The Pivotal Role Of Aviation In Caribbean Regional Integration


SANDALS- 4th of July

By David Jessop

News Americas, LONDON, England, Weds. July
3, 2019:
Speaking at the end of the recent summit of the
Organisation of Eastern Caribbean States (OECS), Dominica’s Prime Minister,
Roosevelt Skerrit, was clear.

“We just have to close our eyes for a few seconds and
appreciate the impact on the way of life of ordinary citizens and businesses in
this region if LIAT were to cease its operations … There are economic
consequences. I think the regional private sector needs to join forces with the
governments and all of us in the region,” he told journalists.

In a similar vein, his Antiguan counterpart, Gaston
Browne, who is now the OECS chair, said that LIAT remained vital to “keeping
our people connected”, and that the airline was a critical component in
regional integration.

Majority owned by the governments of Barbados,
Antigua, St Vincent, and Dominica, LIAT remains on the edge financially,
struggling to reconcile its essential role in sub-regional integration with how
it should be financed and operated.

This is partly because, despite multiple
restructurings, no one so far has been able to find a way to make viable a
sub-regional carrier that serves the needs of all OECS citizens and visitors in
a manner that is functional, politically equitable and socially relevant at the
same time.

The present situation is expected to come to a head
when representatives of the Barbados and Antigua governments meet soon to
negotiate the terms on which Barbados will sell most of its shareholding in the

A little earlier this year, Barbados agreed to the sale of much of its 49.4% shareholding to Antigua which currently holds 34%. The arrangement is expected to revolve around Antigua taking on most of Barbados’ part of the airline’s debt to the Caribbean Development Bank (CDB) while retaining a shareholding and continuing to participate in minimum revenue guarantee arrangements.

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This is an arrangement that involves the countries
that LIAT flies to, contributing not on the basis of their shareholding, but on
the frequency of flights to their nation. Antigua is also hoping also that
other Caribbean governments, or those with a vested interest in tourism, will
subsequently take up some of its shares.

Speaking about Barbados’ decision to sell, Prime
Minister, Mia Mottley said recently that while her government retained an “absolute
commitment to regional air travel” the country’s IMF program required it “to
step back”. Tellingly, however, she coupled this with the suggestion that this
would allow other governments “to continue with their proposals to restructure
LIAT in the way which they have determined.”

Ms Mottley’s stated view is that LIAT’s operating
model is dated and unattractive and that the airline needs a new financial and
operational approach and significant restructuring if it is to be able to be
made viable and provide the required services.

Most reports suggest that the airline continues to
struggle with short term liquidity issues and to service its US$65m debt to the
Caribbean Development Bank (CDB), relating to a fleet upgrade.

Antigua’s Prime Minister says that his government
believes it can address both issues and exercise the regional leadership
required to turn the sub-regional carrier into a viable operation. It will, he
said, “resist” any collapse and has developed a “strategic approach” that
involves retaining all LIAT’s fleet of ten aircraft and Antigua’s role a
regional hub.

Despite this, some shareholders remain reluctant to
make further contributions without significant changes to the airline’s
structure, cuts in expenditure and rationalization of the number of aircraft
and routes. Moreover, all this is happening as a plethora of smaller carriers
are expanding their services across the sub-region in an uncoordinated manner.

What LIAT’s continuing difficulties highlight is the
importance of finding a broader solution that results in a viable Caribbean
operated carrier or interrelated carriers able to fly services that seamlessly
link the various regions of the Caribbean together.

As this column noted last year, this requires joined
up regional thinking that only a full Caribbean Heads of Government meeting can
address and find practical ways to implement.

Unfortunately, in the real world of Caribbean aviation
political interference has meant that decisions are often based on petty
nationalism and an absence of the efficiencies that the private sector usually
brings. Consequently, governments subsidize foreign carriers to fly in,
subsidize regional airlines and subsidize fuel. Then, in response, they tax in
multiple ways, travel and travelers, to recover what has been spent.

Clearly this is unsustainable and if not addressed
soon, regional aviation, and by extension regional integration, is likely to
continue its slow downward spiral.

Regrettably, the likely solutions to LIAT’s problems
suggest that the current piecemeal approach to regional aviation will continue
without any holistic attempt to address underlying problems such as the
extraordinary range of taxes and charges levied by OECS governments, the
sub-region’s inability to deliver an integrated approach to transport that
includes fast ferry services, or it unwillingness to address protectionist
approaches to route licensing.

Some OECS governments now suggest that those who
benefit most from LIAT’s services such as the tourism industry, should be
taking up LIAT shares. This may be wishful thinking. Investors within or beyond
the region would likely require a far-reaching rationalization plus much less
government constraint, while most hoteliers, who may well benefit from the
airlift LIAT provides, are adamant they already contribute enough through
domestic taxation.

In comparison to Central America, aviation in the
Caribbean has been a disaster, staggering from one financial and operating
crisis to another, too often micromanaged by governments, costing taxpayers
millions of dollars in subsidies while becoming so expensive to use that a 2018
CDB study pointed out inter-regional travel is now in rapid decline.

Whether LIAT has an assured future remains to be seen,
but for as long as politicians fail to satisfactorily address inter-regional
connectivity and its cost, Caribbean integration will for most remain illusory.

EDITOR’S NOTE: David Jessop is a consultant to the
Caribbean Council and can be contacted at [email protected].
Previous columns can be found at

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