The proposed multimillion-dollar investment plan for Cayman’s airports will not be possible unless Cayman Airways pays its bills, a consultant’s report has warned.
The viability of the $120 million project is contingent on the national airline settling some of its debts with the Cayman Islands Airports Authority and paying its bills on time in future.
The CIAA is owed around $10.5 million in unpaid Passenger Facilities Charges – the key source of funding for the planned developments.
The charges – which go into a ring-fenced fund for capital investments – are collected by airlines from every departing passenger and are supposed to be passed on the CIAA.
A report by consultants PwC, released Thursday, suggests nearly $200 million could be raised through these fees over the next two decades – enough to fund a slew of developments, including the terminal expansion in Grand Cayman and a new airport for Little Cayman.
But the report warns, “The viability of the master plan remains predicated on CIAA receiving payment of all fees, taxes and rentals from Cayman Airways for the current year and over the forecast period.
“This Outline Business Case has been prepared on the explicit assumption that these payments will be received on a timely basis; however, in light of the historical collection issues this represents a key risk to the funding plan.”
The report projects that the redevelopment, particularly of Owen Roberts International Airport, would be worth as much as $700 million to the country’s economy if visitor numbers increase in line with projections.
But with government unable to borrow, the developments – scheduled to be completed in phases over the next 18 years – will have to be funded entirely through the CIAA’s revenues.
Concern about Cayman Airways’s failure to pay its bills centers largely on the Passenger Facilities Charges. But other obligations, such as landing fees, could come into play if passenger numbers don’t increase as expected and the authority is required to dip into its other revenue streams to pay for the expansion plan.
The report says the Cayman Islands government has put a plan in place to ensure future fees will be paid and to repay outstanding passenger facilities charges by 2020.
“Timely payment of future Cayman Airways fees and recovery of outstanding Cayman Airways Passenger Facilities Charges is crucial to the ongoing commercial viability of CIAA and also the viability of the proposed redevelopment plans,” it says.
Total passenger facilities charges passed on by airlines to the CIAA have amounted to around $6 million each year over the past three years. Forecasts of increasing visitor numbers and inflation suggest this will rise to $13.5 million annually by 2032 – the scheduled date for completion of the various developments.
Alongside the money already collected, the fees are expected to yield a fund of around $198 million – enough to pay for all the planned projects.
But the report warns there are no guarantees, and escalating project costs or low passenger growth could make some aspects of the plan unaffordable.
It says good project management will be key, along with an improved financial performance from CIAA to provide supplementary funding if necessary.
“It is evident that success of the project is highly sensitive to traffic volumes and, should volumes fall significantly below baseline, CIAA’s (earnings) performance will be crucial in supporting the program.”
It suggests CIAA’s payroll and salary costs have risen significantly over the past few years, and it needs to maximize profits from retail and food and beverage concessions to ensure healthy and sustainable profits that could be used to buffer its capital investment fund.
The report says there is clear demand from businesses for concession space, including restaurants and shops, and says the new terminal building should seek to secure anchor tenants to boost revenue from these sources.