February 25, 2014
Honourable Dr Ralph Gonsalves of St Vincent and the Grenadines
LIAT (1974) LTD
V.C. Bird International Airport
P O Box 819
Dear Prime Minister Gonsalves:
Re: Run it like a business before it goes out of business
On the televised program Time to Face the Facts on Sunday, February 23rd, I appealed to you to step aside as Chairman of the Shareholder’s committee of LIAT. As mentioned on the program, given the respect and admiration I have for you, particularly on your stance and leadership on issues such as reparations and the cholera outbreak in Haiti, it was personally difficult for me to do this. But it is necessary.
LIAT has moved from an operational meltdown in the Summer of 2013 to a financial meltdown a mere 7 months later. LIAT drains our treasuries, operates inefficiently and stifles competition. The source of LIAT’s problem is its financial unsustainability and as with everything else at LIAT, no one is accountable. As Chairman of the Shareholder’s committee, the buck stops with you.
LIAT needs to fight the battle of its life to transform itself to be financially viable and sustainable. But you believe, and have stated so publicly, that LIAT can never be profitable. This battle, therefore, needs a different general.
LIAT has lost ec$120m in the last four years. Last month, LIAT could not pay both the lease on its aircraft as well as its payroll. So it chose one and delayed the other. A leased ATR gives 36% more seat capacity than its closest Dash 8 equivalent but is double the (lease) expense. In 2015, repayments will begin on LIAT’s recent loan of US$65m to purchase new aircraft. So monthly cash outflows go up even more.
And the new inflows to cover this? Inter-island tourism is down 60% in 7 years and LIAT’s load factor is running at about 55%. The fantasy (aka “business plan”) is that the load factor will go up to 75%. The fantasy is also that LIAT will fly its way out of losses by expanding to new destinations – Jamaica, Haiti, Aruba, Panama, and eventually to cities in North and South America.
LIAT employs 850+ people, flies 22 destinations, operates between 10 and 12 aircraft from 2 hubs (3 if you count Trinidad) to move 800,000+ passengers a year to generate massive losses.
So it’s bail out time again. Call on shareholders, and call on other good neighbors so that we can continue to drain our treasuries, operate inefficiently and stifle competition. And for you this is acceptable because LIAT should not be run like a business and can never make a profit.
Our fragile economies can no longer support perpetual bailouts. If we do not take the bull by the horns LIAT will go out of business – it will employ no one, fly nowhere, operate no aircraft and use no hubs. But alas, it will generate no losses and competitive players will fill the gaps because LIAT, the airline unfairly propped up by perpetual subsidies, will not be there to run them out of business.
LIAT must therefore immediately begin a journey towards financial sustainability to save itself. But if the leader does not believe in the journey, then the journey will never begin. It is on this basis, with full respect and admiration, that I ask you to step aside as Chairman of the Shareholder’s committee, so that a new mandate to make LIAT financially sustainable can be ushered in.
The new chairman of the Shareholder’s committee needs to believe that the battle can be won. And what needs to be done is not rocket science.
Appoint a Chairman and a Board capable of turning around the financial fortunes of the company and running a top-notch airline. Give them the authority and autonomy to do what needs to be done. Allow them to appoint a CEO and restructure the management team as necessary. Allow LIAT to become a real business free from political interference tasked with a perfect safety record, high employee satisfaction, great customer service and solid financial performance. A fierce focus on the company’s finances with adjustments made to yield (including renegotiation of government/airport taxes), network efficiency and operating costs will be required. The resulting operation will have fewer employees, fewer destinations and fewer aircraft. It will be profitable, dependable and it will deliver great service. Like any airline, unprofitable routes will continue only with guarantees from the interested party/government. But at least then, the taxpayers will know what they are paying for, and can make that decision. And other/smaller airlines will take up the slack. Competition will flourish, as will LIAT, and the Caribbean will finally get the airlift network it needs.
With a restructured board and executive, confidence in the airline’s financial performance will be established and other Caribbean governments may even want to invest.
At the right time, joint venture the company while maintaining a minimum 50% shares among shareholder governments. The two best run airlines in the world (Singapore Airlines and Air Malaysia) are run like a business and are profitable and remain owned 50% or more by the State and 50% or less by private interests. Like LIAT, they were bleeding losses and their shareholder governments could no longer manage the bailouts. So they took the tough decisions, appointed the right board and executive team, and turned the airlines around to the benefit of all stakeholders.
Yes, it will be painful, but it is necessary. And most importantly it will pull LIAT back from the financial cliff and put it on a course to long term financial sustainability.
Please consider that I am a hotelier from an island that is almost 80% dependent on LIAT for airlift. Cut one route to Dominica, and we/Dominica will suffer. But if my option is (a) to continue to have all the LIAT routes we have today with an airline that is prone to poor service, ad hoc cancellations, occasional and irrational pilot strikes and constantly at the edge of a financial precipice due to insurmountable financial losses – OR – (b) an airline with fewer routes but with good service, dependable schedules and solid financial performance, then my choice is definitely the latter. And other airlines, once permitted, will take up the slack.
Thomas Edison said, “I have not failed. I’ve just found 10,000 ways that won’t work.” And then finally, he invented the electric light bulb.
We have lived through and exhausted the many ways that LIAT won’t work. It is time to try the way that will.
I appeal to you, Prime Minister Gonsalves, as well as the other Shareholder Prime Ministers, to mandate a new approach for taking LIAT and the Caribbean aviation industry forward without this perpetual and unfair burden on our treasuries.
It is time to run it like a business before it goes out of business.
Owner/Director – Secret Bay
Executive Chairman – Fort Young Hotel
cc: Honourable Dr Baldwin Spencer of Antigua and Barbuda
Honourable Freundel Stuart of Barbados
Honourable Roosevelt Skerrit of Dominica
P.S. As we again desperately seek additional funds for yet another bailout, make it the last please. Don’t put the money into the black hole of an unsustainable business model. Instead, use it to restructure the airline, rationalize its operations and place it on a solid long term footing. In other words, make it the last bailout!