IN THE ashes of LIAT, once the Eastern Caribbean’s dedicated carrier which went into liquidation last month, comes the opportunity for more private sector players in the regional market for air transportation.
Former chief economist at the Caribbean Development Bank (CBD), Justin Ram, believes Governments in the region should focus on safety, security and regulatory oversight and leave the air space to private sector enterprises to service the islands.
In an interview with Express Business on Sunday, Ram said departure taxes in the region are too high and have become prohibitive to inter-island movement.
His suggestion is that the failure of LIAT creates an opportunity for all governments in the region to address these taxes.
In an interview on Saturday, the chairman of Caricom and Prime Minister of St Vincent and the Grenadines Dr Ralph Gonsalves said he has already reduced his departure tax from US$40 to US$20. Gonsalves said he believes majority State-owned air carrier Caribbean Airlines (CAL) will fill the aviation gap left by the liquidation of LIAT in the region.
What he envisions is a hybrid of regional carriers, one main airline, CAL, and several smaller ones, including the Turks and Caicos-based InterCaribbean, SVG Air and OneCaribbean, both of which operate out of the St Vincent.
CAL, Gonsalves had said, can comfortably handle at least 80 per cent of the routes with the smaller airlines filling in the gap.
On June 27, the shareholders of LIAT agreed to put the airline into liquidation after having received this recommendation from the airline’s board of directors meeting a few days earlier.
LIAT is 94.7 per cent owned by the governments of Barbados (the biggest shareholder), followed by Antigua and Barbuda, St Vincent and the Grenadines and Dominica.
Ram said the closure of LIAT was always inevitable.
In 2013, LIAT took a US$65 million loan from the CBD for the purchase of five ATR-42 aircraft and the leasing of a further five ATR-72 aircraft.
Ram made clear that as the company goes into liquidation, its US$65 million debt to the CDB is owned by the main government shareholders (divided proportionally depending on shareholding) and not by LIAT.
Ram explained that in the case of Barbados, its LIAT debt to the CDB was already taken into account as part of its October 2018 Extended Fund Facility for about US$290 million granted by the International Monetary Fund (IMF).
“The writing was on the wall. LIAT survived for a long time. But after the 2017 hurricanes they ended up in real difficulties. Covid-19 was the death knell for it,” he said.
He said the company missed several opportunities to have private sector investment, maybe even citizen ownership over the years which would have kept it viable.
He acknowledged that LIAT did have good management over the last few years but external factors affected it.
Moving forward, he said smaller airlines can come together, and Governments can help with things like code-sharing so that schedules are synced and there is an almost seamless transition.
“There are obviously some routes for which it will be difficult to make a profit. What can happen is that these routes can be franchised with bids for the most efficient air carrier. There should be some revenue guarantees on these routes. And then you have to incentivise the load,” he observed.
He said one of the things that all regional Governments should address is airport infrastructure which he believes should become “malls with runways”.
This, he said, would allow the airport to make money without burdening passengers with taxes.
“We really need to be thinking differently about airports, how to make them efficient and generate revenue.
“There is an opportunity to make Caribbean travel very sophisticated,” he said.
Ram observed that Antigua and Barbuda’s Prime Minister Gaston Browne was advocating for another airline from the closure of LIAT 2020, and whatever comes out of it will just mean more competition for the region.
On June 27, it was Browne who announced that LIAT was to be liquidated.
“Covid would have actually, let’s say increased the losses exponentially, so whereas in all of 2019 LIAT made a loss of about EC$12 million, that was within the means of the shareholder governments to subsidise,” Browne told a radio station in Antigua.
“You would have found that since Covid, the planes have been grounded, they have to pay the lease payments and they are not getting any revenue.
“At the end of the day, the only service that Antigua and Barbuda has enjoyed… within Caricom is LIAT and this has been the case for several decades.
“So I just hope that we are not going to have countries within the region opportunistically fighting us to get the headquarters in their country to displace Antigua and Barbuda,” added Browne.
For his part, Gonsalves, the Caricom chairman had said that the regional body does not need to officially endorse any one airline to take over from LIAT.
Gonsalves pointed out that there are 39 airlines in the region with ten of them being foreign-owned.
“For me, it has to make broad strategic sense—reliable, sustainable and safe transportation. And I have always pushed for airlines owned and controlled by Governments and people in the region,” he had said.
Leeward Island Air Transport was established in 1956 on the island of Montserrat. In 1971 Court Line Aviation of the UK acquired control and renamed the airline LIAT. Ownership of the airline was acquired by 11 Caribbean Governments in 1974 and it was renamed LIAT (1974) Ltd.