AIR. ·J--- A~ ~A I CA- By Ninis try Pe.per No. 98 o.ated 13t h December, 1965, t he Ho "se was informed of t he detail ::: of a four-party a greement between the Government of .Janoicn , British Overseas Ai!'1,TaJS Corpora tion (BOAC), British Vest I ndian Air1vays (B'J IA) and Air J amaica Ltd. dealing >vith t he opera tion of an i ntorno.t ional c i vil c:c i r line for .Jamaica . 2. That Pa per gave ba ckground information i n r espeot to the dGcision a nd due to t he i mportance of t hi s information i n eva luating .......,_._ present propos a l s t h o rel evant Gxtre>.ct i s a t tached as Appe ndix "A" for ease of reference. In particula r, the Paper s tate d t hat :- ':Tho d ecisio n ~ t heref or e , to form 2. national ca rrier has been dicta ted by hard economic n ecess ity , not ~ :prestigious or s t f'..t-us considera tions a s could have been t he ca se 1vhor e Rir servi ces f'.. r e n ot needed as an e.djunct to an important e conomie .?.Ctivity ." 3. On t he 15t:P of February, 1966 , t he House unanimously endorsed t he aetion t aken up t o t ha t dat e by t h e Government and c.gre ed tha t a ny !· ··. necessr:.ry e xpenditure mcy be i ncurred wit hin t he limits s et out in the four-party a greemen t, r-;~ ic h w.:'.s f or a minimum of 3 y ea rs a nd subject to a dequo.t e permits and l i cences for t he oper o. tion of air s ervices being obtained by Air J o.ma ica . The Civil Ae rona·utics Boa rd, •-lith t he o.pprova l of t he Pre sident of the Uni ted St Qtes of Ame rica ~ grcnted a 3 yea r licenc e to Air .Jamaica Ltd, on t he 19t h of Fe brua~J , 1966. At the He o.ring, it ~orc s me:.de elea r t hat t he s pecinl arr,:,_ ngemcmts reflected in the Agreement must be r egc.rded as n temporc.ry mecsur o to f n cilit,:,_te t l1e Governmo!lt of J amnicn during t ho formn tive nnd experimental years of n nm·r internntiona+ nir cnrrier. In par t i cl'.lnr, it wc.s e:rol nined t h a t_ the Civil Ae ronautics Bonrd does not :r1 ormnlly gr nnt a foreign nir cn rrier permit to a n Airline tho..t opcntcs nircrc.ft s ol e ly on c. 11 vret11 l OC!-s e bc.si s .,. tlw.t 1 s, who re t ho a ircraft, erew an~ all oper ating nrrnngemGn t s c.ro provide d by another carrier, In recent discussions, it was nscertoi ned that o. s lJ or"~ extension of thi s permit uou l d b e considered i:t' de:fini t e arrangement s hn.t b~ n ~oncluded for a no:I."'l'lro.l n:i.rlinc opera tion t J1e renfter. 4. This s pc c i..1.l ;-,r:r-nnge;nen t >_; nd010 :the iour-pnrty c:..:.·l: -~ .:-- ~o;. _. t- s r-n-ed "its pl'rposG i n t :1..".t i t on..-:. bl ed t b e G ove r nmr-~ nt to form o. jud grn~~t,, d1..rrine; "'.!l oxpcrim::m t.c:.l pe r ioa r ~> to ~ - rl:e tJ- ,.; r t~ .o for mnt i on of c. nati ona l I T, T"f__,(_, fA.(' Lirline •. .. EST . jFF.RI (' IlBIARY - 2 - Airline would serve a ~nde economic need . It has provided also a vital training opportuni "bJ for many Jarnai cans v-rho were concerned with the policy as Directors and uith the management of t he Airline. On the basis of this experience Government decided to tclm s teps to create an organisation to replace Air Jamaica Ltd. that could be tr~ly said to be the national airline of Jamaica being one uhich is substantially o1med and effectively controlled by Jacaican nationals. 5. A Committee was, therefore, appointed last year by the Govern- ment to study the futu r e of Air JB.!!1aica Ltd , The Col!lJ:lli ttee received and examined proposals from five groups . BOAC did not submit proposals for continued participation. BWIA uas indire ctly related to a joint proposal received from one group. An experienced Airline Consultant was engaged to evaluate t hese proposals and to advise t J1e Committee. He submitted reports on the rna tter. The criteria used by t l e Cor:J.u.1i tt ee in examining the proposals were (a) that the partner or partners must. be a minority sbarGholder in the Conpany, (b) that sufficient capita l would be provided to enable the Company to obtain its o ~m aircraft and spare s, (c) that the partner had sufficient experience in this specialised fie ld to provide expert lmm,rledr?,·e and back-up sorviqes, and (d) that the participant had a comprehensive sales organisation in all principal travel markets affecting Jamaica. 