Prime Minister Mia Mottley Wednesday said that the core elements of a new, sustainable model for the regional airline, LIAT, are already clear and that the restructuring is expected to dramatically cut the airline’s cost to the Barbados taxpayer.
Speaking in the Barbados Parliament as she delivered the 2019-2020 budget, Mottley said that significant progress had been made on restructuring the cash-strapped regional airline of which Barbados is a major shareholder.
“Year after year, Barbados has coughed up capital subsidies for the airline without requiring burden sharing. And year after year, losses and debts have piled up, pilots work less and less, and ticket prices rise and keep on rising, to the point that it is now cheaper to fly to Miami and even New York than to Antigua or Trinidad,” she told legislators.
She acknowledged that LIAT is a tough issue to crack and that there are “more government shareholders in LIAT than in any airline in the world.
Apart from Barbados, the other shareholders of the airline are Antigua and Barbuda, Dominica and St. Vincent and the Grenadines and last week, St. Vincent and the Grenadines Prime Minister Dr. Ralph Gonsalves said that Caribbean countries were being asked to contribute a total of US$5.4 million in emergency funding need to keep the airline in the sky. At the same time, 11 destinations had been given until March 15, to respond to the airline’s minimal revenue guarantee (MRG) proposals.
Under and MRG model, it is likely that a few flights may be cut if the government is not prepared to fund them with a guarantee, Gonsalves said, adding that theoretically, several countries have no quarrel with the MRG.
Mottley told legislators that the open secret is, if a loss-making route gets cut, calls are made, pressure is put on management, and the route reappears.
“There are flights LIAT now has that will have one passenger. A flight that any airline anywhere else in the world would cancel, but not LIAT.
“Pilots and other groups have contracts that let them get paid regardless of whether they work or not. And as debts have mounted, the airline has got behind on its bills and into what is a slow death spiral, just waiting for someone to move first and seize a plane.”
But she said solving tough issues and saving the Barbadian taxpayer money is why her Barbados Labour Party (BLP) had been elected last May.
“Is it impossible to put in place a sustainable solution? Of course not. Nearly every government in the region subsidizes airlines delivering arrivals through a minimum revenue guarantee. Those airlines certainly aren’t losing money and there are few complaints about having to pay more to the airline if the fare falls or the seats go empty.
“And when we engage with CARICOM with our sleeves rolled up ready to do heavy lifting as a partnership, the fact is, we as a region can get things done.”
She said as a result, “we have taken a different approach to LIAT from the previous government.
“Instead of complaining and then writing a blank check, we got deep into the numbers and day to day problems facing management.
“Then at the meeting of CARICOM Heads on 26 February, we drew a line in the sand. Barbados will no longer be a part of an airline that isn’t run on a commercial basis. And, unless there is fair burden sharing, not a cent will come from the Barbados budget.”
Mottley said that at the start of this month, LIAT management sent a letter informing shareholders that it would cut flights starting with below average revenues if minimum revenue guarantees are not put in place.
“This approach to burden sharing allows management to run the company as a business. The following week, management launched into crisis meetings to negotiate cuts from all suppliers and labour. When all suppliers responded that they would support the restructuring except the pilots, shareholders immediately called pilots to a meeting to explain that the alternative for the company was bankruptcy and a new company would only rehire them on its own terms.”
She said while “we won’t know the full result for a few weeks, the core elements of a new, sustainable model for LIAT are already clear” and that suppliers, commercial financiers, and labour will provide major cost cuts; any flight with below average revenues will need to be subsidized or cut.
“Several countries that haven’t paid for service until now have committed to do so (and) the airline will put in place a hub and spoke model and use wet leases to improve service, especially during holiday travel periods and between one and three planes will be sold to pay down debt.”
Mottley said that although the goal is to eliminate the need for capital contributions to the airline altogether, “our fiscal year 2019 budget includes a small subsidy assumption for minimum revenue guarantee agreements on specific flight arrivals to Barbados.
“The exact cost will depend on ticket fares and how full the planes are, but, needless to say, we think it makes sense to guarantee specific flights given the taxes and benefits to the broader economy that accompany arrivals,” she told legislators.