Air Jamaica looks
at new markets...
but financial constraints may derail its
plan
With the newest fleet in the Caribbean, Air Jamaica emerged from its brush with the US National Transport Safety Board with renewed vigour to put its long term developmental strategy back on track.
The downgrade to a Category II rating by the NTSB cost the airline time, nearly US$120 million in debt and an uphill battle to regain its reputation as a safe airline.
The issue of safety is particularly important in the US where
the crash of the "no frills" airline ValueJet, is still
fresh in the minds of travellers. Passengers on airlines out of
the US are thinking twice about flying on airlines outside the
traditional big four of AA, TWA, Delta and NorthWest.
Nevertheless, the challenge for Air Jamaica's newly installed
Chief Executive, Christopher Zacca, will not be an easy one, as
the carrier is finding it more difficult to rely on the Jamaican
Government to support to finance its turnaround or a further write-off
the debt incurred before privatization.
Air Jamaica's finance director David Davies said a restructuring
plan for the airline is expected to be completed before January
1999 and discussions are progressing with international financiers
Merrill Lynch and two other investors for an international Eurobond
issue to cover the carrier's long term financing needs.
He said the airline may look to the international markets to raise
around US$250 (J$9b) million to recapitalise its operations. The
funds are needed to upgrade facilities, purchase spare-parts for
the airplanes and fund the marketing necessary to turnaround the
airlines lagging fortunes.
Even though the deal will have to be guaranteed by the Jamaican
government to gain international support, industry observers say
the added capitalization will provide some independence from its
current 'over reliance' on the Jamaican taxpayer.
Government support is also waning as it faces a financial crunch
of its own. Reports indicate that tax revenues for the second
and third quarter were down more than ten percent of budgetary
projections and serious cut-backs are anticipated well into the
new year.
A successful turn around for Air Jamaica will be a major triumph
for millionaire industrialist, Butch Stewart who headed the Air
Jamaica Acquisition Group (AJAG), which acquired the airline in
November 1994. AJAG injected US$26.3 million for control of about
70 per cent, while the Government took 25 per cent. Five percent
was reserved for an employee stock option programme. At that time,
government absorbed a debt of J$1.4 billion and US$30 million
in the hope that no more demands would be made of the treasury.
With the worst over in the world's leading emerging markets of
Asia, Eastern Europe and Latin America, there is growing optimism
that Air Jamaica would be able to raise the US$250 million needed
to finance its turnaround plan by the end of second quarter 1999.
The finance director said the airline plans to repay the funds
over a seven to 10 year period. If the deal is successfully executed
most of the short term and bridging financing funded by Jamaican
taxpayers will also be repaid. Its fleet modernisation plans will
be supported and it should be able to replenish its stock of spare
parts as well as cope with a range of other operational issues.
From the assumption of debt early in 1998, to leases picked up
for obsolete planes and extra cash injections, government sources
now suggest that Air Jamaica may require a budgetary allocation
of close to J$4 billion in the current fiscal year, an amount
the government just can't afford when its own cash crunch is taken
into account.
To strengthen its case for Governmental support, the airline is
reported to be putting together an analysis of its impact on business
and the local tourism industry. The national carrier has consistently
argued that for every dollar spent on the airline many more dollars
flow, directly into downstream industries that support the airline
as well as service providers in the hospitality industry.
A study conducted by Merrill Lynch in July 1996 for the airline
said that US$230 million a year was spent by visitors using Air
Jamaica and another US$260 million was generated through related
economic activity. With regard to the tourism spending impact,
the airline said it employed 1 in 55 full-time workers in the
sector.
In the meantime the airline has been busy positioning itself and
forming strategic alliances with other international carriers,
in anticipation of the expanded role it expects to play in the
regional airline industry. The new marketing strategy will not
only highlight the airline, but Jamaica will also be sold as a
prime tourist destination.
Since March 1998 several travel incentive programmes were announced
including "7th Heaven," a new Air Jamaica credit card
and a regional promotion campaign which included a trip to France
for see the Reggae Boyz in action.
The strategic alliance with Delta Airlines has also provided some
benefits as the code-sharing arrangement with Delta which started
in April, would allow passengers to book flights to Jamaica through
the Delta network.
Passengers who take part in that airline's frequent flyer programme,
Delta Skymiles, would be able to use their points to travel on
Air Jamaica and also have access to its 7th Heaven Programme.
Likewise, Air Jamaica passengers taking part in the 7th Heaven
programme would be able to use their points on Delta.
Air Jamaica has also moved into the Delta terminal at JFK airport
in New York. Delta has 14 counter positions at the terminal and
the move will enhance Air Jamaica's service to its passengers
as immigration and customs are all located within the terminal
building.
Executive Time "Online" also has a printed version which is available throughout the Caribbean and some selected North American cities.