6. After extensive and de t a iled negotiations t ~c Airline Policy Committee submitted a Report to tho Govomnont \-rhich subsequently authorised the Coonitteo to enter into further dGtai1ed negotiations v-rith Air Canada on the be..sis of t heir presentation. Air Canada is wholly 01·mod by t ho GovornHent of Can etda. 7. On the 16th of .1\ugust, 1968, an Agreement -vras signed b o t~mon the Governr.1ent o.nd Air Can.<>.dn and attached a s Appendix i!B" is a copy of too Rends of J,gr<;emont . Tho Agreement is for o. p -.; riod of approxiiDP.t oly 10 years, tha t is, to tho 31st Docornbor, 1979, Some of the important provisions in t ho Agreement a r c: - ( a ) A now private Company, Air Jannicn (1968) Ltd. , is to be f ormed .... , - 3 - be formed 1-ritlbl. n share co.pit:::. l of £400,000 in ordinary sho.res and £3, 083,334 ($7,400,000 u.s.) in redeemable preference shares . The Govurnment of Jamaica is to hold 6a/o of tho ordinc,ry sbP-res end L. ir Cf.'.nndn 4o%. Tho pr8fe rence shares D. ro not to c o. rry dividends or voting rights and r e dcemc.b le by tho Comprny c,t n prenium of 7~b compounded somi- c.nnunlly. (b) Tho Bank of Novo. Scoti a has agreed to provide n 10 year t ern lonn of up to $18,500,000 U.S. (£7,708,334) to Air J::mc.ica Ltd. bnsod on tho proposed capitalisation of the Company on th e~ s ecurity of its o.ssets (i. e . without tho Govornmon t ' s gJ.o.rantee) . Tlo.e rn te of interest will be 7"i:J6 on ~. ·nts o. ctu:cl l y drm·m on E'. ccount of the loan and ~ % stnndby fe~n 1'-ny amouiJ.t of the 1.mdr::nm agreed loan. (c) Lir Jamaica Ltd. will is suo o.nd Air Canrcdn will subscribe for e ll rodeclllfl.ble prefe r ence sbaros ns required in the equivnlont of ~P 7,400,000 U.S . o.nd tbe Government of Jo.maica shall purchase from Lir Cano.d::J. in accord['.nce with a Schedule the total r e deea~ blo prefer ence shares issued at the price subscribed E'.nd the premium. Prior to the r epayment of the Bank lonn, the Company ~~y redeem at any time vli t h the approval of the Bank, the preference shares in vlhole or in pnrt. This -vmuld relieve the Gove rnment of the obligEC tion to purch::.se or to hold preference shares to thnt extent. After r e payment of the Bank loan , the Company will be free o.t its o-vm discretion to redeen the Government o•med preference s har 8s so long as profits nre nvailnble. i'Jhen t ho Compnny r e deems the preference sho.res held by tho Government, it will po.y to tho Govern­ ment t-rho.tever premium 1v.:1.s p1'.id by the Gove rnment to /'.. ir Can o.da plus any further pr0nium accruing since tho acquisition by the Government nt the s :'.mo rate of 7~ . (d) T'1o Governmon t of Jamaica during the period of t he Agroemc:mt has the option to c. cquire o. further 14% of the ordina ry shares of the Company increasing the Govern­ ment 's total shnroholding to 74% of the ordinary share capital of the Compo.ny. Thu price to be po.id vri ll depend on tho then valuo a s disclosed by the Compc.ny's accounts. (e) It is proposed thE'. t the Coopany will own its o1m fleet of aircraft. (f) The Bo o.rd of Directors shall consist of 9 mem1)er s - 5 appointed by the Govornmcnt including tho Chf.'. irman and 4 by Air Cnno.da. (g) Specinl arrangements aro to be made to en~ blo the Conpcny to retnin sufficion t of the funds tl1 E~ t -vmuld normally bo payable as tax to noot the ±nitial heavy Ct'.pi tal comi tmcn ts but norma l Incone To.x linbili ty -vdll, novorthc less, be de:; t erm inod each year and provision included i n th0 Bnlnnce Sheet of the Conpany under the 11 hecdints Speci::c l provision for Income To.x Liability, II and p1'.id as and when thoro o.re funds available surplus to tho needs of the Company.