LIAT seeking legal advice over CAL fuel ‘subsidy’

KINGSTOWN, St. Vincent – Cash-strapped regional Airline LIAT is actively exploring its legal options to redress what it says is unfair competition from Trinidad and Tobago’s Caribbean Airlines (CAL).

Prime Minister Dr. Ralph Gonsalves, chair of LIAT’s shareholder governments, said at a media briefing this week that the airline intends “to challenge the subsidy which Caribbean Airlines has been given by the government of Trinidad and Tobago” — its sole shareholder.

“We can’t have Caribbean Airlines competing with LIAT on a footing, which is not fair. We must be on the same footing,” said Gonsalves, who is the CARICOM and Organization of Eastern Caribbean States lead spokesperson on air transportation.

He said that CAL pays a subsidized price of US$50 a barrel for aviation fuel while LIAT pays between US$110 and US$120 a barrel.

It is just not right. It is wrong,” Gonsalves further stated.

He said the subsidy was similar to Trinidad and Tobago selling fuel to its manufacturing sector – at cheaper rates than to countries that import that fuel. This gives Trinidad “a decisive advantage” in the manufacturing sector, leading to “trading not on a level playing field,” Gonsalves said.

He said the Revised Treaty of Chaguaramas, which established the CARICOM, and the Air Services Agreement among the members of the regional bloc, address issues such as the CAL subsidy.

“We know it is established that CAL gets a subsidy, a significant subsidy from the government of Trinidad and Tobago. I think they call it a fuel hedge. A subsidy by any other name is still a subsidy. It doesn’t matter what you call it. So that is an important issue, which we have to address very seriously,” Gonsalves said.

“We have been talking about this thing too long. It is time for us to use the juridical institutions of the community to address problems, which put us in a disadvantageous position where we ought not, according to the Treaty, according to the agreement, be put in a disadvantageous position,” Gonsalves further said.

“That is our view, but we have to have it substantiated by legal opinion and then we take the necessary action,” he added.

Gonsalves said that LIAT shareholders would prefer to have the situation settled through political discourse.

“But if they cannot so be settled, we have to go and assert our rights in the way that citizens can assert their rights whenever they feel they have them and they are being disadvantaged.”

LIAT’s decision to sue Cal comes as Devant Maharaj, Transport Minister in Trinidad and Tobago said last week that the airline would “continue to aggressively pursue markets in all territories in the Eastern Caribbean”.

Maharaj said he would await any pre-action before commenting on the possible lawsuit.

“I shudder to think that any board under my remit would breach any law and that includes CAL,” he, however, said.

St Vincent and the Grenadines, Antigua and Barbuda, and Barbados currently control the majority stake in LIAT, which lost US$46 million last year, US$26 million more than in 2010.

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6 thoughts on “LIAT seeking legal advice over CAL fuel ‘subsidy’

  1. It is amazing how politicians work! You elect them to serer your interest and they turn around and do the opposite! Who cares as a customer what subsidy CAL gets from Trinidad? After all pumping monies into an airline that is badly managed is worse than a subsidy and should be challenged by the people! Moreover, is LIAT going to challenge the other airlines too for low fares of for subsidies? Even if Venezuela is outside Caricom has there been any similar investigation into the operations of Conviasa, the Venezuelan airline with stops in Kingstown, Roseau, Saint George’s and, Port of Spain? Do they not get jet fuel in the host country and what do they pay?

    What about challenging Trinidad’s price of electricity? And other states subsequently engaging others on issues relating to prices of cheaper basic resources like water? This argument is not in the interest of the people and is purely a technical legal battle tat is anti consumer at the core!

    Posted by Concerned Vincy | February 15, 2012, 07:18
  2. LIAT Board, I am sure Gonsalves can recomend a good legal representative.

    Time to get rid of LIAT, we are lumbered with another huge trading loss bill, millions SVG will have to find.

    Liat require a new fleet of aircraft, SVG will be asked to sign as guarantors [jointly and severaly] for multi millions of US $s. I suppose that matters very little, we already owe a billion dollars which we will have to default on because we are skint.

    Lets get a privately owned company that can take us forward with little or no cost to the SVG taxpayer. We cannot rely on Gonsalves to do this, so lets put him on a LIAT flight to somewhere else and hope he dosn’t come back.

    Posted by Peter | February 15, 2012, 08:24
  3. Concerned Vincy, please broaden your scope of thinking.

    Posted by John | February 15, 2012, 08:43
  4. Concerned Vincy, under 25cents a gallon is the answer. How can anyone compete on the Venezuela route. There you are Gonsalves lets hear what you have to say about that.

    John I hope your not verging on stupidity again, your 8 word submission is indeed a triumph for you.

    Posted by Peter | February 15, 2012, 19:27
  5. I find it interesting that the Prime Minister would say that CAL is playing on a field that’s not level. He cannot blame the Trinidadian Government for supplying their industries with subsidized fuel, since it is within the Republic’s right to do that, as it does to its other consumers. Furthermore, the PM has yet to actually explain why LIAT has performed worse last fiscal year than it has relative to the previous period. LIAT runs far more and shorter routes than CAL does, so the expectation of a profit making airline is a bit far-fetched. What will be interesting would be the cash-flows of the company for those two periods as opposed to the actual bottom line, as we will have a pretty good idea how resourceful LIAT actually is.

    The PM also needs to contend with the fact that Venezuela fully expected the price of oil to increase over the long run, granted oil reserves are being depleted quickly. Over the long term, oil may be in short supply, but in the short term, speculators will ensure that prices remain high. Venezuela’s President in a BBC interview prior to the signing of PetroCaribe maintained that countries who did not sign on, will face the market price of oil, with signatories to PetroCaribe receiving oil at $40 per barrel, and any increases over $75-$80, having the country face the full price per gallon. In my opinion the playing field is level. CAL is using a fuel hedge which is a completely legitimate way to conduct business. If I can purchase an oil future at $60 per barrel in 2013, and save me probably $60-$75 off the market price then I will. A fuel hedge is legitimate for companies involved in the purchase and sale of any commodity, whether it be gold, oil, copper, platinum, silver, etc. They engage in it because it saves money. I think PMs now need to consider taking management/finance/economic classes, because that’s the problem with LIAT (they don’t seem to use any of those tools, but they want to win).

    Posted by George Sears | February 17, 2012, 11:48
  6. George Sears, I commend you on your excellent posting, its very understandable and informing.

    Posted by Peter | February 18, 2012, 23:06

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