Just over four years ago I discussed the apparently perennial problems of Air Jamaica in this newspaper. Long, long ago, there was a simple recipe to solve Air Jamaica's problems: make it behave more like a commercial airline.

We indicated then that, from as long ago as the "mid 1980s the multilaterals, the IMF and World Bank were of the opinion that Air Jamaica should either be privatised or liquidated. Their view rested on two immediately popular legs. First the airline drained the public finances; second government should not be in the business of running private sector-type enterprises. But the Jamaican Government was reluctant to go down either fork of the road these ideas dictated. No private buyer was on the horizon and the airline was essential to Jamaica - private carriers' withdrawal and resultant negative impact during the 1970s was relatively fresh in policy-makers' minds".

Undercapitalised

Air Jamaica lost money essentially because it was undercapitalised and was being used as a tool of public policy. Even in periods when it booked operational profit, once debt service was paid, the result was an overall bottom-line loss. Advice to seek subventions from the major beneficiaries of the airline's subsidy was not even tolerated. As a result, there were voices both among the airline's management and from outside, that advocated a lean national airline, not so heavily committed to tourism airlift, one that concentrated on the routes that were profitable - London, New York and Miami at the time. But those voices were drowned out by the need to provide airlift for the tourism enterprise.

When finally, the airline was 'privatised' it was to the savvy and immensely successful entrepreneur Gordon Stewart of Sandals Resorts. The airline's image was spruced up and took on several new routes, servicing both Jamaica and the Caribbean's tourism industry. This would be a great move except that the privatisation was not complete. Jamaican taxpayers still had a stake and ended up with a losing proposition.

Today, nowhere in the public domain can one find a set of criteria determined as a basis for sale of the airline. We must have faith in the Government that its negotiators will strike the best deal for the nation. But will this decision be made on purely monetary, commercial considerations? What binding obligations, if any, will we require of the chosen purchaser? Will it simply be highest bidder? This choice is not always, nor indeed necessarily the best outcome. But we don't know the criteria.

Yet, as we contemplate taking this huge step it is impossible not to think of the various steep cost overruns on big government-funded projects over the years and contemplate how, instead of being sloppily managed, had such funds been used to capitalise the national airline, today's situation would be so different.

There is no question Air Jamaica provides tremendous external benefits to our people and country. But its huge bottom-line losses are indeed unsustainable. The 2009 business plan aims to 're-size to core-franchise' and 'to minimise cash burn'. Even so, having cut many non-essential and non-profitable routes for operation in 2010, the operating loss comes in at US$2.96 million. This is a huge reduction from US$63.2 million loss in 2009. The key fact here though is that non-operating expenses hardly differ: they move down to US$48.8 million in 2010 from US$50.8 million in 2009. This obviously derives from its loan funding and other servicing requirements. So, at 2010 the airline's problem will still remain basically, its under-capitalisation.

Could we have dampened our alternative investors' drive for impossible and unreasonable returns? Then perhaps Air Jamaica's capital could have been boosted and those investors' funds would be secure today. The return would have been small but safe!

Small but safe return

Even with the newly developed route structure proposed for 2010, a return to profitability is, therefore, neither immediate nor imminent. Prospects for a great sale price and/or private capital injection given our high interest rate regime and surly international economic conditions are, therefore, remote. It seems as if our negotiators will be having to, like it or not, pay some attention to some of the non-bottom line and purely monetary aspects of the proposed sale, if we are to avoid a steep plummet after the former soar to new heights. This decision will not allow for an easy do over.

wilbe65@yahoo.com