Caribbean Airlines hunting more cash to stay afloat

Blown off its pre-pandemic path to financial recovery, that so far has been elusive, regional carrier Caribbean Airlines Limited, CAL, is on the hunt for funds to keep itself in the air, a US$65-million loan taken out last year having proved inadequate to meet operating costs amid a near revenue wipeout.

Officials of the airline say CAL is seeking “external funding” and has the blessing of its major shareholder, the government of Trinidad & Tobago, in the bid to secure new financing. The Jamaican Government is also a minority shareholder in the airline.

CEO Garvin Medera declined to comment on the airline’s financial health and referred the Financial Gleaner to the company’s public relations handlers. Head of corporate communications Dionne Ligoure confirmed that the new funding being sought was additional to the loan guaranteed by the Trinidadian government in 2020.

“Due to the sensitive stage of discussions, the amount and source of funding being sought is confidential information,” Ligoure said via email. The source of the 2020 government-guaranteed loan was also not disclosed.

CAL officials are also declining to spell out the extent of the airline’s current need for cash to withstand the near wipeout of income and the mounting losses caused by the COVID-19 pandemic. The PR head said the airline’s cash requirement is “competitively sensitive information” that would not be divulged.

The resort to “external financing” suggests that the government of neither Trinidad nor Jamaica, which owns a 16 per cent stake in the airline from its 2011 sale of Air Jamaica assets to CAL, is willing to put up the money needed to bail out the company. Financing options open to CAL include more loans, a sell-down of equity or outright sale of holdings by the two shareholders, with new equity partners bringing operational cash to the table, or the issuing of corporate bonds.

Like other airlines globally, Caribbean Airlines’ operations ground to a near standstill in March last year after regional governments, and other countries around the world, shuttered their air and sea borders in an attempt to limit the spread of the coronavirus.

Service on phased basis

Service is being restored on a phased basis to some Caribbean and North American destinations. However, flights to Canada are now off again as that country has banned flights from the Caribbean and Mexico in an attempt to stave off new, more infectious strains of the coronavirus. Service to Cuba was also pulled again as the government there reimposed lockdown measures in response to a spike in virus infections.

“Caribbean Airlines continues to look at all options re its strategic direction,” Ligoure said of the steps being taken by the airline in light of the financial tsunami brought on by the COVID-19 pandemic.

“Once borders were open at some regional destinations, the airline mobilised resources,” she noted – an apparent reference to the resumption of some routes with the help of the 2020 loan.

The Trinidadian government announced in May last year that it had guaranteed a loan of US$65 million for the airline after it was unable to pay expenses, including staff salaries, as the airline’s revenues dried up amid the collapse of the global travel market. The government had disclosed a year earlier that it was servicing a US$75-million debt for CAL.

Even as revenues tanked, the airline continued to rack up major operating expenses. CAL has said, for example, that two aircraft leases came to an end during 2020 and those aircraft were “redelivered” to the airline to continue operations.

“Caribbean Airlines was also able to continue its planned Eastern Caribbean expansion, albeit at a less intense rate. The airline’s cargo operations continued throughout the pandemic and expanded with the introduction of cargo charter services on both the ATR and 737 fleet,” Ligoure said.

The CAL management has taken the knife to the operations, seeking to cut expenses across the board in an attempt to ride out COVID’s financial waves, including salary reductions and contract freezes, among other steps that were unspecified.

“In October 2020, the airline made the very difficult decision of placing some employees on temporary lay-off in an effort to safeguard its longer-term sustainability,” Ligoure said.

To achieve the “longer-term sustainability” CAL, its management says, “has developed a tactical plan, and a number of initiatives are said to be under way to support the business. Cost reduction also continues in other areas of the business”.

Ligoure would not comment further on the tactical plan. She also declined specific comment on whether the airline would follow through on plans announced by its CEO in a previous Financial Gleaner interview, to acquire several Boeing 737 Max jets that were recently the subject of controversy worldwide over safety concerns, but are now getting back into circulation.

“Caribbean Airlines continues to look at all options re its strategic direction and the fleet requirements in relation to that,” was all the airline’s PR head would say on the matter.

Another regional airline, LIAT, which mainly services the eastern Caribbean, collapsed last year under the weight of debts amounting to some US$80 million in unpaid salaries to staff and US$100 million to creditors.

A recent attempt at reviving the airline has been met with resistance from some shareholding eastern Caribbean governments, notably Barbados and St Vincent, which have refused to recertify LIAT for operation to their countries, and expressing preference for permanently pulling the plug on the loss-maker and supporting a new island-hopping airline start-up.

Globally, airlines continue to be in deep trouble, having been hit early and hard by border closures and general fear of flying during the pandemic. Some governments have resorted to significant bailout packages for major airlines with an emphasis on loans, loan guarantees, subsidies and unemployment grants to displaced workers.

huntley.medley@gleanerjm.com