ADDRESS TO

ROTARY OF WEST NASSAU

BY

THE HON. BRADLEY B. ROBERTS, M.P.

MINISTER OF WORKS AND UTILITIES

OCTOBER 14, 2004

AT

THE BUENA VISTA RESTAURANT

TOPIC:

THE CHALLENGES FACING BAHAMASAIR

MR. PRESIDENT AND FELLOW ROTARIANS

SPECIAL GUESTS INCLUDING:

VP OF THE SENATE SENATOR REV DR. C B MOSS

AMBASSADOR KEOD SMITH MP

PERMANENT SECRETARY BERNARD & MR BERNARD

CHAIRMAN BASIL SANDS AND DIRECTORS OF BAHAMASAIR

MANAGING DIRECTOR PAUL MAJOR AND MANAGEMENT OF BAHAMASAIR

MINISTRY OF TOURISM OFFICIALS

AAAWU PRESIDENT, MS. NELERENE HARDING

BALPA PRESIDENT, CAPTAIN JOSEPH MOXEY

UNION ADVISOR KEITH ARCHER

MEMBERS OF THE PRESS

DISTINGUISH LADIES AND GENTLEMEN

GOOD AFTERNOON!

I HOPE THAT YOU MY FELLOW ROTARIANS WOULD ACCEPT THAT MY ROLE AS THE NUMBER THREE OFFICIAL IN THE GOVERNMENT OF THE BAHAMAS AND THE EVER-INCREASING DEMANDS FOR PROGRESS ON MY MINISTRY, HAS MADE IT DIFFICULT FOR ME TO ATTEND OUR MEETINGS AS I WOULD HAVE LIKED. I ALSO HOPE THAT YOU WOULD KNOW THAT I HAVE MISSED THE COMRADERIE AS MUCH AS I HOPE THAT YOU HAVE MISSED ME.

HENCE IT IS FROM THAT VIEW THAT I TAKE GREAT PLEASURE IN SPEAKING TO YOU TODAY ON “THE CHALLENGES FACING THE NATIONAL FLAG CARRIER, BAHAMASIAR”.

I HAVE BEEN ADVISED THAT BAHAMASAIR MAY BE PRESENTLY REALIZING ITS BEST YEAR IN ITS HISTORY OF 31 YEARS. I HAVE HOWEVER BEEN MADE AWARE THAT ULTIMATELY IT COULD ALSO BECOME ONE OF OUR WORST YEARS UNLESS FUNDAMENTAL AND STRUCTURAL CHANGES ARE INSTITUTED TO REFLECT THE RAPIDLY CHANGING REALITIES OF THE AVIATION INDUSTRY.

LET ME BEGIN BY PROVIDING YOU AN INDUSTRY BACKDROP, WHICH MANY WOULD REGARD AS NOT BEING ENCOURAGING. OVER THE PAST TWO YEARS THE WORLDWIDE AIRLINE INDUSTRY LOST WELL OVER $16 BILLION. LET ME REPEAT, OVER $16 BILLION. THIS YEAR THE AIRLINES ARE PROJECTED TO LOSE SOMEWHERE IN THE NEIGHBOURHOOD OF $4 BILLION.

FELLOW ROTARIANS, LADIES AND GENTLEMEN THIS SPEAKS TO AN INDUSTRY IN CRISIS. I HAVE BEEN ADVISED THAT THE LARGEST U.S. AIRLINE HAS BEEN HOLDING OFF THE REALITY OF BANKRUPTCY FOR THE LAST TWO YEARS. THE SECOND LARGEST, I HAVE BEEN ADVISED, HAD SUFFERED THE REALITY OF BANKRUPTCY TWO YEARS AGO. I AM ADVISED THAT THE THIRD LARGEST IS ONE FOOT AWAY FROM BANKRUPTCY AND THE FOURTH LARGEST, I AM ADVISED IS FACING THE REALITY OF BANKRUPTCY FOR THE SECOND TIME AND IT IS FEARED THAT THIS TIME MAY BE IT’S LAST AS A VIABLE U.S. AIRLINE.

