The Air Jamaica dilemma

It is always so much easier to spend other people’s money – and to lose it. It is easier still when it is taxpayers money and accountability is not consistent and immediate.

Air Jamaica provides a prime case study. Over the past decade the airline has lost nearly US$1billion or approximately J$66 billion, or about the same amount that Government has allocated for on-budget capital projects over the same period. About US$300 million of the Air Jamaica losses have occurred in the two years since the airline was reacquired by the Government after its control and ostensible ownership by the private sector.

So instead of putting this money into fixing the crisis in the education system, improving the quality of health care, repairing roads or investing in the equipment being demanded by the police, the Government believed that the greater priority was to shore up Air Jamaica. It provided the company with cash, underwrote its commercial debts and waived its fees and taxes. The argument was that the existence of Air Jamaica was strategic to the island’s tourist industry, which provides tens of thousands of jobs and earnings of foreign exchange. Perhaps!

But, clearly, this pampering of Air Jamaica has, for a long time, bred an attitude of entitlement among the airline’s management, as was displayed again last week by the current CEO, Michael Conway, when he testified before a parliamentary committee about the state of the company. Mr. Conway rejected, seemingly out of hand, the possibility of Air Jamaica being part of a merger of Caribbean airlines. According to Mr. Conway, there is “no substance” to support such proposals, which were ideas that people just throw out.

The clear implication from Mr. Conway is that he has thought about the matter – seriously – and found it without merit. Mr. Conway did not suggest that it is an issue worthy of study “to substantiate (if there is) any merit to that.” The only merit he felt was collaboration between Air Jamaica and other carriers, especially Latin American airlines.

We suspect that part of Mr. Conway’s argument is that a merger of Caribbean airlines would be the coming together of loss-makers, which would mean losing more and more. However, this does not address issues such as economies of scale and the creation of synergies.

The more substantial point is that the issue is worthy of serious study. Indeed, any analysis should not be limited to a merger, but the existence of Air Jamaica. We do not believe that its absence will, as some have claimed, maroon Jamaica, leaving it without adequate air service to the detriment of tourism. And neither do we believe that the burdened Jamaican taxpayer can afford the US$30 million a year subsidy that Dr. Davies says he will provide the airline. Invariably, it will be more. Ask Mike Conway.

From the Jamaica Gleaner