The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Commercial airlines have yet to resolve their issues with the Government’s new taxes after receiving a “curve ball” on how outstanding monies are to be dealt with, Tribune Business was told yesterday.

While both sides are close to an agreement, the “main stumbling block” to a successful conclusion is the Government’s insistence that all outstanding funds owed to it under the existing regime be paid by April 1, 2014.

While the Ministry of Finance has agreed to then repay these monies on a schedule to be agreed with each individual airline, this conflicts with the industry, which wants all outstanding taxes - much of which it has not been paying - to simply be waived.

Alan Sweeting, chairman of the Airline Operators Committee at Lynden Pindling International Airport (LPIA), yesterday confirmed to Tribune Business this was the major obstacle to resolving the sector’s concerns over the 2013-2014 Budget’s new and increased taxes.

He explained that the airlines had been negotiating with the Government on the understanding that monies owed under the new Customs processing fees would be waived.

“We did agree on the departure tax being increased from April 1, but we still have some outstanding fees we had agreed would be satisfied in another way that were not addressed as yet,” Mr Sweeting told Tribune Business.

“These new fees came in last year July, and the airlines protested those. Those are not quite satisfied yet, so there are still additional things to it.”

The new fees/taxes introduced by the 2013-2014 Budget required that all commercial flights arriving in the Bahamas be charged $75 for both arrival and departure, for a grand total of $150 per flight.

On top of this came Customs service charges for planes arriving after 5pm, and before 9am, on any given day. Commercial aircraft with a seating capacity of less than 30 are charged $50 per hour; airliners with seats numbering between 31-70 are charged $100 per hour; and those with 71 seats or more face a $200 per hour charge.

Then there was Customs’ new 1 per cent administrative processing fee, which has been added to brakes, tyres and other aircraft parts imported to the Bahamas for repairs. This fee, capped at $500 per import, replaced the previous $10 Stamp Duty levy.

“We were looking to have those waived,” Mr Sweeting said of the new fees. “That was the understanding we were working on with them, and they [the Government] came back to say make them current, the old fees.

“That is absolutely the main stumbling block, and them we will be of one accord after that. There’s been good progress, but we’re not quite there yet.”

Mr Sweeting confirmed that the commercial airline industry had not been paying many of the fees demanded by the new regime, in particular the $75 ‘each way’ fee for landing and departure fee.

“We haven’t paid the fees,” he conceded. “The Government is saying it needs the money, and the industry has not paid them.

“There was an initial agreement, but certainly it came back as a curve ball that we need to make them [existing fees] current before April 1.”

Mr Sweeting, a Jet Blue executive, said that the $75 each-way fee would not impose a major burden for airlines flying into LPIA once a day.

But, in his employer’s case, with 10 flights per day amounting at an additional $1,500, just this fee alone - translating into $45,000 per month and $1.35 million per year - represented a significant additional cost.

And, while these sums, and the industry’s collective additional $3.5-$4 million tax burden, may not seem significant to many, Mr Sweeting said the sector had already been operating on “very thin margins - 1-2 per cent, if that. It really gets out there”.

The Government’s position was set out in a February 7, 2014, letter from David Johnson, the Ministry of Tourism’s director-general, to Mr Sweeting as the airline committee’s chairman.

The letter, a copy of which has been obtained by Tribune Business, shows the Government has agreed to the airline industry’s basic demand to drop the Customs processing and service charges in favour of increasing the departure tax.

This $4 increase in departure head tax, from $25 to $29, will shift the taxation burden from the airlines to their passengers, and involve carriers paying “a negligible service charge only”.

The new regime is set to take effect from April 1, 2014, Mr Johnson writing: “In consultation with the industry and ourselves, the Ministry of Finance has now agreed to proceed with the increased head tax of $29 with effect from April 1, 2014, at which time the current processing fees and existing level of service will fall away for all commercial airlines operating 300 or more rotations annually into the Bahamas.”

The tourism director-general, though, then got to the contentious part of the Government’s position.

“You are reminded also that the current applicable fees are due as payable and should be brought current as soon as possible, and not remain outstanding at the time we transition to the new schedule,” Mr Johnson said.

“In addition, the Ministry of Finance considered the request for the rebating of fees due and paid for the applicable period, and wish to confirm that all fees paid for the period October 1 through March 31 will be rebated to the payee on a mutually agreed schedule.”

Mr Sweeting confirmed that this did not square with the industry’s preference in a February 12, 2014, e-mail to fellow airlines, in which he said: “The letter is not in agreement with our initial focus and understanding that the new Bahamas Customs processing fees would be waived.”

However, he yesterday expressed confidence to Tribune Business that the situation would be resolved before the planned April 1 transition to the new tax regime.

“I think we will have some agreement soon, very much so,” Mr Sweeting said. “I have a good belief we will have it settled in very short order.”

That will come as a great relief to the Bahamian hotel and tourism industry, given that the Airlines for America coalition, which represents key operators such as Jet Blue, Delta and American Airlines, had last year threatened to reduce or eliminate service to the Bahamas because of the new and increased taxes.

The airline industry’s reaction to the new Customs-related charges could not have come at a worse time for plans to increase airlift capacity into the Bahamas by 400,000 seats, a move timed to coincide with Baha Mar’s early 2015 opening.

The Government, Nassau Airport Development Company (NAD) and the private sector - chiefly Atlantis and Baha Mar - have been travelling extensively in a bid to increase airlift, and the Budget’s tax reforms threatened to undermine their efforts in one fell swoop.