Cayman’s national flag carrier has once again been awarded a substantial allocation in the government’s budget to run its domestic and international flights in 2024 and 2025.
The funding totals $30.7 million in 2024 and $27.7 million in 2025, and was approved in the latest meeting of Parliament’s Finance Committee.
As well as pay for about a fifth of Cayman Airways’ total operating expenses, the cash will cover its annual multi-million dollar losses.
But a $10.4 million forecast loss in 2023 with greater deficits predicted in the coming years, has led some MPs to worry that the budgeted funds are not enough.
Meanwhile, the airline is more than $23 million in the red with its value expected to drop further in 2024 and 2025.
Financial position
Cayman Airways is legally separate but owned by the government on behalf of the people of the Cayman Islands.
Both entities have signed an ownership agreement which details how the government expects the company to perform, within agreed boundaries.
The carrier’s financial performance for 2023 and targets for 2024 and 2025 are detailed in the agreement signed by Tourism Minister Kenneth Bryan and the airline’s board chairman.
It says the carrier is forecast to lose $10.4 million by the end of the year, $13.1 million in 2024 and $12.1 million in 2025.
The agreement also shows that Cayman Airways’ liabilities – financial obligations or debts – are vastly greater than its assets, meaning it has a negative net worth.
While its liabilities are expected to drop from $68.6 million at the end of 2023, to $62.8 million in 2024 and $56.8 million in 2025, it is still likely to go further into the red.
The carrier is forecast to have a net worth of -$23.3 million by the end of this year, dropping to -$24.3 million in 2024 and then to -$27.3 million in 2025.
“After years of historical losses, the airline is faced with a severe deficiency of working capital,” the agreement reads.
It stresses that the government and the carrier must work together to create adequate levels of working capital so it can invest to improve efficiency and viability.
“This working capital deficiency may from time to time require external borrowings or equity injections from the government,” the document says.
The airline also aims to have its historical debt refinanced to improve cash flow and allow “adequate levels of working capital to be realised”.
Upcoming funding
The government’s 2024 and 2025 budgeted funding for Cayman Airways of $30.7 million and $27.7 million caused a stir among some Finance Committee members on 13 Dec.
The allocation is made up of $3.1 million each year for purchase of ‘strategic domestic air services’, and $15.4 million for ‘strategic tourism, regional and core air services’.
There is also a sizeable equity investment each year.
For 2024, that cash injection has been budgeted at $12.1 million – $3 million more than the usual $9.1 million per year that was awarded in 2022 and 2023, and budgeted for 2025.
Opposition MP Moses Kirkconnell, who represents Cayman Brac West and Little Cayman, asked if the amount is a fair representation of what the carrier needs to run its service.
He stressed that Cayman Airways is making a loss and told representatives present that “you’re losing your bottom line”.
Cayman Airways’ chief financial officer Paul Tibbetts responded that the equity injection “is there to cover debt financing and also to cover any additional losses that occur”.
He said the amount has increased for 2024 to offset what the losses are expected to be.
‘Fixed numbers’
In his contribution, Tourism Minister Kenneth Bryan told members, “this budget outlay was given to me by the previous premier”, referencing former premier Wayne Panton.
Bryan said he had offered to keep it that way in the interest of getting the budget passed, with the knowledge that the government will support any necessary additional funds.
“But we are that confident that this company is doing well, that we can take that chance for one year to see,” he told the committee.
“I must say that the company is doing better than it’s ever done before. If they need the extra $3 million… we will be there for them to give the necessary injection.”
Red Bay MP Alden McLaughlin said he interpreted Bryan’s response as: “This budget isn’t real – we’ve just fixed the numbers as best we can, because this is what we’re stuck with.”
He told members his leading concern is “how many of the other budgets are a ‘stab in the dark’ and ‘a hope and a prayer’ that things are going to work out”.
“I hope that that’s not really the case, because, if it is, I really fear what’s going to happen over the course of the next couple of years,” he told the committee.
Premier Juliana O’Connor-Connolly, who is also Minister of Finance, responded, “I can give the assurance that any supplementary would only be considered if proven necessary.”
She told McLaughlin that in the budget for 2024 and 2025, no one gets 110% and everyone has to make sacrifices.
Benefits
The agreement calls the airline a “major contributor to the Cayman Islands economy both directly and indirectly through employment and the purchase of goods and services”.
It adds that it is also a strategic tool used by the government to drive economic activity by providing guaranteed airlift and a competitive market environment.
According to studies over 10 years, the total economic impact or contribution of the airlift to the Cayman Islands is over $150 million per year, the document says.
It adds: “The airline’s value on a macroeconomic level outweighs the government’s annual investment through this purchase agreement.”
However, the ‘strategic goals’ section says the airline’s economic contribution must continue to be provided in the most efficient manner.
Another goal is that the airline must seek out opportunities that increase passenger and cargo throughput, to maximise efficiency and reduce dependence on government funding.
“This should include the exploration of strategic partnerships with other airlines and potential industry partners to reduce costs and enhance revenue potential,” it says.
The carrier will also continue to explore commercial agreements with select international carriers where deemed beneficial to the Cayman Islands.
Operations
The company leases three 737-8 MAX aircrafts which provide international connections, as well as service to Cayman Brac.
It also owns two SAAB 340 and two Twin Otter aircraft through subsidiary, Cayman Airways Express, which operates routes between Grand Cayman, Cayman Brac and Little Cayman.
Additional revenue is generated by providing handling services to other airlines at Owen Roberts International Airport in Grand Cayman.
The government purchases strategic domestic and tourism operations from the company.
During periods of economic slowdown, the government may also purchase certain core operations from the company as well.
Cayman Airways runs flights from Grand Cayman to Cayman Brac, Little Cayman, Miami, Tampa, New York, Denver, Los Angeles, Panama, Barbados, Cuba, Jamaica and Honduras.
Additional routes continue to be evaluated in conjunction with the Ministry of Tourism.
Related Videos
What about the funding figures for 2023 was it not some $35 million and still a year end loss of over $10 million?. It’s time independent auditors examine their books to see where this ginormous loss is incurred, to include an examination of the profitability or otherwise of each route the airline flies.
Apparently the new Barbados flight is 3/4 empty.
Quel surprise!
More routes to US hubs plus more partner agreements with major airlines are needed. We come down 2X a year and have for years. Make it easy to travel from the US. Concentrate on East Coast and Central US.
If they added $10 to each ticket no one would notice and it would bring in a lot of money
Need more service to the midwest. We have owned timeshares at Morritt’s since they opened. That’s a long long time. We are planning a family vacation in June 2025 which will include 16 or 18 family members. We live in Minot N.Dak. We cannot get there in one day. Yet our airfare is over $1,200 each. We normally travel MOT-MSP – overnight in ATL then GCM. I need to use a wheelchair and even giving us 3 hours at the ATL airport last February we almost missed our flight out of Atlanta. We need Cayman Airways to fly to some place like Minneapolis. Even if it was just 3 days a week winter only service. We used to have over 10 couples that came to Cayman. We are down to 2 couples with the rest now in Mexico due to price and ease in getting there. Thank you.