Air Jamaica cargo operations, vendor contracts intact, says Nobles
Published:Friday | May 7, 2010 | 12:00 AM
Dionne Rose, Business Reporter
Air Jamaica's cargo operations and contractual business arrangements will remain intact, at least for the next 12 months, said President and Chief Executive Officer Bruce Nobles.
"There will be no change," he said Tuesday, four days into the operational transition to Caribbean Airlines Limited (CAL).
But: "Will there be changes going forward? I don't know, but Air Jamaica will continue operating as it does today, but up to a year and during that time, we will evaluate whether or not we need to change anything and we will give people plenty of advance notices," Nobles said.
Nobles said Air Jamaica has some 3,000 vendors who have contractual agreements with the airline and that none of them would be affected by the divestment of the airline to Trinidad-owned Caribbean Airlines.
"The plan is to continue to run Air Jamaica exactly as it was run before," he said.
"We will continue those contracts ... all those contracts are being honoured. This has not changed anything in terms of the way we do business."
One of the 3,000 vendors is Jamaica Producers Group (JP), whose commercial director Rolf Simmonds said the company was waiting for the dust to settle to clarify new supply agreements and whether they would have to be renegotiated with CAL
JP sells snacks to the airline under an 'open purchase' arrangement.
Simmonds said that up to Wednesday, Air Jamaica was saying it had got no directives from Caribbean Airlines with respect to JP's items.
A new company, Caribbean Airlines Air Jamaica Transition Limited, now operates the domestic airline until Caribbean Airlines takes over fully. The transition, which immediately transfers "full financial responsibility" for Air Jamaica to CAL, began May 1 and is expected to last six to 12 months.
Under the deal, Jamaica got a 16 per cent stake in Caribbean Airlines, valued at US$28.5 million), and retains ownership of Air Jamaica's real estate and industrial assets, which will be leased to CAL. The Government of Trinidad and Tobago also agreed to increase CAL's capital by US$49.2 million-US$175.2 million, Finance Minister Audley Shaw told lawmakers in Parliament on Tuesday.
Nobles said the transition was going smoothly so far.
"Business is continuing and the changeover was intended to be structured in such a way that it is a seamless transition and that it is quite what it has been," he said.
The divestment of the routes frees Jamaica of an annual J$10 billion in subsidies for Air Jamaica, Shaw said.
He defined it as an opportunity cost for social programmes.
But, the Government faces immediate payment obligations arising from the divestment, amounting to US$81.5 million (J$7.25 billion).
These include: employee separation payments estimated at US$24 million for 1,823 staff; payment of advanced ticket sales, US$19 million; critical payments to creditors required to ensure a seamless transition estimated at US$23 million; and a cash deficit of US$15.5 million.
Sustainable airlift
After the transition period, Caribbean Airlines will fully enforce its plan to provide sustainable airlift to and from Jamaica, Shaw said.
The plans call for the initial operations to continue serving seven routes: John F Kennedy International Airport in New York to Montego Bay; JFK to Kingston; Baltimore to Montego Bay; Philadelphia to Montego Bay; Fort Lauderdale to Montego Bay; Fort Lauderdale to Kingston; and Toronto to Kingston.
In addition to the costs associated with the divestment, the Government of Jamaica is required to assume responsibility for the total debt of Air Jamaica.
As at February 28, 2010, Air Jamaica had total liabilities of US$940 million, comprising 15 guaranteed obligations totalling US$763.44 million, and debt not guaranteed amounting to US$176.55 million.
Shaw said of the guaranteed obligations, the central government is currently servicing US$407.42 million, comprising three global bonds - the Bear Stearns 2015, RBTT 2015, and the Bear Stearns 2027.
He did not disclose the nominal debt-servicing costs.
The other US$532.6 million of debt has been assumed by the Government.
Jamaica has budgeted J$22.5 billion (US$250 million) to cover the divestment costs associated with Air Jamaica in this fiscal year.