FELLOW ROTARIANS, LADIES AND GENTLEMEN ACCORDING TO BUSINESS TRAVEL COALITION (BTC) A U.S. ADVOCACY ORGANIZATION FORMED IN 1996, “THE US AIRLINE INDUSTRY IS HEADING FOR CATASTROPHIC FAILURE WITHIN THE NEXT TWELVE MONTHS, AS DELTA AIRLINES INC. AND OTHER MAJOR AIRLINES STRUGGLE TO STAY AFLOAT”. THEY ALSO WARNED OF “THE POSSIBILITY OF TWO OR THREE MAJOR NETWORK AIRLINE LIQUIDATIONS, INCLUDING DELTA AND THAT THE GRIM SCENARIO REQUIRES DEVELOPMENT OF PUBLIC POLICY CHOICES TO AVOID IMPRUDENT, HASTILY MADE GOVERNMENT DECISIONS.”

THEY WENT ON TO SAY, “IT IS LIKELY THAT BY OCTOBER 31, 2004 SOME 50% OF THE AIRLINE INDUSTRY CAPACITY WILL BE OPERATED UNDER BANKRUPCY COURT PROTECTION INCREASING TO PERHAPS 70% BY MID-2005”. BUSINESS TRAVEL COALITION WENT ON TO SAY THAT “WHILE FINANCIAL REORGANIZATION DURING A BANKRUPTCY PROCESS CAN BE HELPFUL IN POTENTIALLY REDUCING DEBT BY 25 TO 30%, SHEDDING PENSION LIABILTIES AND ENABLING MORE PRODUCTIVITY LABOR CONTRACTS, IT IS NO PANECEA, ESPECIALLY WITH OIL PRICES ABOVE $50 A BARREL AND NEW AIRLINE BUSINESS PLANS TO FUND.”

FURTHER, “AIRLINES ARE RUNNING OUT OF CASH WITH VIRTUALLY ALL ASSETS ALREADY COLLATERALIZED.” ACCORDING TO BUSINESS TRAVEL COALITION AN “AGRESSIVELY EXPANDING LOW COST CARRIER SEGMENT IS ESTABLISHING THE PRICING CEILING AT THE INDUSTRY LEVEL PUTTING NEAR PERMANENT DOWNWARD PRESSURE ON MAJOR NETWORK AIRLINES AND YIELDS.”

FINALLY, BUSINESS TRAVEL COALITION INDICATED THAT, “SHELL-SHOCKED MAJOR AIRLINE EMPLOYEES WORKING LONGER HOURS FOR LESS PAY WITH SHATTERED RETIREMENT DREAMS MIGHT FIND IT CHALLENGING TO EXECUTE MANAGEMENT’S BUSINESS PLANS MAKING IT QUESTIONABLE WHETHER THE MAJORS CAN EVER REGAIN COMPETITIVE FOOTING.”

I HAVE BEEN ADVISED THAT THE LOW COST CARRIERS HAVE ALREADY BEGUN TO GOBBLE UP GATE SPACES VACATED BY THE LEGACY CARRIERS AND ARE GAINING MARKET SHARE AND TERRITORIAL GROUND ON THE LEGACY CARRIERS ALMOST DAILY.

LADIES AND GENTLEMEN, ACCORDING TO AIRLINE BUSINESS MAGAZINE, AUGUST 2004 EDITION, THE NUMBER OF PASSENGERS CARRIED BY TWO LOW COST CARRIERS LAST YEAR EXCEEDED THE ENTIRE POPULATION OF CANADA. THE GROWTH AND EMERGING DOMINANCE OF THE LOW COST CARRIERS COUPLED WITH THE ESCALLATING COST OF FUEL IS WREAKING HAVOC ON THE AIRLINE INDUSTRY AND THE GRIM NEWS FOR US IS THAT BAHAMASAIR IS NO EXCEPTION.

OIL PRICES HAVE SPIRALED OVER $50.00 PER BARREL WHICH HAS PUSHED THE COST OF AIRCRAFT FUEL UP TO ALMOST $2.00 PER GALLON – ALMOST DOUBLE WHERE IT WAS TWO YEARS AGO. AS YOU WOULD HAVE HEARD ME SAY DURING THE RECENT 04/05 BUDGET DEBATE, THAT BAHAMASAIR HAD A GREAT 03/04 FISCAL YEAR DURING WHICH IT CUT ITS LOSSES BY MORE THAN HALF GOING FROM A LOSS OF $27.5 MILLION FROM THE PREVIOUS YEAR DOWN TO A LOSS OF $12.5 MILLION.

