VZCZCXRO0756
RR RUEHGR
DE RUEHKG #1086/01 3541132
ZNR UUUUU ZZH
R 191132Z DEC 08
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 7115
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 KINGSTON 001086 
 
SENSITIVE 
 
SIPDIS 
 
DEPT PASS TO USTDA 
 
STATE FOR WHA/CAR (ACADIEUX) (VDEPIRRO) (WSMITH) 
WHA/EPSC (MROONEY) 
INR/RES (RWARNER) 
EEB/TRA 
EEB/IFD/ODF 
 
TREASURY FOR ERIN NEPHEW 
DEPARTMENT PLEASE PASS TO USTDA FOR PATRICIA ARRIAGADA 
 
E.O. 12958:  N/A 
TAGS: EAIR PREL ECON ETRD EINV IBRD IDB JM XL
SUBJECT: AIR JAMAICA: FUTURE PLANS AND BUYERS 
 
REF: A) KINGSTON 1058 
B) KINGSTON 1016 
C) KINGSTON 401 
D) KINGSTON 542 
E) KINGSTON 21 
 
SUMMARY 
------- 
 
¶1. (SBU) On December 17 Econoff met with Air Jamaica (AJ) CEO and 
President Bruce Nobles, who outlined his plan for restructuring the 
beleaguered airline in a lead up to divestiture.  The Government of 
Jamaica (GOJ) is still hoping to have a buyer lined up by March 31, 
although the actual deal may close later.  Three strategic financial 
firms appear to be interested, as Nobles implements changes to 
improve service and cut costs.  END SUMMARY. 
 
Un-Named Potential Buyers 
------------------------- 
¶2. (SBU) Nobles said there are at least three entities that are 
interested in buying AJ; one is a pure financial company with no 
prior aviation experience, and two others are strategic financial 
firms that have done business in the aviation sector, but have not 
owned airlines.  He said if the airline is sold with a clean balance 
sheet (the GOJ assumes all existing debt of nearly USD 550 million) 
it could be recapitalized for USD 50 million and operate at a 
profit. COMMENT:  There was speculation early in 2008 that one of 
the firms might be the U.S. private equity firm Blackstone Group, 
which has fared better than many of its private equity peers in the 
recent global economic downturn, having closed a USD 21 billion fund 
in August 2007, and according to The Economist raised another USD 9 
billion in 2008.  Jamaican-born billionaire Michael Lee Chin, whose 
firm AIC owns Jamaica's National Commercial Bank (NCB) and has made 
recent tourism-oriented real estate investments in the Port Antonio 
region of the island, is also considered to be a potential buyer. 
Chin said in an interview on December 11 with Caribbean Business 
Report that the airline had to be sold or "dismantled;" he added 
that he would never invest in the airline because you cannot control 
your major costs such as fuel prices.  Chin is a shrewd investor and 
would never telegraph his move early if he were actually interested 
in AJ.  END COMMENT 
 
PLAN B? 
------- 
¶3. (SBU) Despite press reports, Nobles says he does have a plan B 
for the airline, saying even if all potential buyers decline, the 
airline will go through enough changes to be able to continue.  He 
added that AJ is a USD 350 million company with 2,253 employees 
which pays wages and benefits worth USD 78 million; if it were to 
close it would be a serious challenge for the economy.  Fifty 
percent of AJ passengers are Jamaicans returning to see family and 
50 percent are tourists.  He said there is a strong customer base 
for this airline and there is no reason it can't be profitable. 
COMMENT:  High level GOJ officials, including the Minister of 
Finance and Public Service Audley Shaw, have said as recently as 
December 12 that the airline, which lost 173 million last year and 
stands to lose more this year, will have to be closed if it cannot 
be divested, arguing the GOJ cannot afford the ongoing costs 
(reftels).  In reality it will be politically difficult for the 
Jamaica Labour Part (JLP)-led government to make the move to 
actually close the airline, if it comes to that. END COMMENT. 
 
Improvements Made 
----------------- 
¶4.  (SBU) Over the years AJ gained a reputation for being 
unreliable, but Nobles said in the two months since he returned 
(Nobles also ran the airline when it was owned by Butch Stewart, 
reftels) he has managed to have 99 percent of all flights departing 
on time.  On-time arrivals have improved to 60 percent, with 99 
percent of all flights arriving within one hour of designated 
arrival time.  He is currently conducting a detailed review of the 
route structure and may soon decide to change certain routes - 
Atlanta will likely be cut and flights to/from New York may be 
expanded. 
 
¶5. (SBU) He believes there are still a number of inaccurate negative 
perceptions about the way the airline is run, saying many people 
claim AJ employees are overpaid, despite the fact that employee cost 
per a average seat mile is below the industry average and below the 
 
KINGSTON 00001086  002 OF 002 
 
 
average of U.S. airlines. He added that pilots are paid in center of 
the average for the industry.  He did add that he has told pilots 
they must cut 15 percent of pilot related expenses (USD 3 million), 
but this does not mean pay cuts, but more likely additional flying 
time.  AJ pilots now fly 40 hours per month, but get paid for 72 
hours. 
 
Politics - A Binding Constraint 
------------------------------- 
¶6. (SBU) Nobles said his main objective at the airline was to 
prepare it for sale, but if the new owners wanted him to stay on he 
would consider it   He said his end game was profitability - but 
politics is a binding constraint to this objective.  Mike Henry, 
Minister of Transport and Works and Tourism Minister Edmond Bartlett 
have demanded that Nobles open new routes which do not make economic 
sense for the airline.  PM Golding also requested Nobles arrange for 
AJ to fly students to and from Cuba for the holiday season, an 
expensive request. Nobles said he is willing honor the request only 
if the costs are not absorbed by the airline. He also said the Board 
of Directors are fairly good but also exert political influence. 
Among these he mentioned the powerful Chairman Shirley Williams, a 
JLP insider and who at times operates as if she is an executive 
director, although she has no prior experience in the airline 
business. 
HEG