JAMAICA: USTDA TO HELP PRIVATIZE AIR JAMAIACA

UNCLAS SECTION 01 OF 02 KINGSTON 000401

SENSITIVE

SIPDIS

STATE FOR WHA/CAR (JTILGHMAN) (VDEPIRRO)
WHA/EPSC (PMAIER)

TREASURY FOR SARA GRAY
EEB/TRA
EEB/IFD/ODF
DEPARTMENT PLEASE PASS TO USTDA FOR JORGE ESTEBAN

SANTO DOMINGO FOR FCS AND FAS

E.O. 12958: N/A
TAGS: EAIR PREL ECON ETRD EINV IBRD IDB JM XL
SUBJECT: JAMAICA: USTDA TO HELP PRIVATIZE AIR JAMAIACA

SUMMARY
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1. (SBU) The Government of Jamaica (GOJ) has taken another major
step to sell the financially distressed national carrier, Air
Jamaica. On May 5, it signed an agreement with the U.S. Trade and
Development Agency (USTDA) for USD 820,000 in grant funding. The
funding will assist with technical services for the privatization
process. This grant follows the signing of an Advisory Services
Agreement with the International Financial Corporation (IFC) to lead
the overall divestment process. GOJ officials used the signing
opportunity to reiterate their commitment to a completion of the
airline's privatization by March 2009. End summary.


SIGNING CEREMONY
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2. (SBU) On May 5, the GOJ signed an agreement with the USTDA for
USD 820,000 in grant funding. The signing ceremony was hosted by
Minister of Finance and the Public Service Audley Shaw and Minister
without Portfolio Don Wehby. Wehby has been tasked by the GOJ to
manage the privatization of Air Jamaica. Director of USTDA Larry
Walther said, "I am especially grateful that USTDA has been given
this opportunity to help revitalize Air Jamaica, which plays such an
important role in Jamaica's economic development." USTDA assistance
was well received by the GOJ and could open the door for future
cooperation in areas such as alternative energy.


3. (U) The USTDA funds consists of two grants. The first is USD
480,000 to fund technical assistance to develop the appropriate
legal framework and tendering documents for the privatization. The
second grant for USD 340,180 will finance technical assistance to
develop financial modeling of the Air Jamaica's performance and to
provide recommendations for environmental abatement measures to help
the airline meet international standards for noise and air
emissions.


4. (U) The signing also was attended by Samy Watson and Bandrul
Haque of the World Bank (WB). Rostan Schwab, Investment Officer for
Advisory Services and Kirk Ifill, Resident Representative for the
Latin America and Caribbean Department, both from the International
Finance Corporation (IFC) participated in the signing. IFC is part
of the WB group. Charg in his remarks welcomed USTDA's cooperation
on Air Jamaica privatization and he signed as witnesses to the grant
agreements.

GOJ COMMITTED TO PRIVATIZATION
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5. (SBU) Wehby reiterated the government's commitment to privatizing
the airline by March 2009. The broad objectives of the GOJ remain:
(a) transfer of complete or substantial majority ownership and full
management control to the private sector; (b) recapitalization of
the airline; (c) retention and long-term sustainability of Air
Jamaica as the national carrier; and, (d) structural or contractual
linkage to a major global carrier. Shaw said, "privatization of the
airline is the only viable option for a stronger and vibrant Air
Jamaica." Shaw added, "the GOJ cannot afford losses for a
protracted period of time and the GOJ cannot afford to recapitalize
the airline on it own." Shaw predicted the airline would return to
profitability once it is privatized.

PRIVATIZATION TEASER
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6. (U) Webhy also presented the press with a teaser document
outlining the positives of Air Jamaica. In addition to describing
the business opportunity, the document points to the significant
improvements being made to the island's two international airports
as well as Jamaica's position as the premium tourism destination in
the Caribbean. The document also points out that Air Jamaica could
offer significant potential value under the leadership of a strong
strategic airline investor. The airline will be sold on a going
concern basis, but the GOJ will continue to support the airline
until its divestment. Regarding the timeline, from March to July of
this year, the IFC will coordinate the seller's due diligence by
analyzing Jamaica's air transport market, undertake preliminary
market testing, and supervise the legal, technical, and economic due
diligence by consultants. At the end of this phase, IFC will
propose a set of strategic options for the sale of the airline.
From July to December 2008, IFC will implement the GOJ's preferred
option for the sale to potential investors, organize a competitive
bidding process, and assist the GOJ with bid evaluation, negotiation
of transaction agreements, and closing.

COMMENT
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7. (SBU) The signing of a grant agreement with USTDA is yet another
demonstration of the GOJ's determination to rid taxpayers of the
burden being placed on them by the loss making national airline.
Air Jamaica is seen as a national symbol of pride by many Jamaicans;
its sale to private investors thus is politically risky for the
Jamaica Labour Party (JLP)-led government. The fact that the GOJ is
willing to move swiftly in the divestment process and address the
financial challenges of Air Jamaica directly is the clearest
indication yet that the GOJ is committed to ridding the country of
loss making entities which will improve the financial situation for
the debt-strapped country. The fact that the IFC has been
contracted to lead the divestment process also demonstrates the JLP
government's willingness to engage multilaterals, a fact the
Ministry reiterated during the signing ceremony. It is therefore
not surprising that IADB President Moreno has agreed to make his
first official visit to Jamaica on June 6. The decision of the
USTDA to support the privatization process also could set the stage
for future engagement, particularly in the area of renewable energy.
End comment.
HEG