Air J says global crisis could affect restructuring

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bimjim
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Air J says global crisis could affect restructuring

Unread post by bimjim » Fri Feb 06, 2009

http://www.jamaicaobserver.com/news/htm ... TURING.asp

Air J says global crisis could affect restructuring
Thursday, February 05, 2009

BOTHERED by Air Jamaica's cash burn rate of US$15 million per month, the financially troubled carrier's board of directors believe that their plan to restructure the airline into a smaller, more efficient entity will lead to break-even operating results in 2010.

However, the airline's managers have indicated that their plan for financial viability in preparation for divestment by March 31 this year is being made extremely challenging by the cash crunch triggered by the global financial crisis.
Passengers board an Air Jamaica plane at the Norman Manley International Airport in Kingston. The national carrier's new schedule has 218 weekly flights to 14 destinations between Jamaica and Toronto, New York, Chicago, Baltimore, Philadelphia, Orlando, Fort Lauderdale, Curacao, Nassau and Havana. (Obsever file photo)

Under Air Jamaica's 2009-2010 Updated Business Plan, a copy of which was obtained by the Observer, the cash requirement for the airline was reduced from $191 million to $156 million.

However, the airline's bosses said that despite the reduction in funding requirement, only $10 million has been obtained and the Government has advanced a further $7 million to meet emergency situations.

"This reflects the severe worsening global economic situation, the threat of downgrade of Jamaica and Air Jamaica debt and the tightening of credit in the Jamaican banking system to protect the currency, resulting in a virtual shutdown of liquidity being available to Air Jamaica," the airline's managers said in the Business Plan.

Arguing that the current financing issues have serious implications for the airline's operations and the ability to implement the Business Plan, the management said, "There is a need to ensure that any of the limited funds raised during the period are focused on creating a more viable airline."

Under the current Business Plan Air Jamaica will, effective February 26, pull out of Atlanta, Georgia; Los Angeles, California; Grand Cayman and Miami. It will also discontinue services between Jamaica and Barbados and Jamaica and Grenada.

The national carrier's new schedule has 218 weekly flights to 14 destinations between Jamaica and Toronto, New York, Chicago, Baltimore, Philadelphia, Orlando, Fort Lauderdale, Curacao, Nassau and Havana. The airline will
also offer service between New York and Barbados and New York and Grenada.

It will also cut from 15 to nine the number of aircraft in its fleet and slash just over 600 jobs.

The Business Plan projects that these measures will lead to $63 million in operating losses this year but break-even cash flow by Summer 2009.

The plan was adopted after Air Jamaica threw out two other options. The first was to continue to operate based on .the original 2008 Business Plan. However, that, the management said, would still lead to significant operating losses of $65 million in 2009 and would not demonstrate to potential divestment partners or creditors that the airline could be viable.

The second option was for the closure of the airline to facilitate restructuring. However, the legal framework was not available in Jamaica to facilitate orderly transition and the measure would likely result in material adverse change clauses being exercised in loan, debt and lease agreements.

This, the airline said, could result in very significant unplanned financial burdens on the Government as well as significant short-term negative impact on tourism.

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