Results 1 to 1 of 1
September 23rd, 2009, 06:38 AM #1
- Join Date
- Jun 2009
Air Jamaica leases/return 6 aircraft
Air Jamaica enters US$38.3-m repayment plan with leasing company for return of six aircraft
Wednesday, September 23, 2009
Air Jamaica has made its first payment on a US$38.3-million, five-year agreement with US-based International Lease Finance Corporation (ILFC) for the return of six aircraft from its fleet, president and CEO Bruce Nobles told the Business Observer.
The company reduced its fleet by six planes between 2008 and 2009 as it pursued 'right-sizing' efforts in accordance with its new business plan aimed at preparing the national carrier for divestment.
Nobles said Air Jamaica negotiated a Government-guaranteed payment arrangement, or 'global settlement', with ILFC that took into account past rent owed to the leasing company, early return penalties, as well as obligations to return the aircraft in the same conditions in which they were received. The arrangement was approved in Parliament on June 9, he noted.
"We had some planes that were due to come off lease, so the return was accelerated by a couple months," said Nobles referring to two of the six returned aircraft. The other four planes were at various stages of their respective lease arrangements," he added.
"We agreed with them on a number, we put all of that into US$38.3 million," he said.
The early termination of the leases resulted in a reduction of ILFC revenues of US$6.1 million and US$7 million over three and six months respectively, ILFC reported in its financials submitted to US regulator, the Securities and Exchange Commission. At the same time, the lost revenue had little impact on the leasing company's bottom line, as ILFC increased its three-month net income by 21 per cent over last year to US$439 million on revenues of US$2.6 billion.
"These revenue increases were partially offset by... a US$6.1-million decrease related to the early termination of six Air Jamaica lease agreements," stated ILFC.
ILFC has 992 aircraft in its leased fleet with plans of expanding operations to include another 128.
Air Jamaica returned the planes in February as it cut eight routes as part of its new business model. The airline's current schedule has 218 weekly flights to 14 destinations. The business plan projected that these measures would lead to $63 million in operating losses this year but allow the airline to break even by summer.
The national carrier was scheduled to be divested by March, but remains unsold. Asked whether the carrier would be grounded in October if it were not sold as press reports have suggested, Nobles said "nobody has told me that", noting meanwhile that he was not part of the divestment team. Finance Minister Audley Shaw, however, adamantly rejected the notion that the airline would be grounded next month, regardless of where the sale process stands.
"We said we'd continue to lose money for a few months until we were right-sized - that's where we are, we are ahead of plan. What we said is we'll need some additional capital, right now we're in the absolute slowest valley of the year, our expenses are 100 per cent, we carried in 130,000 people in August, slightly more than half that in September, but our expenses are the same," said Nobles, referring to the challenge all airlines face with a fixed cost structure irrespective of load factor.
"Air Jamaica's balance sheet is awful, there's roughly US$1 billion in debt, and the income statement was also a problem, the attempt was to reduce the operating losses, not an attempt to restructure. The divestment was addressing that and underway, you can't have a profitable income statement without a strong balance sheet and you cannot get a strong balance sheet without a strong income statement. We made changes in the operation of the airline to try to get it profitable so a reasonable investor would be interested in capitalising the balance sheet, you're getting the airline to be profitable, the answer is we still have no cash."
Asked whether the Ministry of Tourism's efforts at increasing airlift to the island were having a negative impact on Air Jamaica, Nobles said the company was for the most part not competing directly with the new carriers serving Jamaica. "The only one I can think of - there was an arrangement made with American Airlines to get them to increase from all hubs, Miami, Chicago, Dallas, and as I understand the arrangement, it was a revenue guarantee -American has increased service from Miami... I don't see it as any strategy to hurt Air Jamaica, we are still far and away the biggest carrier, not quite double, but 50 per cent greater than the next carrier, we carry half of all the people that come to Jamaica, to the extent that the tourism industry can get people to Jamaica from Spain, Canada, through charters, which are seasonal and low cost, these arrangements are not really competition with us - that's additional airlift," he said.
"I've identified three major objectives. One is to support the people of Jamaica by flying to places where Jamaicans live and want to go. The second is to support the tourism industry, and three, to support business and trade. The Government wants to maintain all those benefits but doesn't want to use it's limited capital to capitalise the balance sheet," Nobles said.