of intervention which the government will pursue for CAL.
CAL's outstanding liabilities, the Sunday Express learnt, currently stand at an estimated US$40 million exclusive of US$100 million owed to France's Aviones de Transport Regional (ATR).
Significant liabilities are due to the airline's major suppliers include:
• US$5 million in taxes owed to the United States Internal Revenue Service (IRS) for a penalty charged to the airline
• US$3 million owed to the US for Customs and Border Taxes
• US$3.5 million owned to National Petroleum for fuel which could cause disruptions to operations,
• US$2 million owed to Strategic Air Services (which handles cargo for CAL)
• US$2 million owed to Swissport for Passenger Handling
• US$3 million for the Comptroller of Customs for Passenger Taxes
Other debts include money owed to the Airports Authority of Trinidad and Tobago, Ross Advertising and Synergy Aviation which supplies aircraft parts for the airline.
On May 4, Dookeran disclosed to Parliament that the airline made an unaudited loss of US$52.8 million ($339.5 million) for 2011 while Air Jamaica recorded an unaudited loss of US$38.1 million ($245.2 million) for 2011.
Dookeran's own ministry has been criticised by CAL sources for being tight-fisted with releasing funds owed to the airline (as a result of a fuel subsidy rebate) which exacerbated the airline's financial woes.
The majority of CAL's debt is centered around two investments- the decision to acquire nine aircraft from ATR and the airline's Air Jamaica commitments.
The Sunday Express learnt that while cabinet gave approval on September 9, 2010, from a note submitted by then line minister Works and Transport Minister Jack Warner, for CAL to enter into a purchase agreement with ATR for nine aircraft, that no funding requirements were identified for the acquisition.
CAL paid the US$1.8 million commitment fee-calculated to a $200,000 deposit on each aircraft- out of pocket on September 13.
By January 2011, the Sunday Express learnt, CAL management had approached the Ministry of Finance for money for the ATR purchase but was told that no funding had been requested on the cabinet note.
Subsequently, CAL was forced to utilise its own internal funding to pay fully for the first two aircraft.
To date, CAL has paid US$77 million to ATR.
However, CAL now faces a default risk, as well as penalities and interest, on that Heads of Agreement signed with ATR on September 13, 2010.
The Sunday Express learnt that an ATR representative had sought a meeting with the Ministry of Finance to consider how the seven outstanding aircraft will be financed. ATR began handing over aircraft to CAL in November 2011 with the expectation that one would be delivered every month thereafter. However, at least four aircraft remain unpaid and uncollected on their hands.
Transport Minister Devant Maharaj told the Sunday Express that he was considering financing arrangements for the airline to acquire the aircraft.
The other half of CAL's financial burden is its commitment to Air Jamaica.
CAL's investments, the Sunday Express was told, have had to be liquidated to address the costly operations of Air Jamaica. Former CAL chairman Arthur Lok Jack had told the Express exclusively that the board he chaired had left some US$149 million in CAL's accounts before they resigned in June 2010.
Sources told the Sunday Express that the present CAL board made commitments to Air Jamaica during its Transition Services Agreement without approval and without a business plan.
Among those decisions include CAL's intention to operate Air Jamaica to Havana, Montego Bay/Kingston shuttle service with its ATR aircraft.
This, they said, affected an initial projection of expected losses and slim margins initially, previously made by the Lok Jack-chaired board when they considered acquiring the profitable routes of Air Jamaica.
The government of Air Jamaica owns 16 per cent of CAL following the consummation of a Shareholders Agreement which was signed on May 26, 2011.
The Sunday Express learnt that the business plan for the Air Jamaica operations for the months of May-December 2010 forecast a profit of US$4.6 million and $16 million for 2011.
However, data obtained show that the actual performance for the Air Jamaica operation from May to December 2010 was a loss of US$21 million "for various reasons" and US$38 million for 2011. The 2011 figure has to be contextualised given that there was an adjusted fuel subsidy from US$1.50 to US$2.34 a gallon.
The adjusted fuel subsidy forced CAL to fund the shortfall by utilising its internal investments.
"Given the expansion of the combined operations, the level of expenditure and cash payments has increased significantly especially in the areas of fuel costs, flight operations, aircraft leases and marketing two separate brands. The increases in fuel payments were directly linked to the increased number of flights across the network matched by the global increase in fuel prices and restricted rebates from the government over the period. Other areas of increased cash outflow occurred in the areas of employee cost, maintenance and engine reserves and aircraft parts. As a result, it was necessary to utilise the deficits that were being incurred," the Sunday Express was told.
The issue of cash burn was first brought to Maharaj's attention in August 28, 2011, when CAL's management wrote a letter of complaint and copied Dookeran and Attorney General Anand Ramlogan.
"The executive management of the company is very cognisant of the fact that it is responsible for the manner in which public funds are utilised and accounted for and while the performance of the company has been adequate, given the challenging integration with Air Jamaica, we are concerned about the current rate of cash burn over the last eight months. Certain undertakings have been made by the chairman (then George Nicholas) without the consent of management which involve financial commitments that can have a negative impact on the planning and overall financial performance of the company. CAL has prided itself on being a self sufficient organisation, operating outside of the need for significant annual subventions from the Government of the Republic of Trinidad and Tobago. With the current pattern of cash burn we are not certain that this lack of dependency for subventions will exist in the short term," the letter alleged.
Former chief executive Captain Ian Brunton told the Sunday Express there are some fundamental questions that the taxpayer, through the Corporation Sole, need urgently answered.
He pointed out that the Corporation Sole needs to be able to see the financial effect that the Air Jamaica Operations are having on CAL – and by extension the T&T Treasury.
"For instance, when I and the CFO left CAL in November of 2010, the October 2010, CAL-only, financial statements showed a US$9.1 million in net profit with a projected end-of-year net profit of US$10 to US$12m after the December revenue peak. Yet the end of 2010 figures recently supplied by CAL show a consolidated loss of US$17.6 million: a negative change of some US$30 million. Was this the cash loss to Air Jam for just 2010? The cash balance we left was just over US$169 million (even more than the US$149 million recently revealed by Mr Lok Jack...his figures were a little dated)," he said in an e-mailed response.
He said during his time at CAL "the accounting was totally separate for CAL and Air Jam precisely to try and assess the effect of our efforts to improve the performance (and assess the wisdom) of the Air Jam acquisition. The GOTT supplied US$50 million to assist in the restructuring of Air Jam. It is irresponsible to the TT taxpayer to merge the Air Jam figures into CAL until the restructuring is completed."
Taking Minister Dookeran's recently supplied figures, CAL lost US$52.8 million and Air Jam lost US$38.1 million in 2011; and yet the CAL figures show a consolidated profit for the two airlines of US$16.5 million at the end of August 2011. This represents a negative movement of US$107 million in the space of four months! Or for CAL alone, a reversal of fortunes to the value of negative US$62 million in 14 months (+US$9.2 million to -US$52.8 million). We hear that the airline is unable to pay its debts to the AATT, NP, ATR etc. and yet the CAL-supplied figures show a positive cash position at the end of August 2011, of over US$111 million. We know that the comparable cash position as at the end of October 2010 was US$169.3 million. So how can you burn US$169.3 million in 14 months?
"The country is owed an urgent explanation - and perhaps expeditious measures instituted to correct disastrous trends. For example I would ask for a detailed cash flow and P&L forecast for the impending London route - and for all the recent new routes and undertakings of the last 18 months," Brunton said.