Bleak prognosis for LIAT amid COVID-19 fears
With the global aviation industry temporarily flatlined as a result of the Coronavirus pandemic, one respected Barbadian economist is suggesting that the blow is likely to be too hard for regional carrier LIAT.
According to Banking and Finance Lecturer at the UWI Cave Hill Campus, Jeremy Stephen, with six of the LIAT’s 15 destinations already implementing travel restrictions and the likelihood of more to come, the already cash-strapped airline was unlikely to meet its financial obligations for more than a month or two.
He further contended, that even more troubling was the fact that the region was staring down the barrel of dismal returns for tourism this year and therefore shareholder governments were likely not to be in a position to bail out the carrier.
“Caribbean people would definitely not be travelling at this time. As one can see persons are scared, evidenced by the panic buying that we are seeing across different jurisdictions. The question now is whether the shareholder governments have any capacity to borrow, surely Barbados is not in a position to borrow anything while Dominica does not have the fiscal space currently and the same would go for St. Vincent as well as Grenada,” said Stephen,
The economist noted that the company’s one saving grace may be the commitment from Antigua to borrow US $15.8 million from Venezuela in order to purchase Barbados’ 49 per cent shares in LIAT as well as to provide some cash infusion into the carrier. However, Stephen contended that not only was the status of this arrangement left to be seen but even if it materializes, any cash infusion from that loan is unlikely to outlast the impact of the virus. He also pointed out that the airline could find some fiscal wiggle room since the price of oil was likely to remain low for the balance of the year, but any gains in this department would be negated if the appetite for travel remains dampened.
“A lot comes down to the management of the health crisis and the process is one that could certainly throw LIAT under the bus, but it all comes down to how long this crisis is going to last. One would expect that financially LIAT would not be able to dig themselves out of this hole,” he explained
When contacted, LIAT’s Corporate Communications Officer, Shavar Maloney, said that while he was not in a position to comment on the ability of the carrier to whether the Coronavirus threat, he acknowledged that the airline was taking a substantial hit as a result of the travel restrictions currently.
“We have six markets with restrictions, one of which we had to pull out from completely, which is Guyana. We did three flights every day to Guyana. I would have to check finance to calculate the revenue loss, but Guyana is a significant market because the Guyanese diaspora is quite large. We have had restrictions from Trinidad, Guyana, Guadeloupe, Martinique, St Martin and Tortolla. This is a trend that we might see continuing in the near future as this pandemic continues. All of the markets are inter-connected, and a 14-day restriction is quite significant for us,” said Maloney, who contended that the disruptions of the pandemic was likely to drive home the need for regional connectivity. The LIAT spokesman revealed that the company executives have been engaged in high-level meetings this week and a statement was likely to come tomorrow.
Attempts were also made to reach Chairman of LIAT and former Prime Minister of Barbados, Owen Arthur, who declined to comment until meeting with his board. “I have just come back from Guyana, so I have not met with the board and I am not going to speak on behalf of LIAT until I meet with the board,” said Arthur.
However, Stephen argued that the importance of LIAT to the region has never been lost on shareholder governments, yet it has never prompted a change in approach in dealing with the company’s precarious financial position for the last two decades. The difference this time around, would be the limitation of options as a result of the pandemic.
“This is a situation that has been going for 20 years where the shareholders prop up LIAT on one hand then tax it to death with the other hand. It has been an exercise in futility. LIAT was never meant to achieve scale. The point is that if this drags on for too long, I don’t think that LIAT has more than a month or two of working capital, based on my understanding of the financials. This time around I am not sure that regional governments would be in a position to bail them out, even if they wanted to,” he stressed.