STATEMENT TO PARLIAMENT - AMERICAN AIRLINES AIRLIFT AGREEMENT

STATEMENT BY

HON. BRUCE GOLDING, PRIME MINISTER

ON THE CONTRACTOR-GENERAL'S REPORT ON

AMERICAN AIRLINES AIRLIFT AGREEMENT

THURSDAY, MARCH 25, 2010

I have carefully considered the report of the Contractor-General into the airlift agreements that were made between JAMVAC and American Airlines. I will be tabling today a Ministry Paper providing a detailed response to the findings and recommendations contained in the report. However, let me make the following comments.

(1) The Minister of Tourism did not mislead the Cabinet as asserted by the Contractor-General. While it was incorrect for the Cabinet Submission to have referred to the arrangement as an "unsolicited proposal", the origin and nature of the arrangements were fully explained to the Cabinet in the discussions that were held when the submission was considered.

(2) It is true that other airlines were not canvassed to provide the seats that were needed from the targeted gateways. It was not considered practical to do so. With the impact of the global recession and the toll it was having on the airline industry, most airlines were drastically shedding routes and curtailing flights and it was considered unlikely that they would be willing to introduce new routes with the attendant risks and in the circumstances that then prevailed. American Airlines was the logical option since it was already operating two of the targeted routes, is the largest carrier serving the Caribbean, has deep penetration in the US market and provides the best connecting network through which travellers from critical tourist markets are able to make connection into Jamaica. The principle of sole-sourcing where a particular supplier is uniquely positioned to provide the required service is an established feature of government procurement policy.

(3) The agreements were, in fact, signed by the Chairman of JAMVAC without the approval of the Cabinet. This is a breach of government policy and I have made it clear to the Minister, the Chairman and CEO of JAMVAC that there must be no recurrence.

There is no suggestion in the report of any corruption in the execution of the agreements. Indeed, the Contractor-General has acknowledged that:

a. The guidance of the Attorney-General's Department was obtained prior to the signing of the agreements.

b. JAMVAC sought and received advice and approval for the agreements at varying levels.

c. The flights for which the guarantees were provided were carefully monitored.

Notwithstanding the breach I have already acknowledged, the government is satisfied that the agreements were undertaken in the best interest of the country. The Minister and his team have worked hard to maintain visitor arrivals, notwithstanding the impact of recession. And they have done extremely well - 3.6% increase in stopover arrivals last year - better than any other destination in the region! Adequate airlift was a crucial part of that success.

(4) The flights guaranteed by the agreements with American Airlines yielded 74,070 passengers excluding Jamaican nationals. The Chicago route made a surplus of US$181,000. Passenger loads on the Dallas and Miami routes fell below the minimum required level incurring costs of US$1.8 million and US$1.2 million respectively. Of the total guarantees of US$4.5 million, the net amount which will have to be paid is therefore US$2.9 million. The passengers would have paid a total of US$744,000 in Tourism Enhancement fees apart from the average expenditure of US$115 per day or an estimated total of US$51 million in tourism earnings from which the government would have derived significant revenue. The provision of airlift financial support is an established policy of government to support the tourist industry. This is a major part of the mandate of JAMVAC.

(5) The Contractor-General commented that marketing strategies were not put in place within the three specified gateways. It must be understood that passengers travelling through these gateways do not necessarily or primarily come from these cities. They reside in various places across the United States and merely make connections to flights from these gateways. Marketing efforts were, therefore, spread across the US with concentration in those areas and in those media that would reach the target markets rather than the connecting hubs. Details of expenditure on marketing were provided to the Contractor-General.

(6) The Contractor-General is correct that the services of a legal firm were retained by JAMVAC 16 days before the approval of the Board was obtained and 17 days before the contract was actually signed. This is undesirable but not extraordinary. In the normal operations of a corporate entity, management, from time to time, finds it necessary or may be allowed to take decisions that are subsequently submitted to the Board for approval or ratification. The Board has a duty to satisfy itself that the actions were justified.

The retention of legal services by statutory bodies is not unusual. Investigations conducted by the Contractor-General can lead to litigation against public officials. Such officials cannot be denied legal representation provided they were acting in execution of their duties. However, legal representation must not be used in an effort to frustrate or impede the Contractor-General in the lawful execution of his duties. In this particular case, JAMVAC, through its attorneys, although complying with the Contractor-General's request, was less than forthcoming and cooperative with his Office. This is contrary to the policy of the government and the Chairman of JAMVAC has been so advised.

The government has accepted several of the recommendations contained in the Contractor-General's report and appropriate action is being taken. These are spelt out in the Ministry Paper which I will table momentarily.