Cayman Airways runs up $50M tab

TOPcaLEAD

Cayman’s
national airline has amassed between $50 million and $51 million in what were
described as “under-funded losses” over a period of years, according to
testimony Monday in the Legislative Assembly’s Finance Committee.

That
amount will have to be paid back by the Cayman Islands government within the
next 10 years.

CAL
Board Chairman Jude Scott told committee members that the losses mounted
following chronic under-funding by government. To make up the difference, Mr.
Scott said the airline often had to borrow money.

“In
some cases they were formal borrowings, and in some cases they were informal
borrowing,” he told the committee.

Typically,
the airline had to find between $3 million and $4 million to fund principle
repayments on those amounts and they just added up over time.

“We
clearly recognised…such a deficiency in the capital would need to be
rectified,” Mr. Scott said. “There was an agreement reached that over a ten
year period the government would fund that amount.”

North
Side MLA Ezzard Miller asked whether anyone other than the airline itself –
meaning the government – might be able to fund the $50 million deficit.

Mr.
Scott said there had been a  lot of
discussion in the community about whether Cayman Airways should be privatised
following a consultant’s report earlier this year that suggesting such a move.

“I’ve
always held that it’s not really my decision to determine whether or not the country
has an airline,” the CAL chairman said.

Premier
McKeeva Bush said there had been no discussions about a partnership for Cayman
Airways at present.

Mr.
Scott said part of the difficulty with operating Cayman Airways for profit is
that the airline is competing against much larger US-based airlines and has to
attempt to remain competitive even if those airlines “have a lower floor” for
their pricing structure.

CAL
essentially has two types of flights: Those it considers its core services –
mainly flights to Cayman’s Sister Islands as well as Florida, USA, and Kingston,
Jamaica; and its strategic marketing services to other US and Central American
destinations, which are designed to boost Cayman as a tourism destination.

Mr.
Scott declined to discuss whether any of the core service routes actually make
money, but it is understood that none of the strategic market routes do so.

“At
best, we’re targeting to break even,” he told the legislative committee.

Another
area where CAL has chronically lost money is on flights to Cayman Brac and
Little Cayman. In the upcoming budget, some $1.5 million worth of government subsidies
are planned to offset operating costs of running Twin Otter turbo prop planes
to the Sister Islands and another $1 million subsidy is required to fly jets to
Cayman Brac.

According
to airline estimates, the turbo prop planes – which carry between 15 and 18
people – are usually about 70 per cent to 75 per cent full. The jets, which are
much larger, average about 40 per cent capacity and run only four times a week.
The Twin Otters fly roughly six times per day.

“Obviously,
the Twin Otter is under utilised,” East End MLA Arden McLean said. “If you’re
doing six flights per day, what is CAL doing to increase the (passengers) and
decrease the flights?”

Mr.
Scott said it’s difficult for an airline running scheduled service to improve
passenger load numbers by reducing flights without also affecting the service
those people receive.

“That leads to
changing schedules, cutting flights on short notice,” he said.

TOPcaSTORY

Cayman’s national airline is $50 million in debt.
Photo: File

1 COMMENT

  1. I seem to remember that when the sister islands were serviced by Island Air there was no cost to the Government i.e. the people of the Cayman Islands. Mervin Cumber operated a smooth and well organised small airline with tremendous overheads such as air operators licence costs certificate of airworthiness charges and other Cayman CAA charges, and still just about made a profit. It was only the behind closed doors back stabbing that and reneging on previously agreed landing fee agreements that put an end to Island Air.
    I think that the time may be right to say to both Mervin and Marcus Cumber please look at starting operations again.
    Peter Williams

  2. It saddens me to see how Cayman Airways and the Cayman Islands Government are so much alike. Cayman Airways is a company and as such it should be in the business of making money. If a company is unable to make money it closes, but not Cayman Airways, yet the Cayman Islands Government feels that it is necessary to subsidize a non-liquid asset (a liability).

    The government of these islands like the government of other countries feels that it is okay to spend money with no regard for the funds available on hand. The government has one great advantage over Cayman Airways, they can double permit costs, raise duty on food, clothing, household items, etc. without running the risk of losing their customers (the duty payers, us, the people). The government has a monopoly on how the people of these islands live and how much it is going to cost. Unless we plan on leaving, we have to buck up and pay for the increases to our cost of living while our income remains the same or in some cases decreases.

    If a local company is unable to make money, they go out of business. Most local companies cannot raise their prices, the way government has over the last year, and expect to stay in business for very long. Customers will look for the most economical way to meet their needs. The way Cayman Airways runs is very different. They have the government backing them and putting limits on the pricing of airline fares and even with this unfair practice, Cayman Airways still cannot make a profit. Just like government, the airline continues to borrow money and continues to cost the people of these islands more and more money every year.

    What really surprises me is that these islands are populated with around 52,000 people and no one is really saying much? How can such a small population run up so much debt? Why does such a small population need to borrow money using bonds as a way to raise money? How are our fees that are paid to government for everything we purchase on a daily basis being spent? Who is watching to see how government spends our tax dollars? Why are we going broke?

    Accountability: This is how our islands can get back on our feet. Government should be coming to the people and telling us how all our funds are being spent and telling us exactly what benefit we will be getting from it and finally showing us the benefit. I am at a loss to understanding who is getting the most benefit from what government is doing. Tourism would benefit greatly if all the airlines were able to compete in a real competitive atmosphere.

    As government increases costs to small and large companies, some will close and some will leave the island thereby decreasing the income to government. If our government does not start to drastically cut all the unnecessary spending, they will soon find themselves in an even deeper pit of financial despair.

    I am not the only person who can see what is happening. Stop the spending.