One day after being blamed by BVI Airways for the company’s widespread layoffs last week, government fired back, claiming that the territory has held up its end of the agreement with the taxpayer-subsidised airline.
Since the official retort, the drama has continued to unfold: Opposition Leader Andrew Fahie pounced on the project’s uncertainty; a follow-up contract was leaked to the Beacon; and the former financial secretary defended the due-diligence procedures he said were conducted before government signed a contract with BVIA.
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This article first appeared in the July 27, 2017 print edition. |
The airline — whose officials could not be reached for comment — publicised the layoffs on July 18, citing money issues.
“BVI Airways regretfully announces that it is immediately laying off its entire flight crew (pilots and flight attendants) as a result of ongoing delays,” BVIA announced in a statement, adding, “Hopefully, this will be a very short-term situation as we continue to work through remaining issues with the government and will be able to commence flights shortly.”
Background
The airline entered into an agreement with government on Dec. 7, 2015, promising to use “commercially reasonable efforts” to launch direct flights between Beef Island and Miami by Oct. 31, 2016. In return, government would provide the company with a $7 million “investment” scheduled to be spread out over almost two years and to be refunded if BVIA were sufficiently profitable.
Despite leasing two jets and publicising numerous statements promising flights would begin at various times between then and now, BVIA has yet to fly a commercial flight to Miami.
On July 18, the airline claimed that a longer-than-expected regulatory approval process had drained its cash reserves, and explained that it had been in discussions with government for months as it sought to raise additional funds necessary to begin operations.
BVIA further alleged that government has unfulfilled contractual obligations to update the Terrance B. Lettsome International Airport, and said it ran into trouble raising private capital after government’s “ill-timed” December 2016 announcement that a preferred bidder had been selected to expand the airport runway.
Government, however, directly disputed this account the next day in an online statement.
“The government has provided all the financial support agreed between ourselves and BVI Airways, and furthermore the Airports Authority has put in place most of what was agreed to enhance the arrivals and departure experience of BVI Airways passengers, including an office, additional seating, air conditioning and two ticket counters,” the statement explained.
The announcement added that the Airports Authority was waiting to hear when BVI Airways would definitively commence flight operations before completing any more specific arrangements for the company.
“Having provided the agreed support, this government and people are awaiting the commencement of the much-anticipated direct Miami/BVI flights,” it read.
Due diligence
In March, the Beacon reported that three BVIA executives — then-CEO Jerry Willoughby, Executive Vice President Pauline Jones, and Safety Director Joseph Pampalone — apparently had worked with a New York-based corporation called Baltia Airlines, which has never operated a flight or generated revenue despite being in existence since 1989, according to documents including a United States Securities and Exchange Commission filing from March 2016.
It is not entirely clear if Mr. Willoughby is still in the BVIA’s top position, since Scott Delacy signed off as CEO on documents the company submitted to the Federal Aviation Administration last month, though Mr. Willoughby was still listed as an “agent for service.”
In March, BVIA publicist Sachkia Barnes told the Beacon that Mr. Willoughby’s involvement with Baltia was limited.
“Jerry Willoughby was a paid consultant for Baltia to look at their certification process for a very short period of time in 2010 and was never an executive or in senior management of the airline,” Ms. Barnes stated in an e-mail.
That statement, however, apparently contradicted Mr. Willoughby’s LinkedIn page at the time, which indicated he was Baltia’s director of flight operations from April 2009 to October 2011.
Ms. Barnes did not explain this apparent contradiction when asked about it in March, though the LinkedIn page was no longer publicly available the next day.
Despite the three executives’ connection to Baltia, Neil Smith, who served as financial secretary at the time of the contract signing, said this week that Ministry of Finance officials performed sufficient due diligence on BVIA.
“Due diligence was done on all the company’s executives utilising trained financial investigators and their methods before and during the course of the contract,” Mr. Smith, who now serves as executive director of the Office of International Business (Regulations), wrote in an e-mail. “This has been standard practice during my tenure for all parties outside the BVI with whom the Ministry of Finance was involved on behalf of the government of the Virgin Islands.”
