The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian-owned airline yesterday said it will “have to look at our whole business model again”, with the combined effect of multiple tax increases negating its $3 million-plus investment in a new service hangar.

Captain Randy Butler, Sky Bahamas’ president and chief executive, told Tribune Business that tax increases implemented by various government agencies meant it was now cheaper to service the carrier’s planes abroad.

The airline had invested in its new service hangar because, prior to the tax policy changes, it had calculated it would be more cost-effective to conduct aircraft servicing in-house in the Bahamas.

Besides Value-Added Tax (VAT), Captain Butler said Sky Bahamas had been forced, in quick succession, to deal with a 50 basis point increase in its Business Licence rate; 3 per cent interest on its ground fees; last year’s Nassau Airport Development Company (NAD) fee rise; and a $100 fee per general declaration to Customs.

“I don’t think the Government is looking at the net effect,” he told Tribune Business. “We have these government agencies putting on these fees, and no one is looking at the net effect.”

Turning to the impact on Sky Bahamas, Captain Butler said: “We were building this hangar to make servicing planes cheaper here. But now, it looks like it’s cheaper to take the plane back out the country.”

He explained that, with foreign-registered aircraft, Sky Bahamas would not have to pay US taxes. And, in the US, the airline would not have to deal with Customs duties, labour costs will be lower and work permit fees much more amenable.

Captain Butler said Sky Bahamas’ plan had been to hire foreign factory-trained mechanics to train up their Bahamian counterparts to the point where they could gain their licence and service, and maintain, the airline’s planes.

“We have to look at this whole business model again now,” he told Tribune Business. “Here we go again. I’m wondering who is driving this bus. Somebody has got to get driving this thing. We can’t do business like this.”

Captain Butler said that, if Sky Bahamas was forced to abandon its local maintenance plan, it would need to hire fewer foreign mechanics, and thus Bahamians would not be trained.

With work permit fees and other taxes reduced, Captain Butler said there would be “less money coming to the Government, so the net effect is you’re worse off”.

The Sky Bahamas chief, meanwhile, expressed concern over whether it would receive timely and full VAT refunds on input payments made in relation to its international flights.

This segment of Sky Bahamas’ business, like all inbound and outbound commercial flights, is to be treated as ‘zero rated’ for VAT purposes. This means that, while passengers will not be charged the 7.5 per cent levy on their tickets, the airlines can also reclaim VAT paid on their inputs such as fuel purchases.

Voicing cash flow concerns, Captain Butler told Tribune Business: “For us, we’ve got to be on top of it. The first filing is going to be a test for the Government and everybody else. It’s a challenge for us to manage.”

Captain Butler said Sky Bahamas, given the time lag associated with refunds/credits, would likely have to rely more on bank overdrafts to generate cash flow until the Government repaid the VAT.

“The bank is charging VAT on fee-based stuff,” he added. “Now we have to use overdrafts in some cases, as we wait for that money to come back. We have to pay fees and taxes on overdrafts.

“This is not only a 7.5 per cent increase to the public. It’s more than that. We’ve got to pass more on. There’s no other way to survive.”

Captain Butler said Sky Bahamas had hired an extra accountant to help cope with VAT, and likened the refund/credit issue to the Government borrowing money from the airline, which had no guarantee of getting it back.

“We have challenges of borrowing money to do things because we are loaning the Government money now, hoping to get it back,” the Sky Bahamas chief told Tribune Business.

“We’re paying it upfront and hoping to get it back from the Government on the back end. The history of the Government paying its bills has been challenging, so we’re hoping and praying to get it back. The Government gets a free ride on our cash flow for two months.”