The Government of Antigua and Barbuda has drawn up a restructuring plan for struggling LIAT (LI, Antigua) which would require the struggling pan-Caribbean carrier to be placed under creditor protection.
A copy of the plan released this past weekend said that on July 11, the Parliament of Antigua and Barbuda amended the country’s Companies Act to include an option for insolvent companies other than liquidation. A statement issued after a weekly Cabinet meeting said that under the amended legislation, “firms that find themselves in trouble may now apply to the Court for protection from their creditors, rather than be compelled to liquidate as was the only option available to owners and creditors before passage of the law”.
Fearful that the airline may indeed be liquidated, the Antiguan government said this option now provides LIAT’s various shareholder governments with a means of decisively dealing with the carrier’s endless losses by removing a key stumbling block that has hindered all previous attempts.
“Shareholding governments have sought to restructure LIAT on numerous occasions in the past, but failed to achieve this objective because of the bargaining power of uncooperative stakeholders,” it said. “However, the prevailing circumstances and the new business rehabilitation provisions in the Antigua & Barbuda Companies Act, which reduces the bargaining power of uncooperative stakeholders, present an excellent opportunity to reorganize LIAT.”
As such, if LIAT’s shareholders embrace the bankruptcy protection option, LIAT’s turnaround plan has been costed at XCD108 million East Caribbean dollars (USD39.96 million) which will come via an injection of new equity. Antigua & Barbuda have said they are prepared to underwrite up to 50% of the package (i.e. XCD54 million (USD19.98 million)), with the remaining 50% to be shared by other private and public sector entities including existing shareholder governments the largest of which include Barbados, Dominica, and St. Vincent & the Grenadines. Shareholders who refuse to consent to the plan will be asked to surrender their stakes for XCD1.00 (USD0.37) per share. In terms of allocation, XCD45 million (USD16.65 million) will be used to cover LIAT’s outstanding staff liabilities.
However, in return for fresh funding, shareholder governments will be required to write-off 100% of their receivables, including airport taxes and fees which they would otherwise lose in a liquidation scenario, while other creditors will be asked to reduce their dues by 50%. For their part, LIAT staff will be asked to take a 50% haircut in outstanding emoluments and severance in return for an equity stake in a reorganised LIAT. The balance of outstanding short term debts would be converted to medium-term debt instruments, to preserve the reorganised LIAT’s positive cash flow.
“Consequent to the reduction in expenditure by 15%, which will come from staff cuts, lower employee pay, more efficient procurements to include, efficient fuel purchase and reduction in office rental payments; LIAT is expected to turn a profit of XCD11,000 (USD4,070) and XCD12,000 (USD4,440) in the first and second years respectively. With the addition of a baggage fee yielding XCD9 million (USD3.33 million) annually and cost savings from deeper salary cuts beyond the 15% projected, resulting in a cost savings of a mere XCD5 million (USD1.85 million), profitability will soar in excess of XCD25 million (USD9.25 million) annually,” the Antiguan government claimed.
The actual reorganisation plan, which would require Antiguan judicial consent, will result in a significantly reduced staff complement, the resetting of pay grades, and a reduction in operational costs through reduced fuel costs, reduced building rentals and aircraft leases, as well as maintenance costs. A renewed LIAT will also see the introduction of a minimum revenue guarantee wherein all countries that LIAT serves will be required to guarantee the airline a basement-level amount of revenue in return for continuous service. Governments will also be required to reduce airport taxes throughout the region.
Other potential benefits entail the proposed creation of an MRO service which would cater to both LIAT and third-party carriers in the region, the creation of a call centre to service LIAT passengers, and the outsourcing of marketing and promotion, airport handling and catering, airplane cleaning, and other services.
LIAT currently operates a fleet of five ATR42-600s (of which three are owned while the remainder are leased from Nordic Aviation Capital) and five ATR72-600s (two leased from DAE Capital and three from Nordic Aviation Capital). However, under the reorganisation plan, this will be reduced to five aircraft initially; the three ATR42-600s that it owns as well as two leased ATR72-600s. A scaling up in capacity would be contingent on growth in demand and no additional staff will be hired, except where safety and profitable services require it.
As such, anticipated growth projections foresee LIAT operating three owned ATR42-600s, five leased ATR72-600s, and two unspecified 19-seater turboprops for short-haul island hopper flights in the Northern Caribbean as well as luxury private charters and medevac and cargo services. Once it has returned to viability, LIAT will then look at wet-leasing two jets for flights out of Miami Int’l, feasibility studies permitting. The jet service could also open up new markets that facilitate the interregional movement of people and goods between the Caribbean and Latin America, namely Panama. In the longterm, Antigua in the North Caribbean and Bridgetown in Barbados in the South will act as dual travel and logistics hubs.
Meanwhile, LIAT has instructed all creditors with claims against the company to submit them by Monday, July 27, ahead of a meeting on July 31 where a decision on whether to liquidate the airline will be taken. In a liquidation scenario, the Antiguan government estimates it will cost XCD16.4 million (USD6.07 million) to undertake the process.
Whether shareholder governments will find Antigua’s proposal palatable remains to be seen. At a virtual meeting on June 27, 2020, LIAT’s majority shareholder governments met to consider the recommendation of the airline’s Board of Directors to liquidate LIAT 1974 Ltd.
Antigua and Barbuda recommended that, rather than a piecemeal liquidation, shareholders should consider a quick transition in the creation of LIAT 2020 Ltd within 30 days, similar to the transition that created LIAT 1974 Ltd. The latter position was supported by LIAT’s Chairman, Owen Arthur. However, the concept did not find favour with the shareholder governments of Barbados and St. Vincent & the Grenadines which, together, constitute the majority shares.
Ahead of the July 31 vote, Antigua and Barbuda has refused to accede to a request to have the airline’s three owned ATR42-400s moved to Barbados. Sources close to the situation have told Caribbean News Service (CNS) that Antigua fears the three Avions de Transport Régional turboprops will be taken over in the event liquidation is pursued given they were purchased with funds borrowed from the Barbados-headquartered Caribbean Development Bank (CDB).