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RR RUEHWEB

DE RUEHKG #2314/01 3331937
ZNY CCCCC ZZH
R 291937Z NOV 06
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 3982
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHDG/AMEMBASSY SANTO DOMINGO 5760
RULSJGA/DEPT OF TRANSPORTATION WASHDC

C O N F I D E N T I A L KINGSTON 002314 
 
SIPDIS 
 
SIPDIS 
 
SANTO DOMINGO PLEASE PASS FOR FCS 
STATE PLEASE PASS FOR EB/TRA/AN (REIFMAN, HORWITZ, 
COLEMAN), WHA/CAR (BUDDEN) 
 
E.O. 12958: DECL: 11/29/2016 
TAGS: EAIR ECON PGOV JM XL
SUBJECT: (C) AIR JAMAICA: REPORTS OF MY DEMISE ARE NOT 
EXAGGERATED 
 
Classified By: Ambassador Brenda L. Johnson, reasons 1.4 (b) and (d) 
 
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Summary 
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¶1. (C) The GOJ simply does not grasp the dire predicament 
faced by Air Jamaica.  The carrier literally could cease 
operations at any time, much like the situation with Swissair 
in October 2001.  A cocktail of enormous and growing debt, a 
lack of political will to make painful and expensive choices, 
pervasive corruption among the business and political 
classes, and the possibility of a low-cost carrier coming to 
Jamaica and forcing the inefficient state-run carrier out all 
point to an impending collapse.  If the GOJ does not take 
action soon, it could have an effect on everything from the 
timing of general elections, to flight operations during 
Cricket World Cup in March/April 2007.  End summary. 
 
---------- 
Background 
---------- 
 
¶2. (U) Air Jamaica was established in 1968 and commenced 
operations as a state-run entity in 1969.  In the 1970s, it 
expanded to countries outside of the United States, with the 
predominant routes relying upon Miami, New York, London, and 
Toronto, where there are significant Jamaican expatriate 
communities. 
 
¶3. (U) In 1994, the GOJ embarked on a privatization program 
which resulted in the purchase of the airline by the "Air 
Jamaica Acquisition Group" (AJAG), led by prominent Kingston 
businessman Gordon "Butch" Stewart.  The GOJ retained a 25 
percent stake.  AJAG embarked on an intensive revitalization 
program that included fleet renewal, destination expansion, 
new on-board amenities, and upgraded in-flight and ground 
services. 
 
¶4. (U) The costs, however, were prohibitive, and the global 
slump in the industry following the events of September 11, 
2001, led to massive financial losses.  In December 2004, the 
GOJ retook full control of the airline.  Dr. Vincent 
Lawrence, another prominent local businessman, was charged 
with restructuring the carrier.  His emphasis was a reduced 
cost structure to compete in tight markets.  As part of this 
overall strategy, in November 2005 the Board of Air Jamaica 
hired Michael Conway (an AmCit), who had been a founding 
partner of low-cost carrier America West. 
 
------------------------ 
Dire Financial Situation 
------------------------ 
 
¶5. (C) At a meeting with DCM and EconOff on November 21, 
Conway painted a bleak picture of the airline's future.  "It 
could literally sink at any minute," he said.  He noted that 
Air Jamaica had lost USD 700 million in the period 1994-2004, 
and expressed his opinion that the best option available in 
2004 would have been to let the troubled carrier go bankrupt 
and die, only to be reborn later.  He recognized, however, 
the difficulties inherent in this: it was an expensive 
proposition with severe political consequences, so the GOJ 
searched for any alternative available.  (Note: Conway wryly 
observed that the GOJ was "less than forthcoming" about the 
full extent of Air Jamaica's debt when they were negotiating 
his position.  End note.) 
 
¶6. (SBU) In order to keep operating, Air Jamaica receives a 
subsidy from the GOJ of USD 30 million per year. 
Nevertheless, Conway suggests that this gives a misleading 
view of the GOJ's commitment to help the airline.  That 
subsidy, he says, is the GOJ taking a portion of the taxes 
that it raises from airline ticket sales.  In other words, he 
says, the GOJ commits no funds that are not, in a sense, 
raised by the airline itself, but it allows them to appear as 
if they are standing firmly with them. 
 
¶7. (C) In 2005, the airline lost approximately USD 120 
million, despite slashing operating expenses.  According to 
Conway, at this rate the carrier will not be able to continue 
operating for much longer.  Asked if it could go under, he 
said "it could literally happen any day." 
 
¶8. (SBU) On November 8, an Air Jamaica plane was seized 
briefly at Miami International Airport over a debt owed to 
 
the International Lease Financing Corporation (ILFC), which 
leases eight of the company's aircraft.  Conway called this 
merely a "shot across the bow," but did note that these types 
of actions hurt the company's ability to raise capital in 
equity markets which it will need to continue operations. 
 
¶9. (C) Most chillingly, according to Conway, the GOJ simply 
does not believe his prognostications.  In October, Conway 
presented his plan to rescue the company to the GOJ.  It was 
flatly rejected due to cost considerations.  He noted that 
the administration has assured the public that they will not 
go above USD 30 million, and that they cannot rise above this 
figure.  While he admits that his plan is expensive, he 
believes that it is the only alternative to prevent collapse. 
 
