The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A senior government official yesterday voiced surprise that the Nassau Flight Services (NFS) privatisation had attracted just three bids from potential Bahamian purchasers.

Algernon Cargill, director of aviation, told Tribune Business that “a lot more than three” had been expected based on the level of inquiries and information requests that were sparked by the release of the formal privatisation tender.

Declining to identify the bidder trio, he said an evaluation committee featuring a mixture of “outside experts” and Ministry of Tourism officials will now be formed to review the offers and make a recommendation to the government on which, if any, it should accept.

Mr Cargill said the committee would aim to complete its work “within the next 30 days”, and added that a franchise arrangement - where a bidder would lease Nassau Flight Services’ assets and assume total responsibility for managing the company’s daily operations - remained an option if the government did receive its “desired” price for the business.

“There were three bids. They were opened today,” Mr Cargill revealed to this newspaper. “The next step is that an evaluation committee will review the bids and make a recommendation to the Cabinet. The Cabinet will make a final decision. The committee cannot accept or reject; it can only make a recommendation based on the bids.”

The aviation director admitted that officials were surprised by the relatively low level of interest in Nassau Flight Services, and said: “Based on the response from the Request for Proposal, and the explanations and clarifications sought, we were expecting a lot more than three. We were surprised.”

It is unclear why the privatisation tender did not attract more interest, given that the airport ground handling services provider’s annual $8m revenues place it well within the range of the Bahamian investor groups targeted by the government.

The Minnis administration has long made clear that it views Nassau Flight Services as “low hanging fruit” when it comes to privatisation, outsourcing and getting the Government “out of business”.

It also sees the privatisation as part of its drive to create more Bahamian entrepreneurs, diversify the economy and spread the wealth, hence its insistence that foreign bidders need not apply given that Nassau Flight Services’ size makes it a prime candidate to remain in local hands.

One possibility is that some groups may have been deterred by the amount of work required to transform the company into a profitable operation. Dionisio D’Aguilar, minister of tourism and aviation, previously told Tribune Business that Nassau Flight Services’ annual wage bill was equivalent to 99 percent of its top-line revenues, and the company requires regular annual subsidies of $2m.

The privatisation tender document also laid out relatively modest growth prospects for the company, with revenues from its main ground handling business projected to grow at 2 percent per annum over the next decade.

And a downsizing of the company’s 244-strong workforce, featuring 166 full-time workers and 78 temporary staff, is almost inevitable given the need to better align costs with income. This, though, will not be easy given the presence of trade unions via the Airline, Airport and Allied Workers Union and an existing industrial agreement.

All this illustrates the extent of the task facing any buyer, and another factor that may have also influenced the seemingly low number of bids is the risk averse nature of Bahamian investors, since many tend to stick to the traditional investments and industries they know - the likes of real estate, fixed income securities such as preference shares, and retail/restaurants.

Mr Cargill, meanwhile, said any foreign interest would have to partner with Bahamians if their bid was to stand any chance of success. He reaffirmed that the Nassau Flight Services privatisation was “high on our priority list” for Mr D’Aguilar, his officials and the wider government.

“We have the option to sell it outright or sell a franchise,” the aviation director explained. “If the price is not at the desired level, we’ll franchise. The Government will not be in day-to-day control, but it will lease the operations to a third party that will have full management of the employees. We’d lease the entire operation.”

The privatisation tender spoke to a “minimum 10-year franchise agreement” with the winning bidder, and Mr Cargill said this or an outright sale would bring The Bahamas into line with Caribbean and global practices when it came to government ownership of a ground handling services provider.

“We believe through the outsourcing of Nassau Flight Services that we can have a company that has the expertise to partner with international or local companies to run Nassau Flight Services,” he told Tribune Business.

“The Government wants to advance Bahamian entrepreneurship so that Bahamians can manage and run Nassau Flight Services. Throughout the Caribbean ground handling operations are now owned and managed by governments, and globally the practice is that private managers run them.”

The Government’s privatisation tender forecast that top-line revenue from ground handling will to rise by 21.9 percent, or 2 percent per annum, increasing from an actual $6.251m in 2018 to $7.62m in 2028 - a relatively modest pace of growth that, in total, is less than $1.5m.

“NFS has managed an average of 6,600 flights during the period 2015-2018, and is projecting a two percent annual growth over the next ten years,” the bid documents confirm. “NFS has managed an average of 6,600 flights during the period 2015-2018.”

The number of flights handled by Nassau Flight Services is also forecast to increase from the 6,850 handled in 2018 to 8,350 by 2028 - an increase of 1,500 annually, or 21.9 percent, that matches the level of revenue growth. It currently operates at Lynden Pindling International Airport (LPIA), Exuma and San Salvador airports.

The fate of the staff, and the industrial deal with the Airport, Airline and Allied Workers Union that any buyer will inherit, are likely to be key subjects in negotiations between the Government and preferred bidder. The union deal is valid until February 2020.

Nassau Flight Services’ client base comprises British Airways, Air Canada, West Jet, Sunwing Airlines, InterCaribbean Airlines, Caribbean Airlines, COPA Airlines and Cubana Airlines at LPIA’s international terminal, and Jet Blue, Southwest Airlines, United Airlines and Silver Airlines at the US terminal.

It also serves a host of charter and other operators, including Air France and Condor, while in Exuma it serves Air Canada and takes care of American Airlines and Air Cariabes in San Salvador.