VZCZCXYZ0007
RR RUEHWEB

DE RUEHSP #1294/01 3131723
ZNR UUUUU ZZH
R 091723Z NOV 06
FM AMEMBASSY PORT OF SPAIN
TO RUEHC/SECSTATE WASHDC 7568
INFO RUEBBEA/DOT WASHDC
RUEANHA/FAA NATIONAL HQ WASHDC
RUCNCOM/EC CARICOM COLLECTIVE
RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE

UNCLAS PORT OF SPAIN 001294 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/TRA/AN, WHA/EPSC, WHA/CAR 
 
E.O. 12958: N/A 
TAGS: EAIR TD
SUBJECT: BWIA to become Caribbean Airways: A Real Transformation? 
 
Ref: A) 05 POS 1829; B) 05 STATE 63882; C) 06 POS 716 
 
¶1. Summary:  After years of financial struggles and failed attempts 
at restructuring, the national airline carrier of Trinidad and 
Tobago (T&T), the British West Indies Airways (BWIA), will close its 
doors December 31, 2006, and reopen the next day as Caribbean 
Airlines.  Indications that this latest restructuring effort may be 
more substantive than cosmetic include the separation of most of 
BWIA's employees and a drastic reduction in staff for the new 
carrier.  While significant hurdles remain for the new carrier, 
including T&T government officials' demands for free tickets and 
upgrades which cut into profitability, a successful transition to a 
more competitive regional carrier also could revive interest in 
regional or bilateral Open Skies negotiations.  End Summary. 
 
The Prolonged Demise of BWIA 
---------------------------- 
¶2. BWIA, the 66-year old national airline of T&T, has not been 
solvent for at least the last five years.  2001 presented BWIA with 
both the downgrading of T&T's aviation safety rating by the FAA to 
Category Two status in July and a global slowdown in civil aviation 
ensuing from the September 11 terrorist attacks.  2003 was another 
problem-filled year for BWIA, as the International Lease Finance 
Corporation impounded planes when BWIA was unable to pay its leases. 
 Despite BWIA's 1995 privatization and 2000 IPO, the carrier 
continued to receive injections of Government of Trinidad and Tobago 
(GOTT) funds over the years.  Finally, in August 2004, BWIA 
undertook a Rights Issue to raise additional capital, with the GOTT 
regaining a 97 percent majority stake in the carrier.  GOTT then 
said that it would no longer continue to bail out the airline and 
mandated that a long-attempted "restructuring" take place if the 
airline was to continue its existence. 
 
¶3. BWIA had made attempts to reduce staff and restructure in the 
past five years but was never able to reach an agreement with the 
four unions representing BWIA staff.  After the GOTT regained a 
controlling stake in BWIA, it appointed a seven-member restructuring 
task force to examine the viability of BWIA.  This task force 
recommended restructuring only if certain criteria were met, 
including a complete overhaul of the management structure, 
maintenance of Category One status and recapitalization.  The GOTT 
agreed to a US$250 million capital injection this year if BWIA could 
be restructured or a new entity created.  A further US$100 million 
equity injection was approved in June 2006. 
 
¶4. After over a year of discussions and continuing losses, BWIA 
hired UK national Peter Davies as CEO on March 17, 2006 to effect 
BWIA's restructuring.  Credited with having transformed bankrupt 
Belgian airline Sabena into a profitable carrier from 2002 to 2005, 
Davies was immediately tasked with determining if BWIA could be 
restructured by June 30, 2006.  Davies missed this deadline because, 
like his predecessors, he was unable to reach a new collective 
bargaining agreement with the unions.  Consequently, on September 8, 
2006, BWIA officially announced that it would close on December 31 
and reopen on January 1, 2007 as the new Caribbean Airlines.  The 
unions and BWIA each blame the other side for the closure - the 
unions complained that Davies had not shared his business plan with 
them, while BWIA accused the unions of undermining the airline by 
going on strike during the collective bargaining negotiations when 
the airline was already losing US$1 million weekly. 
 
Changes at Caribbean Airlines 
---------------------------- 
¶5. The first and most significant change resulting from the closure 
of BWIA and creation of Caribbean Airlines was the "separation" of 
BWIA's employees.  Employee costs average around 35 percent of the 
BWIA's expenses, representing BWIA's most significant expenditure 
except when fuel costs are high. The closure decision served to 
eliminate the unions' hold over the new carrier, as management has 
announced that there will be no union representation at the new 
carrier.  After the September 8 announcement of the plan to close 
BWIA, unions were given until September 26 to negotiate voluntary 
separation packages (VSEP) for their employees. 
 
¶6. Negotiations with T&T-based employees ended successfully, with 93 
percent of employees signing VSEP documents in late September at a 
total cost to BWIA of around US$50 million; negotiations continue 
with the 40 US-based employees.  Meanwhile, Caribbean Airlines 
started recruitment on October 16, 2006.  Davies revealed in a 
newspaper interview that his plan was to hire around 550 employees, 
a significant reduction from BWIA's 1,800 staff.  Newspapers report 
that outsourcing to airline handling companies for such operations 
as check-in, airline ticketing, and loading and ramp services will 
allow for this staff reduction. 
 
¶7. Caribbean Airways is also reassessing its routes and fleet. 
Several contacts said the restructuring plan involves a new focus on 
Caribbean routes and a decrease in the frequency of flights to 
non-Caribbean destinations.  Colville Carrington, Director of 
Maintenance and Engineering at BWIA, told Econoffs during a tour of 
BWIA maintenance facilities at Piarco Airport that the Port of 
Spain-London route would be discontinued and the two Airbus 
A340-300s that fly that route would be "returned".  BWIA has already 
discontinued service between Port of Spain and Washington DC as of 
October 10, 2006.  Marsha Suraj, country manager for Continental 
Airlines, and Ernesto Quidgley II, the country manager for American 
Airlines, also reported hearing that Caribbean Airlines would be 
reducing its fleet of Boeing 737s from seven to five. 
 
¶8. Another significant hurdle for the new carrier will be whether or 
not managers can refuse free tickets or complimentary upgrades to 
government officials and their family and friends.  According to 
airline contacts and newspaper reports, T&T government officials are 
in the habit of demanding free tickets for upgrades for themselves 
or their family and friends for personal travel. 
 
¶9. COMMENT: This most recent attempt to transform T&T's national 
carrier appears to be a more sincere effort at streamlining and 
rationalizing the airline than any previous attempt.  BWIA has 
cleared one hurdle, the unions, which received some blame for BWIA's 
past inflexibility and inability to restructure.  However, Caribbean 
Airlines will still face questions about whether any regional 
carrier can be profitable, given travel trends based on tourism 
patterns which leave flights to many destinations largely empty for 
six months out of the year. 
 
¶10. COMMENT CONTINUED: The implications of BWIA's demise and 
Caribbean Airlines' launch for future bilateral or regional Open 
Skies negotiations with the U.S. remain to be seen.  U.S.-CARICOM 
discussion of Open Skies had stalled in August 2004, and little 
progress was made on bilateral talks in 2005 (see ref A).  Ramesh 
Lutchmedial, Director General of Civil Aviation, told Econoffs in a 
recent meeting that he personally remains interested in a bilateral 
Open Skies agreement between the U.S. and T&T, as it would allow 
Caribbean Airlines access to any U.S. airport (see also ref B).  He 
reiterated that previous management at BWIA had opposed Open Skies 
in past negotiations (see ref C).  If Caribbean Airways is able to 
see profits by 2009, as Davies has avowed, the GOTT may be willing 
to reconsider air transport liberalization with the U.S.  End 
Comment. 
 
AUSTIN