Financial accountability at CAL

This newspaper carried a story last Thursday reporting that Caribbean Airlines (CAL) was still tallying the cost of flight cancellations as a result of pilots reporting sick on August 19-20. It is shocking that after two months, CAL has been unable to determine the full financial impact of the disruptions to its services by the high incidence of pilots’ sick calls.

The injunction granted by the Industrial Court against the pilots' union, TTALPA, is due to be heard sometime soon, and certainly accurate financial data on the imbroglio may be required by the court.

However, it must be carefully noted that there is a very subtle difference between airline operating revenues and airline operating incomes. Therefore, loss of revenue is not the same as loss of income.

Airline operating revenue is the earnings from the transport of passengers, cargo and other revenues such as the sale of onboard items.

Airline operating expenses are two-fold: fixed and variable.

Fixed operating expenses include aircraft lease charges, flight-crew salaries, maintenance costs, insurance costs and administrative costs such as human resources, sales and marketing. These costs accrue even when aircraft do not operate.

Variable operating expenses are based on the flight sectors flown and include fuel costs, air navigation fees, catering costs, landing fees and enroute crew expenses such as hotel accommodation and ground-handling costs.

Airline operating income is the difference between operating revenues and operating expenses.

Based on the confirmed bookings for every cancelled flight, CAL should readily have estimates of the potential revenues and operating expenses for these cancelled flights.

Some flights were operated using wet-leased aircraft, and the difference between the wet-lease costs and the flight revenues realised can be easily calculated.

In addition to the loss of income, there were poor-service costs that included ticket refunds, hotel accommodation, ground transport and meals for passengers whose flights were cancelled, and other customer claims.

Income losses due to the flight cancellations plus poor-service costs will give the total losses.

Airline accounting is not rocket science, and with the ready availability of modern airline accounting software, it is definitely not a difficult task to determine the financial performance of airline operations in a very short time.

The airline industry is very dynamic, highly capital- and labour-intensive and operates in a hyper-competitive environment.

Key decision-making requires timely, valid and reliable financial data.

Therefore, what accounting systems does CAL have in place to manage its affairs efficiently?

Accounting software and air-to-ground data links enable many airlines to compute their operating income within minutes after a flight ends and the engines are shut down. For each flight, the system has real-time data on the passenger revenues, cargo revenues and onboard sales. The system is programmed with the fixed costs per aircraft type. During flight and until the engine shutdown at the arrival gate, the fuel-burn costs, air-navigation charges, landing fees and ground-handling charges are computed and downloaded. The software subtracts the operating expenses from the operating revenues to determine the operating income for the particular flight.

The details of CAL’s financial performance are not state secrets and require disclosure to the TT taxpayers who are funding CAL to the tune of billions of dollars. CAL, like most other state enterprises, falls under the purview of the Finance Ministry, and is required to comply with the requirements of the state enterprises performance monitoring manual (SEPMM).

This column had previously suggested that, having regard to the international nature of the airline industry, CAL should be exempted from certain provisions of the SEPMM that are unrelated to its financial and accounting obligations.

A policy statement in Section 3.1.17 of the SEPMM says every state enterprise is "required to publish in at least one major daily newspaper a summary of its audited financial statements within four months following the completion of the financial year and a summary of the un-audited half-yearly statements within two months of the mid-year date subject to the approval of the Minister of Finance. These summary statements should contain the disclosures required by the Securities Industry Act, 1995.”

Also, Section 3.2.5 of the SEPMM says state enterprises are "required to submit the following – audited financial statements to the Finance Minister within four months of their financial year-end. These reports are to be laid in Parliament and subsequently submitted to the Public Accounts and Enterprises Committee for consideration and copies of their management letters issued by statutory auditors.”

Section 119 (8) of the Constitution says the Public Accounts (Enterprises) Committee (PAEC) shall consider and report to the House of Representatives on the audited accounts, balance sheets and other financial statements of all enterprises that are owned or controlled by or on behalf of the State and the Auditor General's report on any such accounts, balance sheets and other financial statements.

The last set of CAL’s accounts submitted to the PAEC was for the financial year 2015, and CAL’s last appearance before the PAEC was in May 2017.

The accounts for the years 2016 to 2022 are outstanding for reasons that require investigation by the corporation sole.

The Finance Minister informed the Standing Finance Committee last Friday that the government spends $300 million to service CAL’s long-term debts.

This is in addition to the billions of taxpayers' dollars that are used to subsidise operating expenses and which could have been used to improve the public health care system, repair roads and enhance the security of the population.

The Finance Minister, as corporation sole, has a sacrosanct responsibility to taxpayers.

It is highly untenable not to make full public disclosures on CAL’s financial performances unless there are some things that the TT taxpayers ought not to know.