THIS WAS ONLY ACHIEVED THROUGH THE HERCULEAN EFFORTS OF THE BOARD AND MANAGEMENT OF BAHAMASAIR WHO LABORED TIRELESSLY TO REDUCE COST AND GROW THE REVENUE. I, AT THE SAME TIME PREDICTED THAT THE LOSS FOR BAHAMASAIR WOULD BE CUT IN HALF AGAIN THIS FISCAL YEAR. AS WOULD BE OBVIOUS FROM THE UNPREDICTABILITY OF THE OIL MARKET, THAT PREDICTION HAS BEEN PUT INTO SERIOUS JEOPARDY GIVEN THE AFOREMENTIONED CHANGING NEW INDUSTRY REALITIES. HENCE, ESTIMATES FOR THIS FISCAL YEAR WILL HAVE TO BE ADJUSTED BASED ON HOW WE IMPLEMENT UNAVOIDABLE DEMANDS OF CHANGE. BUT THERE IS GOOD NEWS.

THE GOOD NEWS IS THAT WE HAVE A COMMERCIAL UNIT WITH A FIGHTING SPIRIT AS I AM ADVISED THAT CHARTER BUSINESS IS BOOMING FOR BAHAMASAIR WITH 25 HAVING BEEN FLOWN IN JULY, AUGUST AND SEPTEMBER AND ANOTHER 15 ALREADY PLANNED FOR OCTOBER AND NOVEMBER. I CONSIDER THIS TO BE ATTRIBUTED TO THE RESOLVE OF THE AIRLINE TO ADAPT TO THE DYNAMICS OF THE INDUSTRY.

ADDITIONALLY BAHAMASAIR IS LAUNCHING ITS NASSAU/DOMINICAN REPUBLIC SERVICE TOMORROW AND GEORGE TOWN/FT. LAUDERDALE IS DUE TO BE LAUNCHED NOVEMBER 19, 2004. REGARDING FREEPORT WE HAVE ALREADY RECOMMENCED SERVICE INTO FT. LAUDERDALE. I AM ADVISED THAT THE MANAGEMENT OF BAHAMASAIR IS IN DISCUSSIONS WITH EXECUTIVES FROM ISLE OF CAPRI OUT OF LAS VEGAS, THE OPERATORS OF THE OUR LUCAYA CASINO, EXPLORING CHARTERS OUT OF THE U.S. NORTH EASTERN AND MID WESTERN CITIES. I AM ADVISED THAT THE DISCUSSIONS ARE GOING VERY WELL.

THESE ARE THE KINDS OF OPPORTUNITIES I ENCOURAGE MANAGEMENT TO PERSISTENTLY PURSUE AS IT HELPS TO RESUSITATE THE FREEPORT ECONOMY. AT THE SAME TIME IT HELPS US TO RETAIN HARD EARNED SCARCE FOREIGN CURRENCY AT HOME INSTEAD OF HAVING TO REPATRIATE PROFITS FOR FOREIGN CARRIERS.

THE OTHER GOOD NEWS I AM ADVISED IS THAT GRAND BAHAMA VACATIONS IS BEING TAKEN OVER BY THE GRAND BAHAMA ISLAND PROMOTION BOARD WHICH WOULD GIVE THAT PROMOTION VEHICLE MORE APPEAL FROM A TOTAL MARKET STANDPOINT.

OTHER INTERNATIONAL DESTINATIONS ARE BEING CONSIDERED WHILE BAHAMASAIR SEEKS TO CONTINUE TO OUTSOURCE MANY OF THE LOW DEMAND FAMILY ISLAND ROUTES IN AN EFFORT TO REDUCE THE AIRLINE’S LOSSES.

BAHAMASAIR’S “ON TIME PERFORMANCE” IS NOW RUNNING AT BETTER THAN 80% WHICH RIVALS THE BEST IN THE BUSINESS AND WITH THE FLEET HAVING GROWN TO 11 AIRCRAFT WITH THE RECENT ADDITION OF THE TWO DASH 8’s AND TWO 737-200’s, RELIABILITY AND GREATER FLEXIBILITY IS GUARANTEED.

I WISH TO FORESHADOW TODAY TWO OF THE MANY COST SAVING INITIATIVES AND ACTIONS BAHAMASAIR MUST UNDERTAKE TO PRECLUDE THE GOVERNMENT, OR MORE PRECISELY YOU THE TAX PAYER FROM HAVING TO ALLOCATE MORE THAN THE $9 MILLION ALLOCATED TO BAHAMASAIR IN THE NATIONAL BUDGET FOR THIS FISCAL YEAR.

