LIAT disaster continues as Ralph Gonsalves challenges his critics to put their money up

“Put your money where your mouth is . . . . Everybody wants to talk about LIAT, but a number of these persons don’t want to have an authoritative position to speak about it. Being a chief executive officer of a company or the prime minister of a country which is not a shareholder doesn’t give you the right to talk authoritatively about LIAT,”

St. Vincent and the Grenadines PM Dr. Ralph Gonsalves in the Nation’s No place for buccaneers in LIAT says PM

Is the reality that LIAT’s failure is not about leadership, financing or equipment? Could it be that 70 years of Caribbean commercial aviation has revealed a basic truth that no Carib-based airline could ever be profitable?

Here is the fourth letter to LIAT shareholders from Dominica hotelier Gregor Nassief, urging PM Gonsalves to step aside as chairman of the LIAT shareholder’s committee.

Honourable Dr. Ralph Gonsalves of St. Vincent and the Grenadines
LIAT (1974) LTD
V.C. Bird International Airport
P O Box 819
Coolidge
Antigua

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.

Unsustainability

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.

Sustainability

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.

In Summary

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.

Respectfully Yours,

Gregor Nassief
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!

7 Comments

Filed under Aviation, Barbados, Barbados Tourism, Economy

7 responses to “LIAT disaster continues as Ralph Gonsalves challenges his critics to put their money up

  1. Glick

    No carib based airline has ever been profitable. Somebody correct me if i’m wrong, but I’m not. We need carib-based airlines though and it’s worth subsidizing them but only if they are professionally run.

  2. Party Animal

    You cannot let a Politian run an Airline, They can’t seem to run a Government, how can they run a business.

  3. Just want to know

    For once I agree with Ralph Gonsalves telling the other islands who need LIAT just as much as Barbados, Antigua, & St. Vincent to pay up or Shut up. I say AHMEN to that !!!!!!!!

  4. Modeste Downes

    If LIAT was a country on the map, it would have been classified as a failed state. Time to cut out the slackness: relocate HQ; revise downward government taxes on tickets; reduce subsidies, given unending demands for it; establish time limits on tenure of top executives; and PRIVATISE THE DAMN THING!

  5. Strange nobody is saying anything about the exorbitant taxes Governments are placing on travel by LIAT thus pushing the cost of intraregional travel sky high.

  6. Anomynuss

    LIAT has shareholders who are unable to agree on CARICOM, then violate the very terms they just signed. Then the shareholders appoint Board Members and a Chairman who know nothing about the business of aviation but who are there for the sole purpose of reaping political rewards, yet as Board Members are supposed to chart the future of the airline. They in turn appoint CEOs who have their own personal agendas and use the airline as their own piggy bank and pension scheme (kickbacks and favours).

    Given the regional outlook the shareholders have acknowledged that LIAT’s contribution to the economies of the sub-region are such that they would be happy for it to just break even, yet pile on crippling taxes and fees which seem designed to discourage intra-regional travel.

    LIAT’s mismanagement has also resulted in losses – since 2011 – of over US$104 million and rising annually, yet the shareholders and Board have stayed thew course and were persuaded by the last former CEO to engage in a re-fleeting exercise which was clearly unnecessary at a quoted cost of US$100 million which is estimated to actually cost closer to US$250 million when all the tabs are counted.

    If this were a normal business, LIAT would have been folded a decade or more ago. But as PM Gonsalves himself says, this is not a normal business. Yet with screw-up after screw-up and resignation after resignation the Chairman continues in place, fully supported by his masters. And he continues to write tourism book after tourism book while apparently ignoring his Chairmanship duties of LIAT.

    Holder’s resignation has been called for several times, yet Gonsalves still supports his good friend. Now there are calls for Gonsalves resignation as the lead on LIAT, and his only response is attack.

    With LIAT’s current loss schedule – because it seems that the losses really are now on a formal schedule – LIAT in the next six years will lose over a Billion US dollars – that is over a Billion Barbados dollars for the Barbados 50%+ shares of LIAT.

    Even with regional government support, LIAT is doomed to fail, if only because such losses are not sustainable. What supports that basic premise is that the majority shareholders are also bankrupt, and that in addition to those losses LIAT is now also committed to finding that extra US$250 million for the fleet renewal AND some US$1.3 million a month in aircraft lease payments.

    My personal assessment – regrettably – is that LIAT will not last out this year, 2014.

  7. Anomynuss

    To address the suggestion of moving LIAT to Barbados, let’s start with financials – having just fired over 3,000 civil servants, where is Barbados to find the money to build large hangars and provide Head Office quarters?

    Next civil aviation authority… our current Civil Aviation Department was moved for health reasons, is headed by yet another Air Traffic Controller with no broader experience, is severely understaffed, and what officers and inspectors are there do not inspect or carry out all of their legal duties.

    Still on a Civil Aviation Authority… Minister Sealy can build all the offices he wants, there is no legislation for a CAA, nor is there any in the pipeline. There is no technical oversight necessary to have a multi-million dollar and busy airline registered in the country. Move LIAT to Barbados, and the US territories – possibly also the EU countries (Dutch, French) – would ban the airline immediately.

    Why “technical oversight “? Because without adequate technical oversight the developed countries figure LIAT could basically just do as they like, have no standards, and Barbados would be seen as just another Nigeria.

    An airline – any airline – is not a hardware store, a flower shop or a bread truck. An airline REQUIRES much, much more – it’s not optional. At least half of an airline’s employees are technically licensed to a global standard, and you will not just pick such people up on the street corner in moving the airline to a new country – and to move these people from Antigua would incur massive expenses, which neither Barbados nor LIAT have ready to hand.