AIR JAMAICA STILL BLEEDS CASH, GOJ SEEKS BUYER

C O N F I D E N T I A L KINGSTON 000021

SIPDIS

SIPDIS

DEPT FOR WHA/CAR - JTILGHMAN
WHA/EPSC - LMARTILOTTA
EB/TRA/AN - HORWITZ

E.O. 12958: DECL: 01/08/2028
TAGS: PREL PINR SOCI ETRD EAIR ECON EINV XL JM
SUBJECT: AIR JAMAICA STILL BLEEDS CASH, GOJ SEEKS BUYER

REF: A. 07 KINGSTON 0897

B. 06 KINGSTON 2314

C. 04 KINGSTON 3385

Classified By: Charge d'Affaires a. i. James Heg for reasons 1.4 b and
d

SUMMARY
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1. (SBU) The Government of Jamaica (GOJ) is aggressively
searching for a private sector partner to take over ailing
Air Jamaica. The airline lost nearly USD 120 million in 2007
with expectations that losses for 2008 will be USD 160
million. Air Jamaica has struggled with profitability for
years, resulting in nearly USD 1 billion in losses for the
decade. The new Jamaica Labor Party (JLP)-led government has
tasked Senator Don Wehby with privatizing Air Jamaica by
March 2009. Wehby told the press on January 7 that he has a
list of four (unamed) potential buyers. The GOJ seems
unwilling to make decisions that would give a private sector
partner free reign to fix the airline, particularly in regard
to employment issues. However, recent press reports indicate
that major layoffs may be planned. The GOJ wants to retain
the Air Jamaica brand, preserve certain routes that are
significant to Jamaican travelers and tourists, and retain a
stake in the airline.

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Fixing Air Jamaica Won't Be Easy
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2. (C) Econoff met with Peter Delany, CEO of Airone, which
specializes in airline startups and turnarounds. Delany said
his firm has been in talks with the GOJ about starting a
low-cost regional airline based in Kingston. He said Prime
Minister Bruce Golding had offered Airone the opportunity to
take over Air Jamaica for USD 1. Delany said one nonstarter
to the deal is that the GOJ is unwilling to take a tough
stance on downsizing the 2,500 Air Jamaica staff. According
to Delany, the JLP fears the potential political fall out
that would ensue if it were to put so many Jamaicans out of
work in a business that is a symbol of national pride. The
JLP wants the private sector to "be the bad guy and clear out
Air Jamaica employees" as part of the takeover.


3. (C) Delany suggests that this would be a bureaucratic and
public relations disaster for any firm thinking of buying the
beleaguered airline. He added that a takeover of this nature
is difficult even without these types of labor issues. Delay
opined that the GOJ should begin massive layoffs and require
former employees to reapply for their jobs, thus allowing a
new firm to start clean and hire back only the most competent
former Air Jamaica staff, and to bring in its own people. The
Gleaner newspaper announced on January 6 that the Air Jamaica
board has recommended that 30 percent of the airline's
employees be made redundant. The decision comes as a
surprise to the National Worker's Union, which represents the
employees. It remains to be seen if this recommendation will
actually be implemented.

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GOJ's Preoccupation With Air Jamaica Hinders Other Airline
Projects
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4. (C) Delany said he represents investors who stand ready to
invest an initial USD 30 million to start a small low-cost
regional airline offering direct flights between Trinidad and
Tobago, Barbados, and other key Caribbean destinations.
Delany laments that problems with Air Jamaica are hindering
his ability to get a green light for a new airline from the
GOJ. He said that PM Golding's response has been that he
could not support the project at this time, because the
administration must first find a solution to Air Jamaica.


5. (C) The issue appears to be dividing key ministers in the
JLP-led government. Delany said he has the support of
Finance Minister Audley Shaw and Minister of Commerce and
Industry Karl Samuda, but has not been able to convince PM
Golding. In order to move forward, Delany needs a waiver of
the local ownership requirement from the Minister of
Transportation. Delany said this waiver is not an unusual
request for a new airline. Delany also would need a
statement from the Jamaican Civil Aviation authority stating
there are no impediments to timely issuance of an airline
operator's certificate (i.e., within 90 to 120 days). Delany
expressed dismay that the new JLP-led government, despite its
pro-foreign investment rhetoric, is not more interested in
attracting a new investment like his airline. He added that
time is running out for the GOJ to support the project: If it
passes on this opportunity, he already is in discussions with
another Caribbean country.

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GOJ Tasks Wehby
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6. (U) Senator Don Wehby, Minister Without Portfolio in the
Ministry of Finance and Public Service, has been tasked with
helping the GOJ find buyers for some of its loss making
parastatals such as Air Jamaica. Wehby announced on January
7 that the GOJ has a list of four major airline firms
interested in taking over Air Jamaica. The GOJ maintains
that any takeover firm must retain the Air Jamaica brand and
must have a plan to increase the flow of tourists to the
island. The GOJ will also retain a certain percentage of the
airline, but Wehby said the exact portion must be worked out
during negotiations.

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Prior Take Over Unsuccessful
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7. (C) A prior private sector take over in 1995 by
entrepreneur Gordon "Butch" Stewart failed; Air Jamaica
racked up USD 680 million in losses and USD 560 million in
debt (reftel C). At the time, the GOJ had retained a 25
percent stake in the airline. Some speculate that Stewart
was more concerned about lowering ticket prices to bring
tourists to his chain of Sandals resorts than about making
Air Jamaica truly profitable. The remaining shares of Air
Jamaica eventually were returned to the GOJ at the end of

2004. The airline proceeded to lose approximately USD 120
million per year in 2005, 2006 and 2007 (reftel A). Minister
of Commerce and Industry Karl Samuda, has suggested that Air
Jamaica will lose close to 160 million in 2008, a figure that
Delany confirms.


8. (SBU) Until recently, the airline was run by (AmCit) Mike
Conway, who had been a founding partner of the low-cost
airline America West during 2006 and 2007 (reftel A). Conway
resigned as CEO of Air Jamaica in October 2007, with one year
remaining on his contract, and was replaced by William
Rodgers. Air Jamaica sold its slots at UK's Heathrow Airport
in 2007 (reftel A),and entered into code sharing agreement
with British carrier Virgin Airways in November 2007.

Comment
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9. (C) Despite campaigning on a pro-business platform, in the
case of the aviation sector, the JLP appears unwilling to
pave the way for investors who come calling. It appears that
Golding's approach may differ from that of Karl Samuda and
Audley Shaw, both of whom seem more interested in closer ties
with the U.S. and more proactive in attracting foreign
investment to the island. Golding has said he wants to help
Jamaica grow its way out of debt; privatizing Air Jamaica is
a key step, but so too is seizing opportunities presented by
prospective investors.
HEG