Some fallacies about LIAT

Fri Mar 07, 2013

EDITOR: Within recent times the anti-LIAT brigade, most of whom have historical agendas and hidden personal angst on matters touching and concerning LIAT, have been trotting out a number of downright falsehoods about LIAT. Of course, a few of the critics are well-meaning, even if short on facts. So, let’s state some basic facts and in the process correct the falsehoods/fallacies. Let us leave the opinions for a while and focus on the facts.{{more}}

The following are some of the central truths:

1. The LIAT shareholders (the governments of Antigua-Barbuda, Barbados, St Vincent and the Grenadines, and recently, Dominica) have not since 2008 subsidised LIAT’s operations; they have put no cash in LIAT to run its recurrent operations. As shareholders, they have put in equity capital, and they have ensured that equity for LIAT’s restructuring and capitalisation programme, including the purchase of the new ATR aircrafts, was provided by loans from the Caribbean Development Bank (CDB) contracted by LIAT to be repaid by LIAT but guaranteed by the shareholder governments. Thus, the assertion by the jaundiced critics of LIAT that it is “annually draining the Treasuries of the governments” is false.

2. The choice by LIAT to replace its aging Dash-8 fleet with new ATR aircraft was made after careful consideration of all the relevant options on the basis of recommendations made by independent, qualified experts in this field. The final choice came down to a mixed fleet of ATRs 42 and 72 (50 and 70 seaters respectively) as against the Q400s (70 seaters) by the Canadian company, De Havilland. The simple fact is that De Havilland had ceased making the Dash-8 300s (50 seaters). Refurbishing 20-and-25-year-old planes was not a feasible option. The experts have analysed that this mixed ATR fleet is best for LIAT’s core and non-core routes; in other words, the 50-seaters would fly on some routes and the 70-seaters on others. LIAT’s Business Plan makes provision for the contracting of smaller aircraft, for example 19-seater Twin Otters, for some routes which require even less seating capacity.

3. LIAT’s mandate from its shareholder governments as articulated by the shareholders’ chairman, Prime Minister Ralph Gonsalves of St Vincent and the Grenadines, is for LIAT to operate commercially and to avoid “social” routes, that is, routes to destinations, at times daily which are uneconomic for the airline. “Social” routes would be flown only where the government of the relevant destination provides “market support”. Having made that fundamental point, PM Gonsalves has accurately stated that LIAT’s operations (21 destinations with almost 1,000 flights weekly over scattered islands with small populations) are unlikely ever to provide any acceptable financial return for the shareholders’ investment, but LIAT must at least break even to avoid subsidies. The economic and social return for the region and the individual countries is, of course, of inestimable value.

The very nature of LIAT’s market base is what keeps the private sector out of the regional airline business. Other airlines in the past, including regional private sector entities, have learnt this. Today, unserious private sector buccaneers feed the critics’ illusions of another path. We have been down that road before.

4. LIAT does not possess any institutional advantage over any other airline company to enter its market domain. It is a complete fallacy that the regional governments allow LIAT to keep “departure taxes” and other taxes. LIAT does not collect “departure taxes;” this is done either at the point of ticket sale, through an arrangement with IATA or at the departure point at the airport by a government agency. It is true that LIAT has not often paid its “landing fees” on time or at all, but so too do other regional airlines. What the critics do not say is that several governments owe LIAT substantial sums of money for transporting mail and for air travel.

It is simply untrue that the Eastern Caribbean Civil Aviation Authority (ECCAA) makes it easier for LIAT to operate as against its competitors. Some of the critics with their own personal agendas want ECCAA to lower its standards or to subvert its own regulations, the guidelines of the International Civil Aviation Organisation (ICAO), and statute law of the member-states of ECCAA to facilitate the grant of Air Operating Certificates (AOCs) and other permissions to fly in ECCAA territory. These critics misunderstand these fundamental issues.

5. LIAT is not, and cannot be, opposed to competition in its market domain. The competition, however, has to be in compliance with, and not in contravention of, the Multi-lateral Air Services’ Agreement (MASA) to which the member-states of CARICOM have been signatory. There is an entire section in the MASA which addresses unfair competition, such as predatory pricing and unlawful subsidies. The Revised Treaty of Chaguaramas bolsters several of these principles regarding “fair” competition.

6. LIAT’s Board of Directors possesses skill sets which have been serving the company satisfactorily. The idea that the Board consists of a bunch of unknowledgeable, ignorant, incompetent public servants is pure rubbish. LIAT’s Board, including its Chairman, Dr Jean Holder, has relevant experience and skill way beyond any of the critics who have emerged recently from Dominica, St Lucia, St Vincent and the Grenadines, or Canada.

Further, LIAT’s Board and Management are not subject to undue or unwarranted political interference. The critics want to have it both ways: On the one hand, they make the unwarranted and unsupportable allegation of “undue” political interference, but on the other, they want the politicians to interfere so as to change LIAT’s current malaise, as they see it. They lament that “the politicians” are not listening to their “wise” advice! Any errors made by LIAT’s management are largely of their own making.

7. LIAT’s capitalisation programme has faced a challenge because at least one government has not paid its capital contribution as agreed. [That government is not St Vincent and the Grenadines which has paid its entire capital contribution well in advance]. Because of a shortage in the overall capital contribution to purchase/lease on a timely basis all the new ATRs, LIAT has had to dip into its own resources to make up the difference and even to reschedule deliveries of some of the ATRs.

This has placed a strain on LIAT’s resources.

8. LIAT has several “legacy” issues which internal reform measures are addressing, but not as fast and optimally as the shareholders would like. This is a difficult area requiring creative approaches and firm, sensitive management. One option in dealing with legacy issues is that of BWIA/CAL: Close down the airline and start afresh the next day with a new company. To do that requires huge sums of money for closure costs, and this approach only masks the legacy challenges as the experience of CAL has shown in Trinidad. The alternative of patient, sensible reforms is the way to go.

Having outlined some of the basic facts and rebutted several fallacies and untruths about LIAT, I am offering one opinion: By and large LIAT’s critics just do not get it; half-baked ideas and loud noise do not a workable, sustainable airline make. Perhaps, the loudest critics from the private sector should put up some real money as equity partners in LIAT or start another competitive airline. But no “buccaneers”, please!

Sincerely yours,

Hans King

Press Secretary to the Prime Minister

St Vincent and the Grenadines