Mr. Smith also noted that the ministry had been aware that BVIA executives were previously associated with Baltia Airlines in a “consultant/employee” capacity.
“If there is evidence to indicate that they were significant (controlling interest) shareholders/owners, or in any way associated with any supposed fraudulent activities by this enterprise, we were unable to find any such evidence,” he stated.
Glenroy Forbes, the current financial secretary, wrote in an e-mail this week that he was overseas and could not comment while away from the office.
Also this week, the Beacon obtained a copy of an addendum to government’s original 2015 contract with BVIA.
On June 7, 2016, government and BVIA signed another document agreeing that government had been tardy in delivering a letter of credit, which “hindered the ability of BVI Airways to launch service.”
A letter of credit is a bank’s guarantee that a payment will be timely and accurate. The bank is required to make up the difference should a payer fail in this regard after delivering a letter of credit. The letters are commonplace in international transactions.
Government’s 2015 contract with BVIA required government to obtain a letter of credit from a major international bank with an office in New York City and deliver it to the company within 30 days.
Because this didn’t happen, the new agreement required government to wire an additional $200,000 — on top of the $5 million it had paid and $2 million it had yet to pay — to BVIA to cover costs associated with the delays.
On top of that, government was required to pay the remaining $2 million — originally reserved for May and November 2017 disbursements — much earlier. Under the original contract, those payments could have been waived had BVIA not established flights by the end of 2016.
Instead, government paid that $2 million on July 15, 2016, according to information Premier Dr. Orlando Smith provided to the House of Assembly in April.
Additionally, due to any delays the lack of a letter of credit may have caused BVIA, the June 2016 agreement granted the company an additional eight months from its original Oct. 31 deadline before government could claim the company breached the original agreement.
Ministry of Finance officials could not immediately be reached for comment as to whether BVIA is currently in breach of contract given that the eight months expired on June 31.
During an HOA sitting in April, Opposition Leader Fahie (R-D1) asked Dr. Smith (R-at large) if government had signed an addendum agreement and, if so, whether he would make it public.
Dr. Smith, who also serves as minister of finance, acknowledged the existence of a new agreement, but declined to provide it.
“Because BVI Airways are in negotiations with various entities at this time, it should be appreciated that it would be prejudicial to the operation to make this information public at this time,” the premier responded.
He did mention that government had difficulties acquiring a letter of credit, and that the new amendment allowed for an escrow account instead.
Opposition
Both members of the opposition party quickly reacted to last week’s announcements from BVIA and the government.
Julian Fraser (R-D3) took to Facebook on July 20, claiming that the National Democratic Party government was working to orchestrate BVIA’s future collapse so it could swoop in and establish a national airline.
“No investor, especially private, can sustain an operation like BVI Airways in its current form,” Mr. Fraser wrote, citing what he sees as the inefficiency of the AVRO Regional Jet 100s the company leased. “The NDP administration fully anticipates, and probably with the knowledge of the airline executives, that the airline will collapse under these circumstances.”
Mr. Fraser pointed to the Cayman Islands’ national airline, Cayman Airways, as the model the NDP government hopes to emulate.
On Tuesday, Mr. Fraser said he was certain of his theory, though he acknowledged that he hadn’t spoken to a member of government about it.
He also said he supports the supposed plan.
“The whole idea of improving the airlift to the territory is one that is welcome,” Mr. Fraser said, calling the current situation “unsustainable.”
Mr. Fahie was far less enthusiastic.
He cited the BVIA agreement as one of the major reasons he decided to move for a vote of no confidence in Dr. Smith’s capacity as minister of finance at next week’s HOA sitting.
While listing factors that pushed him toward the decision, he included “the poorly signed contract with BVI Airways where $7.2 million went through the treasury’s doors and now instead of flights we have fights.”
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