Oct 2006 Financial News

S&P monitoring BWIA's impact on Trinidad

Oct 02, 2006

STANDARD & POOR'S isn't exactly bubbling over with excitement over the demise of BWIA and the birth of Caribbean Airlines Limited, CAL, in Trinidad and Tobago in January.

While it isn't skeptical about the new carrier's ability to fare any better financially than the 60-plus-year-old British West Indian Airways, it is taking a decidedly cautious attitude about its impact on Trinidad and Tobago's bottom line.

"We are waiting to see what happens," Richard Francis, a Standard & Poor's analyst on Wall Street, told BARBADOS BUSINESS AUTHORITY in New York. "Until we know the full details of what's being proposed for Caribbean Airlines, we can only hope that it fares well."

With the government in Port-of-Spain underwriting BWIA losses at a time when the country is flush with cash from skyrocketing oil prices and the success of its diversified energy sector, Francis doubts that the move would have any immediate impact on Trinidad and Tobago's stellar credit rating – which now stands at A-minus, one of the highest in the Western Hemisphere after the United States, Canada and Chile. Bahamas has the same credit standing as Trinidad and Tobago while Barbados is one notch below at BBB+.

"One of the concerns we have about Trinidad and Tobago is the public expenditure, which has been growing quite rapidly in the past year or two." said Francis.

"Of course, the revenues have increased as well – but the worry is about the public sector enterprises of which BWIA was but one."

The potential trouble for Trinidad and Tobago, Francis explained, was that the energy sector was "capital intensive but not labour intensive."

And with "unemployment fairly high in the Caribbean country, there was "the tendency in times of a windfall" to spend large sums of money to generate jobs.

That certainly was the case in Trinida and Tobago, hence the temptation to pump money into state enterprises, including BWIA; from 2007, it could be Caribbean Airlines Limited.

'Lose or waste money'

"These are enterprises that don't necessarily make money, but often lose or waste money," he said. "That was the case with BWIA, and it was probably the reason why the government decided to restructure BWIA and recast it as Caribbean Airlines. I don't really know."

Incidentally, before Trinidad let it be known that it was allowing BWIA to fade away and introduce CAL, S&P had called on the Manning Administration to make up its mind about the future of BWIA and other state enterprises that were costing the country tens of millions of dollars every year.

"It is hard to say whether it is a step in the right direction without having details of the plans," Francis said. "It could be a sign of a step in the right direction but, from what we have heard, it may simply be a case of replacing one company with another company. I don't know if it is just a change in name or a change in the way it is run.

'Tendency to overstaff'

"Usually, the private sector tends to run these types of companies better than the public sector, for obvious reasons. There is the tendency for government-run companies to over-staff and cave in to wage negotiations and not necessarily look at the bottom line, which has a significant contingent liability for the government."

In effect, Francis believes it's much too early to decide if clipping BWIA's wings and introducing a new carrier is a step in the right direction.

At least three of the four major government-run airlines in the English-speaking Caribbean – Air Jamaica, BWIA and LIAT – have lost significant sums of money in recent years but they are considered too important for the region's economy in general and its tourism industry in particular to end their operations.

"Honestly, our main concerns is the government's spending in general which has been increasing very substantially, well into the double digits," Francis pointed out.

"The public-sector enterprises are just a part of that. We have a stable outlook on Trinidad and Tobago right now and it balances some of these questions about spending and the public enterprises and the rapid rise in spending with the improving external indicators."

Meanwhile, BWIA has announced plans to end its service to and from Washington's Dulles International Airport as of October 10. LIAT and Caribbean Star are exploring the feasibility of merging their operations, according to Dr Ralph Gonsalves, St Vincent's prime minister.


Tony Best
Nation News
October 2, 2006.
http://www.nationnews.com/story/313378535171229.php