A resolution was moved in the House of Assembly on Wednesday for the Government to guarantee a loan in the amount of U.S. $7,250,000 from Scotiabank to finance two 1992 50-seater Dash 8 311 series aircraft from Bombardier Capital Inc, the manufacturer of the aircraft.
Acting Minister of Financial Services and Investments, Alfred Sears said that in 1998/1999, Bahamasair received $9 million; $15.7 million in 1999/2000; $21.6 million in 2000/2001; $21.6 million in 2001/2002, and $23.1 million in 2002/2003, and for this current fiscal year, the airline has received $5.8 million. The two additional aircraft being acquired, Mr Sears said, represent Bahamasair’s process of “change.”
Reportedly, there are 400 similar type aircraft in service, and Bahamasair’s will arrive equipped with leather interior, fuel-efficient turbine engines, low noise emission, and a cockpit flight management system.
The Resolution, in accordance with section 17 of the Financial Administration and Audit Act, seeks the approval of Parliament for the Government to issue, pursuant to its said undertaking, a Deed of Guarantee in favour of Scotia Bank for all monies that may become due and payable by Bahamasair under the loan agreement for the sum of US$7,250,000. The loan is to be repaid over seven years at a fluctuating percentage rate.
Weaning process
Announcing that the level of support needed for Bahamasair is substantial and unsustainable, Mr Sears said that the International Monetary Fund has commented on the need to reduce the level of support to state agencies, namely Bahamasair, if the government is to achieve its goal of fiscal prudence.
“The fact that The Bahamas is a participant in the international capital market and is subject to external security from two ratings agencies, (Moody’s and Standard and Poor’s) means that the reduction in the level of financial support to loss-making agencies has to be achieved quickly,” he said.
The Acting Financial Services Minister said the two additional aircraft will enable Bahamasair to better serve the needs of people and should also increase the revenue base of the airline.
Because of this, he continued, the airline should be able to service the loan from its additional revenue and should also be in a position to meet any increase in variable costs due to operating the new aircraft, and more importantly, reduce the level of Government subvention needed to keep the airline operating.
Cost-benefit analysis
According to Mr. Sears, the decision of the Board of Bahamasair to purchase the aircraft was arrived at only after a careful cost-benefit analysis of leasing as opposed to purchasing the aircraft, which demonstrated a cash flow benefit of $2,186,349 to Bahamasair, primarily due to the favourable rate environment of 2.285 per cent.
“Additionally, after fully depreciating the assets and retiring the debt in seven years, the anticipated residual value of the two aircraft will be $2,970,000,” he said.
Committed to change
Mr. Sears also emphasized that the board and management of Bahamasair cannot stop the process of change at this point.
At a time when the Government’s revenue base is slowly recovering, he said, more aggressive methods have to be adopted to reduce the airline’s dependency on the treasury.
‘Excellent deal’
While moving the second reading of the Resolution, Minister with responsibility for Bahamasair, Bradley Roberts said that the addition of the two aircraft will contribute about $4 million in incremental revenue to Bahamasair on an annual basis.
Once the two aircraft were selected, based on economic viability and suitability, he continued, Bahamasair contracted Lufthansa, in addition to its own technical staff to conduct technical competency analysis to ensure that they were getting value for money.
Both reports, he said, were positive, with the aircraft’s condition considered satisfactory, noting also that the “blue book” value of $3,7230,000 per aircraft was negotiated down to $3,625,000 per aircraft.
“In short Mr. Speaker, I understand and have been advised that we got an excellent deal on the aircraft,” Mr Roberts said.
Maintenance standards
Independent Bamboo Town MP, Tennyson Wells questioned the safety of the aircraft. If the planes are worth $1.2 million and some $600,000 needed on an annual basis to comply with International Civil Aviation Organization standards, they must be a “hazard” to the public, he said.
“I don’t think that you should come to the House and tell the Bahamian public that we have those two jets on the books at $600,000 and we flying the public with them. Something has to be wrong with that,” Mr Wells said.
Charging that there was “no logic” to Mr Wells’ remarks, Mr Roberts asked, “What does the cost have to do with the reliability of the aircraft?
You must comply with the international standards.”
However, Mr. Wells responded that if meeting “international standards” would cost more than $600,000 a year, then Bahamasair was given wrong information about the value of both jets, or something was “seriously wrong” with them.
Market glut
Standing on a point of order, Blue Hills MP, Leslie Miller observed that there was “an overabundance” of planes available on the market over the past five years. The value of Bahamasair’s jets was very low, he said, because of the market’s “overabundance of planes.”
“This has nothing to do with the true value of that aircraft,” he said. “The aircraft may in fact be worth three or five million dollars, but in the marketplace, you are not going to get it because of the overabundance of planes that are on the market today because of airlines going out of business. That has nothing to do with the reliability of that aircraft.”
Bahamasair like other airlines, he said, is certified by the Federal Aviation Authority and is no different from other international carriers.
By Tamara McKenzie, The Nassau Guardian
