By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government has admitted to again "kicking the can down the road" on Bahamasair's $120m loan to spare hard-pressed taxpayers a further $25m burden.

Dionisio D'Aguilar, minister of tourism and aviation, slammed the Christie administration's "naivete" in thinking the loss-making national flag carrier would be able to service this nine-figure debt itself and spare the Bahamian people further financial hardship.

He confirmed to Tribune Business that Bahamasair's lenders have again been asked to defer principal repayment for another year, as there was simply "no headroom" in the 2018-2019 budget to accommodate such outlays.

With Bahamasair's 2018-2019 subsidy pegged at $13.365m, Mr D'Aguilar said starting principal repayments would take the airline's demands on Bahamian taxpayers to near $40m just when they were being asked to absorb a 60 percent VAT rate hike.

The Minister added that the airline was "not close to making any money", with its staff payroll "double" that of a private sector operator with a similar-sized fleet and route schedule.

While many observers believe the government should exit the airline business via Bahamasair's privatisation, Mr D'Aguilar said there were "fears" of repercussions for ticket prices and inter-island transportation should it choose to do so.

He said air travel costs from South Florida, in particular, could become "exorbitant" if The Bahamas was left at the mercy of US carriers, while "a more robust" private aviation market was required to relieve Bahamasair of the burden of servicing unprofitable routes to the southern Family Islands.

The Christie administration authorised the $120m loan in 2016 to re-equip Bahamasair's fleet and refinance its existing debt, replacing its Dash-8 planes with five ATR turbo prop aircraft. Interest (debt servicing) costs on the loan are understood to run close to $10m per annum.

"The feeling is if they start to repay the principal, the subsidy will have to shoot up by another $25m," Mr D'Aguilar told Tribune Business of Bahamasair's principal deferment. "It's probably an additional $6m a quarter; $24-$25m of principal repayment.

"The banks seem to be alright with it for now, and they're [Bahamasair] continuing to respect the interest but that's not a sustainable position. That's kicking the proverbial can down the road, as the Deputy Prime Minister would say, and we need to address it at some stage.

"We found that in this Budget the headroom was not there. Next year we can deal with it, I think."

Mr D'Aguilar criticised his predecessors for taking out such a large loan while knowing it was virtually impossible for Bahamasair to finance repayment from its own cash-strapped resources, meaning long-suffering taxpayers will again have to pick up the bill.

"The previous government entered into this loan," he said. "They firmly believed the Dash-8s were coming to the end of their useful life and needed to be replaced, and investment was needed to renew the fleet and add additional aircraft.

"I think they naively thought the efficiencies and lower maintenance costs at Bahamasair would provide them room to take on this additional debt, but the subvention to Bahamasair is staying around $14-$15 million and, from that, they are paying the interest on the loan."

"They are already operating at a loss, and are not generating sufficient cash flow to cover their operating losses. That's why they need the subvention; to cover operating losses, and adding in principal repayment, it's a big number: $40 million."

Bahamasair's struggles with its existing debt burden bode ill for the re-fleeting of its aging jet aircraft, which Mr D'Aguilar suggested will be necessary within several years. With rising fuel costs adding an extra $1 million to the airline's expenses this year, the Minister suggested it will need to "marginally increase the air fares on domestic routes" or "exit" some islands.

"There are many schools of thought on Bahamasair," Mr D'Aguilar told Tribune Business. "One school of thought is it should be run, owned and operated by the private sector, much like they did in Jamaica. Air Jamaica was costing them $140 million and they just decided to get out of it. Go to Montego Bay now, the market is filled by a host of carriers.

"The fear is if we remove Bahamasair, ticket prices can be exorbitant from south Florida to the Bahamas. If we remove the one mechanism that makes that trip a reasonable cost, we will be at the whim of the US airlines - Jet Blue, Southwest and Delta."

Mr D'Aguilar added that Bahamasair's mandate to provide inter-island transportation connectivity and commerce meant the airline had to absorb additional expenses it would never likely incur if run purely as a business.

"A number of expenses are self-inflicted as they have to go to islands in the Bahamas that make no economic sense, but they have to because of their national mandate," he said. "Prices are fixed and dictated by the political directorate; what they can charge and not charge.

"There are certain costs they have to bear. If we can develop a more robust private airline market to fill in the gap, certainly the gaps going to the southern Bahamas, then Bahamasair can really direct more of its flights to opening and exploring more international markets."

Bahamasair has cost taxpayers more than half a billion dollars since its formation in 1973, and Tracy Cooper, its managing director, recently revealed plans to reduce staff by 100 persons over the next 18 to 24 months.

Mr D'Aguilar suggested most of the reduction will be achieved through workforce attrition, and not replacing persons who left. "The payroll right now is double what a private airline's expenses would be," he told Tribune Business. "We can't continue to experience such substantial labour costs based on the revenue base and number of aircraft we have."

The Minister, though, praised Bahamasair's management team and Board, led by Mr Cooper and Tommy Turnquest, respectively, for their focus on revenue management and operating costs.

"I think they're doing a great job at rationalising expenses and driving revenue," he said. "The situation is improving down there, although we're not close to making any money, but they're doing a great job so far.

"I'm quite happy. Revenue continues to increase and they're very focused on operational expenses and keeping them down. We really have a first-class team down there, notwithstanding they have a function to perform in the Bahamas which adds additional costs to their expenses."