By Vernon Khelawan Thursday, August 2 2012

AT a meeting two weeks ago in Barbados it was reported that a unanimous decision was made that LIAT needed to acquire newer aircraft to replace its current 18-plane Dash-8 fleet, which are all bordering on 20-plus years. Making that announcement following the meeting of the three major shareholders, was Dr Ralph Gonsalves, prime minister of St Vincent and the Grenadines. Also present at the meeting were Antigua and Barbuda’s Prime Minister Baldwin Spencer and host Prime Minister Freundel Stuart, together with airline officials and smaller shareholders.

According to Gonsalves, a decision had been reached as to the type of aircraft that would be bought, but he refused to identify the aircraft type because as he said, “It would be inappropriate at this stage before discussions with the manufacturer.” He said there were several reasons why the group did not wish to declare at this time, the aircraft type selected.

But a later company release stated that following recommendations from the company’s board of directors and its management, the three prime ministers decided to defer the decision on other aircraft types, to allow certain matters to be explored. Further, the release added that the airline expected that negotiations would commence immediately and proceed swiftly and soon thereafter a formal announcement would be made.

There are two things that are confusing in the various statements – first an aircraft type has been unanimously decided upon – and later, to defer the decision of other aircraft types to allow certain matters to be explored.

If a decision was made as to a specific aircraft type, then why are talks being held about other aircraft types? While it might be considered a strategic move to refrain from publicly revealing the aircraft type chosen, the decision on secrecy has given rise to great speculation and bloggers are having a field day.

There is talk that the airline was now considering larger airplanes including regional jets or larger turbo props like Bombardier’s Dash-8, 70-seat Q-400 or the ATR-72-600, similar to those recently bought by Caribbean Airlines for its airbridge and regional services. Airline officials have already held meetings with representatives of Montreal-based Bombardier, French manufacturer Avions Transporte de Regionale (ATR) and Brazil’s Embraer company.

According to press reports Chairman Jean Holder said, the fleet renewal exercise would begin with the replacement of seven aircraft at an estimated cost of (US)$50 million. However if the preferred aircraft is either the Dash-8 or the ATR and LIAT is talking new 70-seat aircraft, the cost of a single plane is close to (US)$20 million, which means that the estimated (US)$50 million can only buy about three planes.

If the decision is to stick with the Dash-8-300 which the airline now operates, the cost would be less, but still would not be able to accommodate the acquisition of seven aircraft. Moreover, it has been reported that Bombardier’s Q-400 production has been sold out for the next few years and it is unlikely that the position at ATR is any different.

So it would seem therefore that if the decision is to spend only (US)$50 million on aircraft, then the focus would be on used aircraft, but not as old as the ones the airline is currently operating. That is LIAT would be replacing very old planes with not so old aircraft. Then there is the major question of funding for the acquisition of these aircraft. Current owners of LIAT cannot afford the kind of money needed for the re-fleeting exercise, because the owner-governments are themselves strapped for cash and even collectively would have a serious problem raising the money, even on a guaranteed basis in the bond market.

Compounding the airline’s money woes was the recent disastrous fire which destroyed office buildings, aircraft maintenance equipment and an entire aircraft at LIAT’s headquarters at the VC Bird International Airport in Antigua. Following that devastation with losses originally estimated at $60 million, Chairman Holder admitted that some components of the lost assets were under insured, which had increased the size of the losses.

One Caribbean aviation observer told Business Day that a new fleet exercise could end up costing the airline close to half billion US dollars and at this time there was no way LIAT’s present route structure and declining passenger volumes could conceivably support the cost on a lease or debt-financed basis.

He suggested that there was need to restructure the airline as in its present form it had too many inefficiencies and liabilities and he reminded of the (US)$60 million loan from the Barbados-based Caribbean Development Bank (CDB) which enabled the airline to buy out some assets of Caribbean Star and Caribbean Sun which were absorbed into LIAT.

Although it has not even been hinted, it would seem maybe that the shareholders might be looking at a facility from the International Monetary Fund (IMF) through its International Finance Corporation (IFC) which has programmes to fund regionalisation initiatives with the goal of private or joint public-private ownership.