Workers Fired, Half The Fleet Grounded

Air Jamaica, an airline known for good times and good service to the Caribbean is now being run by the government in Kingston, with a smaller staff and only half its planes in the air.

The takeover comes as Air Jamaica was locked in a dispute with the FAA over safety issues. The airline pulled ten of its 20 aircraft out of service after an FAA safety audit last month and canceled several flights to both the US and the UK. One issue appeared to be the interval between safety inspections. Air Jamaica had been conducting major maintenance on its aircraft every 18 months. The FAA demanded that interval be shortened to 15 months. Failure to comply would mean Air Jamaica risking its flight status in the US.

Air Jamaica chief Vin Lawrence wasn't specific when describing the maintenance issues that led to the FAA request -- except to say it involved "routine" issues like waste bins with broken lids and labels that had become worn.

Nor was Lawrence specific when he said the grounded aircraft were costing him millions of dollars a month.

The Jamaican government took over the airline in December, finding it mired in debt -- much of it owed to the government itself. Since then, the new board of directors has undertaken a major restructuring plan, laying off some 170 workers. Its eventual goal is to reduce the workforce by about ten percent.

Dealing with the airline's debt may be even more difficult. "The fact is that the airline has been virtually insolvent for a number of years and has had to rely heavily on government’s financial support through direct loans, credit facility guarantees and periodic debt to equity conversions," Lawrence said in a statement posted on the airline's web site. "Consequently, discussions have been in train for sometime on the most effective and efficient methodology to apply to ensure the operation of the airline, without the continued heavy reliance on government, and by extension, additional cost to the taxpayer. Cost cuts were identified and several successfully implemented, but important areas such as employee cost savings, for example, salaries and related costs, were not achieved."

Air Jamaica owes US$890 million to its creditors. Given that, the Jamaican government says it may retain control of the airline until 2010 -- or beyond.

FMI: www.airjamaica.com