Tricky situation

We hate to write certain opinion pieces because they have a tendency to work like a self-fulfilling prophecy and we are not in the business of predicting the news but writing about it as it occurs or after it has happened. But we have asked our own in-house aviation specialist about the recent developments surrounding Insel Air and his opinion is that history is repeating itself.

The present developments and the pattern seen are following an old playbook to the script. He has seen the same pattern with ALM, Air ALM, DCA, Dutch Caribbean Exel ( DCE), Dutch Antilles Express (DAE) and now Insel Air. As a side bar, Dutch Caribbean airline companies such as Tiara Air and Aruba Airlines are all in the same boat as Insel Air.

Tiara Air is more foregone than the rest and is not any longer executing an airworthy operation, but is holding on for its life with the hope to get some $40 million that is supposedly still ‘stuck’ in Venezuela. We write supposedly still stuck in Venezuela because former DAE boss, Nelson Ramiz, has pointed out in his recent column that Venezuela does not owe the airlines any money.

Their ticket receipts are all in their bank accounts in Venezuelan banks. However, these funds are in Bolivars. The airlines can use these funds to make purchases and payments in Venezuela, but they cannot convert these Bolivars into US dollars because the currency exchange agency Cadivi does not have sufficient foreign currency – read US dollars – to do so.

Airline companies in Venezuela can use the Bolivars to buy fuel for the aircrafts and other supplies. They can pay employee salaries, pay for catering, and for handling and maintenance services. However, there are only so many things you can use the Bolivars to pay for in Venezuela before you want to repatriate the rest of the surplus funds back to your own country.

That would also explain why an airline company like Insel Air kept on flying to Venezuela despite the fact that they were not getting all their money out of the country. The company could at least buy fuel in Venezuela at a much cheaper rate than elsewhere. There is hardly anything else in Venezuela you can use the Bolivars for as a foreign airline company.

Unfortunately, another factor that impacts foreign airline companies with funds tied up in the Venezuelan currency is the enormous devaluation of the Bolivar. Ramiz has rightfully pointed out that when airline companies like Insel Air claim they have $100 million in Venezuela, you have to take these claims with a huge grain of salt due to the number of devaluation rounds that have taken place over the years and recent months.

So the situation is that Insel Air is obviously in huge financial difficulties. They claim they have millions in Venezuela while Curacao-based commercial banks and government-owned development banks, such as Korpodeko, have lent millions to the ailing airline company. But even these commercial loans and interest-free grants are not enough to keep the airline in the air.

Now the management is calling on the Curacao government for financial support. This is where things get tricky. If history is anything, it is a good mentor and teacher. Those who have followed the recent history in the Antillean airline industry will know for a fact that all the government financial support given to ALM, Air ALM and DCA did not help one iota and did not save these companies from ultimately going bankrupt.

The Curacao government took a principled stand against pumping money into the struggling DAE in 2013 because of these past and infamous failures in the island’s aviation sector. In August of 2013, DAE’s management and employees approached the Curacao government through various departments for a loan of 5 million guilders. The appeal for the loan was denied by the Curacao parliament and the Court of First Instance of Curaçao declared the local airline company bankrupt on August 30, 2013. Now, anno 2016, we see the exact same situation being played out. This time it is Insel Air that is appealing for financial assistance from the government in Curacao. The government has taken the decision to appoint a committee of wise men whose task it is to review the situation at the airline and advise the government on a way forward in view of the fact that if the company goes under, it will not only negatively affect the job market on the island, which will be detrimental to the local economy, but also impact the airlift to and from the island.

This is the part where we have to take an objective distance from all the gloating of many in the industry at the financial problems facing the airline company and look at the impact this will have on the economies of not only Curacao, but also Aruba, Bonaire and St. Maarten. These islands will be without an airlift provider should Insel Air be declared bankrupt. The commentaries and expectation that other players and stakeholders in these countries will enter the market and take up the demand with sufficient airlift is an opinion that our resident aviation specialist does not share. He believes that the painful lessons learnt over the years show that it is simply not profitable or feasible to operate an airline company in these markets.

Therefore, investors looking on or being approached to invest in the local airline market in Curacao, Aruba or even St. Maarten are not that eager to step into the shoes of past investors and airline entrepreneurs who have all taken huge risks and suffered financial losses in this sector. Airlines in the Caribbean simply can’t catch a break. However, they are badly needed because of the essential role they play in the island’s transportation and inter-connectivity. But they just can’t seem to operate profitable with the business models that are currently in use. Maybe it is time for a complete paradigm shift in the Caribbean aviation sector? Until then, it will remain a tricky situation.