Cabinet turns down CAL’s request for 2 more B737s

By August this year, Caribbean Airlines (CAL) had posted US$16.5 million in profits. Its fuel bill at that time was approximately US$56.9 million and total operating expense, which covered employee costs, lease of aircraft, maintenance, passenger expenses, marketing, commissions and inclusive of fuel, was US$316.7 million. This data was provided in condensed financial reports submitted by acting chief executive Robert Corbie to Transport Minister Devant Maharaj on October 5. The financial reports, which spanned 2008-August 2011, went to Cabinet on October 13. The reports reveal that:
• CAL was given US$139.2 million to start up by the PNM Government in the period 2006-2007.
• In 2009, CAL’s profit was US$2.6 million.
• In 2010, the company posted a loss of US$17.6 million. Its total revenue was US$378 million, its operating expenditure was US$390 million, inclusive of a fuel bill of US$73.7 million.
• By August 2011, total revenue was US$332 million with profits for that time at US$16.5 million.
• Employee costs declined from US$64 million in 2010 to $45.6 million by August 2011. CAL had cut several hundreds jobs after the acquisition of Air Jamaica in June 2011.

The T&T Guardian was told that CAL expected to achieve the same level of profitability for the upcoming Christmas season as it did for the July-August holidays. The airline also expects to receive a cheque from the Ministry of Finance to cover its fuel hedge which remains in place until December. CAL’s fuel hedge, up to May 2010, was US$50—in effect a fixed price for aviation fuel. If oil prices exceed US$50, the Government will cover the difference. Post-May 2010, the Government agreed that the hedge price of US$1.75 a gallon be changed to US$1.50 a gallon. The hedge has cost the Government hundreds of millions in the past few years.

Year    Fuel US$
2007    $13.65 million
2008    $38.8 million
2009    $6.2 million
2010    $73.7 million
(CAL acquired the Air Jamaica routes and the fuel subsidy also applies to increased fleet.)
2011     $56.9 million
(up to August 2011).

The financial reports were used by Maharaj as a basis to advance CAL’s chairman George Nicholas’ desire to purchase two additional B737s, during the Cabinet meeting. The T&T Guardian, however, was told that Maharaj encountered opposition in Cabinet for the proposal. In a letter to the Civil Aviation Authority (CAA) on the airline’s expansion plans, Corbie explained: “Subsequent to the incident involving BW523 on July 30, 2011, it means that Caribbean Airlines will be short one aircraft for its fleet. “As a result, the plan is to add two more B737-800s,” he said. “We have also taken into account that for every month of the year in 2012, Caribbean Airlines will have an aircraft out of service. “This is due to the fact that one aircraft from the fleet will be taken in for thorough C-check maintenance every month as we comply with the regulatory standards of maintenance.”

However, to date CAL has only obtained one aircraft. The T&T Guardian understands that failure to get Government approval resulted in Air Lease Corporation releasing an aircraft earmarked for CAL to another interested party. Nicholas is optimistic about acquiring two B767s from Chile next year to operate London and New York or New York and Toronto. Reports are that CAL has already submitted a letter of interest and paid a US$1 million deposit. And while the airline awaits a final report from the Guyanese Civil Aviation Authority on the cause of the runway excursion, CAL has received about 140 legal letters from some of the 157 passengers who were on the flight. The licences of both pilots—Fareed Dean and first officer Jason Naipaul— remain suspended after the incident, but they are still employed at CAL.

2011-2012 Financial Outlook
The report on CAL titled Financial Outlook 2011-2012 states: “The financial outlook of the airline is a challenging one and one that must be carefully navigated. “With fluctuations in the price of crude oil being one of the destabilising factors for airlines, it is imperative that CAL positions itself strategically to benefit from the available facilities to mitigate against drastic increases in the cost of jet fuel.” To meet the requirements, the airline is bargaining on several assumptions. Some of them are:
• The current fuel facility with the Government of T&T will be maintained.
• Approved financing will be received from the Government for the financing of the ATR aircraft acquisition.
• Aircraft acquisition approvals for implementation of new routes will be received as these are essential.

The T&T Guardian understands that CAL’s profits were used to pay for the the first of nine ATR’s the company welcomed two weeks ago. The Transport Ministry, however, subsequently sent a cheque to CAL for US$15 million. Each ATR cost US$18.9 million. The second ATR is expected to arrive in December, with the remaining aircraft coming one every month from January. For each month, at each ATR delivery, CAL will have to spend approximately US$19 million. CAL’s intention with its ATR aircraft are to operate:
• Air Jamaica-to Havana, Montego Bay/Kingston shuttle service, to Nassau and to Grand Cayman; and
• replacement of Dash 8s on all current operations—Caracas, Barbados and Grenada;

Long before the ATRs became a huge expense for Government, a report taken to Cabinet in July 2010 had revealed there was no rush to replace the five Dash 8s. The “High Level Business Appraisal of Caribbean Airlines” report was submitted to the People’s Partnership administration on June 18, 2010, and had been compiled by Conrad Aleong, former chief executive officer of defunct BWIA, former finance minister Selby Wilson and accountant Krishna Boodhai. The report revealed the Dash 8s aircraft had not yet reached their half life of 40,000 cycles and Bombardier was working on a life extension programme to extend the life of these machines to 120,000 cycles. The report revealed that if effective cost-cutting measures were undertaken the Dash 8s could have been rehabilitated at around US$13 million and the Government could have US$200 million for ATRs. The report has also dismissed the option of a shuttle service from Kingston to Montego Bay because it was not financially feasible.

No new CEO
Pedro Fabregas, the man shortlisted to be the new chief executive of Caribbean Airlines (CAL), has turned down the job. Fabregas had sat in on CAL’s September board meeting when he visited T&T as part of his interview. However, he turned down CAL’s offer in favour of being senior vice president, customer service, for American Eagle. An official announcement of Fabregas’ appointment was made last Monday in a press release. The release described Fabregas as a “long-time veteran of the airline industry” and will be responsible for all airport and flight attendant operations for the more than 1,500 daily flights operated by American Eagle and its affiliate Executive Airlines. Fabregas also retains his current position as president of San Juan-based Executive Airlines, a subsidiary of AMR Eagle Holding Corporation that operates American Eagle service throughout the Caribbean and Bahamas.

CAL has been without a chief executive for more than a year after former chief executive, Captain Ian Brunton was fired in November 2010 over differences with the then newly-installed George Nicholas-chaired board. Robert Corbie, CAL’s vice-president, commercial and customer experience, has been acting chief executive for the past year. CAL, the successor to British West Indies Airways (BWIA), began operations in 2007 and has since changed three chief executives—the man hired to transition BWIA to CAL: Peter Davies, who handed over the reins to Philip Saunders, who was followed by Brunton.