NOW THAT THE BOARD AND MANAGEMENT HAS REDUCED ALL OR MOST OF THE NON-STAFF RELATED EXPENSES AS MUCH AS IT CAN, THERE IS NO IGNORING THE FACT THAT UNION CONCESSIONS MUST COME. INDEED THE OTHER LEGACY CARRIERS IN THE UNITED STATES AND ELSEWHERE HAVE ALREADY GONE THROUGH THE FIRST WAVE OF STAFF LAYOFFS AND UNION CONCESSIONS AND ARE NOW UNDERTAKING A SECOND ROUND OF LAYOFFS AND CONCESSIONS.

BAHAMASAIR’S UNIONS HAVE THUS FAR REJECTED ALL REQUESTS FOR CONCESSIONS. WE WILL HAVE TO DO AT BAHAMASAIR AS THE OTHER AIRLINES HAVE DONE OR FIND SOME OTHER VIABLE ALTERNATIVE TO BAHAMASAIR. WE WILL BE RE-ENGAGING THE RESPECTIVE UNIONS IN THIS REGARD VERY SHORTLY.

ANOTHER EQUALLY IMPORTANT COST REDUCTION ISSUE FOR THE NATIONAL FLAG CARRIER IS A LINGERING MATTER INVOLVING REFUELING FEES LEVIED BY THE CONSORTIUM OF FUEL SUPPLIERS AT THE NASSAU INTERNATIONAL AIRPORT. THE AIRLINE HAS CONSISTENTLY TRIED UNSUCCESSFULLY TO HAVE THIS FEE ELIMINATED OR SUBSTANTIALLY REDUCED FOR MANY YEARS. WE NOW INTEND TO HAVE THIS MATTER RESOLVED.

RESEARCH HAS REVEALED THAT A REFUELING FEE OF 13 CENTS IS LEVIED ON EVERY GALLON OF FUEL BAHAMASAIR PURCHASES AT NASSAU INTERNATIONAL AIRPORT. THIS IS COMPARATIVELY MUCH HIGHER THAN ANYWHERE ELSE INCLUDING FREEPORT WHERE THE FEE IS .04 CENTS PER GALLON.

IN BARBADOS, TRINIDAD, CAYMAN AND THE TURKS AND CAICOS ISLANDS THERE IS NO REFUELING CHARGE. IN MIAMI IT IS .01 CENT, IN FT. LAUDERDALE IT IS .01 CENT, IN ORLANDO IT IS .02 CENTS, IN JAMAICA IT IS .03 CENTS AND IN WEST PALM BEACH IT IS .06 CENTS. THIS SURVEY OF REFUELING FEES IN OTHER DESTINATIONS IS STARTLING AND FRANKLY IT IS TIME THAT IT CHANGES FOR BAHAMASAIR.

WHY DOES THIS FEE HAVE TO BE 13 CENTS IN NASSAU? THIS FEE I AM TOLD HAS ITS GENESIS IN THE CREATION OF THE SO CALLED CONSORTIUM OF PETROLEUM WHOLESALERS COMPRISING ESSO, SHELL AND TEXACO WHO CONSTRUCTED A REFUELING HYDRANT SYSTEM AT THE NASSAU INTERNATIONAL AIRPORT IN THE MID 90’s.

THE IRONY HOWEVER IS THAT BAHAMASAIR NEVER USED THIS HYDRANT SYSTEM. INDEED THE PHASE THAT WOULD HAVE RENDERED THE SYSTEM ADAPTABLE TO BAHAMASAIR’S USE WAS NEVER EVEN INSTALLED. AS IF THAT IS NOT TROUBLING ENOUGH, THE CONSORTIUM CONTINUES TO SERVICE BAHAMASAIR USING THEIR TRUCKS WHICH HAVE OFTEN CAUSED UNNECESSARY DELAYS THAT IS DUE I AM ADVISED TO THEIR TARDINESS.

FURTHER, IT WOULD SEEM THAT THE CONSORTIUM OF WHOLESALERS HAVE CAUSED EVEN MORE DESPAIR BY CHANGING WHAT THEY ONCE CALLED A HYDRANT FEE TO A REFUELING FEE. BY WHATEVER NAME IT IS CALLED, BAHAMASAIR SHOULD NOT BE PAYING IT SINCE THEY HAVE NOT AND DO NOT BENEFIT FROM THIS HYDRANT SYSTEM.

THE CONSORTIUM HAS DARINGLY AND ON A VARYING BASIS INCREASED THE FEE OVER TIME FROM 7 CENTS TO THE PRESENT FEE OF 13 CENTS. I AM ALSO ADVISED THAT THEY HAVE ALSO THREATENED THE NATIONAL FLAG CARRIER TO STOP SUPPLYING THEM WITH FUEL IF THEY DISCONTINUED PAYING THE FEE WHILE THE MATTER IS ADJUDICATED IN THE COURTS.