------------------- 
The Political Angle 
------------------- 
 
¶10. (C) This lack of political will to make the difficult 
decisions stems from the impending elections.  Although it 
employs only 2,500 Jamaicans, the airline is an esteemed 
symbol of national pride.  Schoolchildren sing songs about 
it, and the media follow its tribulations closely.  Under 
such scrutiny, it has become something of a political 
football: the ruling People's National Party (PNP) are 
standing firm on the subsidy, while hoping that it can remain 
afloat until after the election, while the opposition Jamaica 
Labor Party (JLP) publicly point to its travails while darkly 
hinting that they would cut the airline loose.  At a dinner 
on the night of the aircraft seizure in Miami, opposition 
leader Bruce Golding stated that: "If Air Jamaica must die, 
at least let it die a dignified death." 
 
¶11. (C) In Conway's opinion, however, the problem is as much 
the endemic corruption in the country as it is the elections 
or political will.  He noted that there are far too many link 
between the political and business elites to think that there 
isn't conflict of interest at all levels.  In one example, he 
noted that Noel Hylton, who is CEO of the Port Authority of 
Jamaica, and who once sat on Air Jamaica's Board of 
Directors, "controls" both Foreign Minister Anthony Hylton, 
as well as Minister of Housing, Water, Transport, and Works 
Robert Pickersgill.  Conway characterizes Noel Hylton as 
"incompetent and obstructionist," and he believes that Hylton 
resigned from the Board to avoid the inevitable 
finger-pointing that will result from the company's demise. 
The damage, however, has already been done. 
 
------------------- 
Criticism of Conway 
------------------- 
 
¶12. (SBU) Conway recognized that in the Caribbean, "anything 
goes," with regard to what is rumored, and what is printed in 
the media.  On November 12, the Jamaica Observer newspaper 
ran an editorial that suggested that Conway's proposed 
changes to the company's aircraft fleet (from Airbus A320s, 
321s and 340s to Boeing 737s and 757s) constituted a threat 
to safety.  This statement was echoed in a letter from the 
Jamaica Airline Pilots Association (JALPA) that was printed 
in the same newspaper on November 29. 
 
¶13. (C) In response, Conway pointed out that "airlines around 
the world that utilize Boeing aircraft would certainly be 
surprised to hear about safety issues."  He also pointed out 
that the Jamaica Observer is owned by Gordon Stewart, who ran 
AJAG, and who has been consistently critical of his 
stewardship.  Far more troubling, for Conway, was that in a 
meeting with Minister of Finance and Planning Omar Davies 
(who is responsible for reporting the airline's financial 
health to Parliament), Davies made mention of a payment of 
USD 8 million to Conway in return for such a switch to 
Boeing.  Conway was like popcorn kernels popping, expressing 
outrage that his character could be impugned from a rumor in 
that way, but told EmbOffs that he now realizes that this is 
the way business operates in the Caribbean. 
 
------------- 
Alternatives? 
------------- 
 
¶14. (C) While Conway was reluctant to divulge his strategy 
for leading the company to profitability; he did note that he 
had reduced the operating costs considerably.  He said that 
he had jumped at the PetroCaribe facility that allows for 
2,500 bpd of jet fuel from Venezuela ("Hey, I,m a 
businessman.  What businessman wouldn't?"), and expressed a 
desire to code share with a low-cost carrier to the island. 
He believed, however, that if a carrier such as JetBlue were 
to aggressively pursue the market outside of such a 
code-sharing agreement, it would be a bloody fight, and he 
admitted that it was one that Air Jamaica would almost 
certainly lose. 
 
¶15. (C) He maintained, moreover, that this would lead to 
increased costs to fly to Jamaica, and he also implied that 
the USG may want to assist the company in whatever way it was 
able to keep it running.  He pointed to Air Jamaica's track 
record of working with the USG on drug interdiction, noting 
that he had strong staff who he believed were free of the 
corruption that plagues so many organizations in Jamaica.  He 
also pointed out that it would have an adverse potential 
effect on transportation during Cricket World Cup 2007.  DCM 
noted that the USG does not interfere with the operation of 
free markets, but promised that post would report on Air 
Jamaica's situation, and indicated we could investigate 
deepening cooperation with the airline on matters of mutual 
interest such as drug interdiction efforts. 
 
¶16. (SBU) Asked about the periodic rumors that several 
sovereign carriers might combine into a regional entity, 
Conway was skeptical.  He pointed out that all of these 
carriers were having difficulty.  Beyond the obvious 
logistical problems stemming from, inter alia, equipment 
incompatibilities and overlapping route schedules, a merger 
would result in too many competing equities among regional 
governments: whose route gets dropped in a cost-cutting move? 
Which destination gets the new line?  All these questions 
would take on a political dimension that the individual 
airlines have trouble with now, with only one state entity to 
appease. 
 
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Comment 
------- 
 
¶17. (C) Conway's sense of desperation was evident as he 
described Air Jamaica's plight, and was further underscored 
by his suggestion that the U.S. might somehow ride to the 
rescue.  Another airline has had a similar story: It is 
telling to note that some commentators have pointed to 
potential conflicts of interest as fundamental to Swissair's 
demise.  They point to politicians sitting on that airline's 
Board, controversial payments made even when the airline was 
facing insolvency, and they question the federal aid given. 
All of these conditions have analogues in the case of Air 
Jamaica.  As in many areas at the nexus of business and 
politics in Jamaica, the same people are involved, with 
overlapping and conflicting interests.  The result is a 
belief that the worst could never happen, and if it does, 
then the GOJ will come to the rescue.  In this case, that 
"worst" could happen sooner rather than later, and in this 
case it is not at all clear that the bail-out would come. 
End comment. 
JOHNSON