BWIA $m bailout, but... An investigation by Camini Marajh Express 04.20.03 GOVERNMENT has thrown BWIA a US$18.5 million lifeline to stay afloat in a=20 swirling sea of red ink but some of the conditionalities attached to the=20 State rescue plan may not be forthcoming. One government directive the=20 airline may have difficulty with, according to BWIA insiders, is the demand= =20 for financial commitments from the airline=92s large private sector=20 stakeholders. The Sunday Express understands that the larger stakeholders= =20 are continuing to refuse to put any new money into the cash-strapped=20 flagcarrier on the ground that Government changed the rules mid-game to the= =20 detriment of shareholders. In making a case for more taxpayers=92 cash, the= =20 airline claimed losses of US$11.2 million, allegedly caused by the influx=20 of charters, competition from Air Caribbean and Caribbean Star, and the US= =20 FAA downgrade from Category 1 to Category 2=97major factors for which the=20 private stakeholders contend government is liable. The large stakeholders,= =20 among them American International Group (AIG), Roytrin Securities Ltd,=20 Gordon A Cain, and Lant and Co. have said they are prepared to let their=20 stock be diluted via fresh capital from government on condition that =93the= =20 valuation formula is transparent and equitable=94. But insiders question the= =20 attempt by the large private stakeholders to make government pay the bill=20 on projected revenues the airline claimed it would have cashed in on had=20 things been different. One analyst raised conflict of interest concerns over AIG's dual role as an= =20 equity investor and a lender to the airline. AIG, which owns a piece of=20 Loeb Partners (another BWIA stakeholder), has a ten per cent interest in=20 the airline. It is also the parent company of International Lease Finance=20 Corporation (ILFC), the largest aircraft lessor in the world. ILFC is the=20 company which threatened to pull the plug on BWIA for non-payment of=20 aircraft leases on the B737s. Insiders questioned whether BWIA really got=20 the best deal on its new ILFC-leased B737 fleet and on the more recent A340= =20 acquisition, which CEO Conrad Aleong claims BWIA got for a song. Industry=20 analysts allege IFLC loaded BWIA with airplanes at above market rates and,= =20 in the case of the A340, dumped aircraft after Air Canada turned in two=20 A340s for which it was no longer able to pay. BWIA took one of the A340s=20 last year for its Port of Spain/London route and negotiated an option on=20 the second. The market has been exceedingly soft since the 9/11 terrorist=20 attacks on the US and the Iraqi War. The industry has seen more than 11,000= =20 aircraft parked out in the desert (Arizona and Nevada) since the start of=20 the war on terrorism. It has also brought lease prices down to the floor. Analysts say it is this softening in the market that has left BWIA stuck=20 with two Dash8-Q300 aircraft. The airline has been unable to offload the=20 two planes, grounded since December and attracting monthly paybacks of=20 US$180,000 plus insurance. The current market rate for a Dash8-Q300 is in=20 the high end of US$70,000 to US$75,000 a month, according to industry=20 experts. BWIA, which sub-leased its third Dash8 to Tobago Express last=20 December, pulled its BeeWee Express inter-island service after reporting=20 heavy losses. Insiders contend that BeeWee Express was used as the=20 launching pad to set up the majority held privately-owned Tobago Express.=20 In last week=92s Sunday Express, this newspaper reported a series of complex= =20 transactions which saw one aircraft, 9Y-WIZ, undergo several ownership=20 changes between the point of purchase and the time of delivery to the final= =20 beneficiary, Tobago Express. BWIA, in a public relations assault on the=20 Sunday Express, has published ads, declaring that =93all transactions=20 involving the three Dash8s for BWIA and the Dash8 for Tobago Express, as=20 well as related Cayman companies are proper corporate transactions and have= =20 been duly approved by the Board=94. The airline maintains that =93these have= =20 been fully disclosed in the Company=92s 2001 Statements=94. This newspaper, however, could find no reference to a West Indian Airways=20 Aircraft No. 2 Ltd. BWIA has also sought to shoot down a Sunday Express=20 report raising accounting questions about the airline=92s three years of=20 historic profits. A review of the airline=92s financials, however, shows= that=20 BWIA benefited from an US$8 million windfall in fuel prices in 1998, the=20 year it declared its first profit of US$9 million. Favourable fuel prices=20 accounted for a significant percentage of the 1998 profit. The operating=20 profit for 1998 was almost US$11 million but, by the next year, this figure= =20 dropped to US$2 million even though revenues increased by US$14 million. In= =20 fact, the airline declared a profit of US$3.6 million in 1999 but US$4=20 million was derived from the sale of an investment. =93Operationally,=20 therefore, BWIA made a loss in 1999,=94 according to one insider. The=20 operating profit in 2000 fell further to US$571,000 and although the=20 airline declared a profit of US$1.1 million, almost US$5 million was=20 derived from the sale of fixed assets and investments. The management team led by Conrad Aleong increased revenues from US$225=20 million in 1998 to US$270 million in 2001, an increase of US$45 million.=20 And, according to the accounts, signed off by PriceWaterhouseCoopers, it=20 generated net profits of US$13 million during that period. However, over=20 $10 million of the profit declared was derived from extra-ordinary,=20 non-operating items involving the sale and refinancing of aircraft and=20 investments. In its third consecutive year of reported profits, BWIA=20 terminated a four-year lease with Finova Capital on two L1011 aircraft. It= =20 negotiated a new sale and leaseback agreement with Cabot Aviation. A year=20 later, in January 2001, in an agreement brokered with another company,=20 Fleet Capital Leasing, BWIA would terminate the agreement with=20 Cabot. Aleong's executive supply contract is performance-based. The=20 company makes a profit, he gets a bonus. *************************************************** The owner of Roger's Trinbago Site/TnTisland.com Roj (Roger James) escape email mailto:ejames@xxxxxxxxx Trinbago site: www.tntisland.com Carib Brass Ctn site www.tntisland.com/caribbeanbrassconnection/ Steel Expressions www.mts.net/~ejames/se/ Site of the Week: http://www.pscutt.com TnT Webdirectory: http://search.co.tt *********************************************************