IT IS MOST UNSAVORY FOR ENTITIES PROVIDING AN ESSENTIAL PRODUCT TO DO SO BY WAY OF UNREASONABLE MEANS. I AM TOLD THAT THERE IS NO SIGNED CONTRACTUAL CONSENT ON BAHAMASAIR’S PART TO ABSORB THIS FEE AND ALL ATTEMPTS BY THEM TO HAVE THE BASIS FOR THE FEE RATIONALIZED AND CONFIRMATION AS TO WHEN IT WILL BE DISCONTINUED HAS MET WITH ABJECT DISDAIN AND FLAGRANT CONTEMPT FROM MEMBERS OF THE CONSORTIUM.

FROM MY PERSPECTIVE BAHAMASAIR HAS BEEN UNDULY AND UNJUSTLY CHARGED THIS UNAUTHORIZED FEE SINCE ITS INCEPTION AND IN MY HUMBLE OPINION SHOULD BE FULLY REIMBURSED FORTHWITH. WITHIN FOURTEEN DAYS OF GIVING THE CONSORTIUM NOTICE I WOULD EXPECT THAT BAHAMASAIR WOULD DISCONTINUE PAYING THIS FEE AND COMMENCE LEGAL ACTION TO RECOVER PAST FEES PAID.

IN THESE TIMES WHEN COST IS BEING AGGRESSIVELY ADDRESSED BY ALL AIRLINES, MY GOVERNMENT CANNOT ALLOW THIS TO CONTINUE. I WOULD ADMONISH THE CONSORTIUM TO URGENTLY SIT DOWN WITH BAHAMASAIR TO AMICABLY RESOLVE THIS MATTER BECAUSE THE TROUBLING ASPECTS OF THIS SITUATION WILL NOT SIMPLY GO AWAY OR BE OVERLOOKED.

LIKEWISE THE UNIONS THAT I REFERRED TO BEFORE SHOULD BE ON NOTICE THAT THE INEVITABLE CONCESSIONS INVOLVING SALARY ADJUSTMENTS, NEW WORK RULES, FLEXIBLE WORK WEEKS, REDUCED BENEFITS, ETC. MUST COME IF BAHAMASAIR IS TO CONTINUE ITS OPERATIONS AS WE KNOW IT TODAY.

THE TIMES ARE CHANGING AND IN TODAY’S BAHAMAS WHERE THE GOVERNMENT IS FACED WITH THE REAL POSSIBILITY OF DIMINISHED REVENUES AND A GROWING BUDGETARY DEFICIT, DUE TO THE RECENT HURRICANES WHICH HAS NECESSITATED THE RE-CONSTRUCTION OF RAVAGED COMMUNITIES, IT MUST MANAGE ITS LIMITED RESOURCES JUDICIOUSLY AND PRUDENTLY.

THE ADVENT TO OUR MARKET OF THE LOW COST CARRIERS LIKE SPIRIT, AIRTRAN AND JET BLUE MAKES BAHAMASAIR WITH ITS PRESENT COST BASE AN UNTENABLE SITUATION FOR THE GOVERNMENT OF THE BAHAMAS. BAHAMASAIR MUST AS MY GOVERNMENT ADVOCATED IN “OUR PLAN” DURING THE 2002 ELECTION CAMPAIGN, FIND WAYS TO REDUCE THE COST OF OPERATING THE NATIONAL FLAG CARRIER WHILE KEEPING A GOAL OF PRIVATIZATION OR SERIOUSLY EVALUATE OTHER VIABLE ALTERNATIVES.

THE NATION WILL BE HEARING MORE ABOUT THESE MATTERS IN THE FUTURE AS MY GOVERNMENT ATTEMPTS TO COME TO GRIPS WITH ENSURING THAT BAHAMASAIR DOES NOT CONTINUE TO CONSUME A DISPROPORTIONATE SHARE OF THE GOVERNMENT’S SCARCE RESOURCES.

IT IS MY GOVERNMENT’S INTENTIONS THAT RESOLVE WILL COME TO THE MANY ISSUES THAT ARE CONFRONTING BAHAMASAIR BECAUSE THERE ARE OBVIOUS POSITIVE PERFORMANCE INDICATORS THAT WE WOULD LIKE TO CAPITALISE ON, BUT ONLY IF THE CHALLENGES ARE SUCCESSFULLY CONQUERED.

I THANK YOU FOR YOUR ATTENTION.