The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government is aiming to generate a net $3m surplus from the COVID-19 health travel visa scheme in the upcoming fiscal year, with one Cabinet minister saying: “We have to live within our means.”

Dionisio D’Aguilar, minister of tourism and aviation, told Tribune Business yesterday that ministries and departments must “come up with extra revenue to compensate” if they want to spend beyond their budget allocations in the 2021-2022 fiscal year.

He spoke after a detailed examination of the government’s budget revealed that some $37m has been allocated to the Ministry of Tourism and Aviation during the 12 months to end-June 2022 to cover the costs associated with vetting, processing and approving health travel visas, which all tourists - whether fully vaccinated or not - must obtain to enter The Bahamas.

However, the $37m cost, much of which goes to financing COVID-related insurance for visitors, is forecast to be exceeded by the $40m in revenue that the government will earn from health travel visa fees paid by tourists as well as returning Bahamians and residents.

These costs are projected to shrink to $17m in the 2022-2023 fiscal year, with no expenditure forecast for health travel visas in the 2023-2024 fiscal year - an indication of when the believes both the COVID-19 pandemic and their usefulness will come to an end.

Still, the budget is projecting that health travel visas will earn $22.32m, or a net $5.32m, in the 2022-2023 fiscal year as their use starts to wind down in line with the continued COVID-19 vaccination roll-out in key source markets such as the US.

Meanwhile, the Ministry of Tourism’s 2021-2022 spending allocations further exposed the devastation that the pandemic has inflicted on Bahamasair and other aviation-related state-owned enterprises (SOEs), with Mr D’Aguilar admitting these interests have been “hammered” by COVID-19.

Bahamasair, which was initially granted just a $19m subsidy for the 12-months to end-June 2021, had already sucked up $52.494m - more than two-and-a-half times’ this sum - in just the first nine months of the current fiscal year.

While the slow tourism revival and gradual re-opening of domestic and international air travel will slow this cash burn rate, the national flag carrier has been consuming almost $6m a month in taxpayer support, with the figures to end-March 2021 placing on track to suck around $70m out of the hard-pressed Public Treasury.

Both the Airport Authority and Nassau Flight Services are in a similar, though less expensive, situation. The Airport Authority is on track to require more than double its original $4.942m subsidy for the full 2020-2021 budget year, having eaten up $8.996m in taxpayer funds in the nine months to end-March due to the loss of aviation and passenger traffic at COVID’s height.

As for Nassau Flight Services, it had already consumer more than four times’ its original $1.46m subsidy at the same point, requiring $6.099m in taxpayer subsidies to compensate for the loss of its airline clients with a quarter of the fiscal year to go.

“Anything that relies on user fees for much of its revenue got hammered,” Mr D’Aguilar conceded. “Not reflected [in the budget] is any funding that the Nassau Airport Development Company may need but we’re hoping that does not materialise.”

Tribune Business reported last week that the government has pledged to “take whatever action is necessary” to prevent Nassau Airport Development Company (NAD) defaulting on its $480m debt as it remains in breach of a key investor term.

The Lynden Pindling International Airport (LPIA) operator, in its just-released 2020 annual report, revealed that the Minnis administration gave a November 25, 2020, commitment to holders of more than $365m of its debt securities that it will provide whatever financial support is necessary to ensure NAD continues meeting its financial obligations.

With the absence of passengers drying up its revenue streams, NAD fell into breach of its debt service coverage ratio that requires it to maintain a 1.3:1 ratio as part of the terms that induced investors to help finance LPIA’s $409m-plus redevelopment more than a decade ago.

NAD’s annual report reveals that this breach is expected to persist through at least end-September 2021, but it has secured an agreement from its senior debt holders to waive this condition until end-June 2022 in the hope this will provide sufficient breathing room for both the tourism industry to rebound and to rebuild its finances.

NAD’s financials indicate that the government’s commitment letter, promising to support the airport operator financially if necessary, was critical to securing the debt service coverage ratio waiver given that both developments occurred on the same day. And this, in turn, was vital to ensure NAD was treated as a “going concern” for accounting purposes.

The government, though, is forecasting that all its aviation-related assets will begin to recover from the pandemic during the upcoming fiscal year. Bahamasair’s subsidy, while 57.9 percent higher than the prior year’s at $30m, is still much reduced compared to the level of financial support required this fiscal year, while those for Nassau Flight Services and the Airport Authority have been held at 2020-2021 levels.

“It depends on the speed and pace of the rebound,” Mr D’Aguilar acknowledged, when asked if the government will contain subsidies at that level. “They’re all based on user fees. If you don’t have the users then you don’t get the revenue, and your cost structures are basically fixed.

“Bahamasair, in a good year, probably loses $25m. Right now that [$30m] is our best guess on how we feel the rebound is going to happen. It’s always subject to change based on vaccination rates.”

As at March 31, 2021, the Ministry of Tourism and Aviation had exceeded its full-year 2020-2021 budget allocation of $106.058m by spending some $111.835m with the fiscal year’s final quarter still to go. The hike in the upcoming fiscal year’s $140.575m total spend is being driven largely by the health travel visa’s costs.

Mr D’Aguilar, arguing that the ministry would be on target if not for aviation-related subsidies, also pointed to the $14m-plus reduction in funding to the Civil Aviation Authority in the upcoming fiscal year due to the imposition of the country’s new overflight fee regime.

Elsewhere, the Ministry of Tourism and Aviation had spent less than one-third of its 2020-2021 promotional and marketing budget by end-March. This has been held at the same near-$28m level for the upcoming fiscal year, and Mr D’Aguilar said: “We can always do with more, but the reality is we don’t have more.

“It is what it is. What’s been allocated to tourism, we have to live within our means. If we want to spend more we have to come up with alternative revenues to compensate for that.”