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A questionable $15 million loan application

It is mind boggling that the cash-strapped national carrier Samoa Airways is, yet again, seeking another multimillion tala loan. This comes at a time when international tourism and air travel generally has ground to a halt, and the jury is still out on the risks of coronavirus (COVID-19) infection on a plane.

The Unit Trust of Samoa (U.T.O.S.) confirmed in the June 21, 2020 edition of the Samoa Observer that it is considering another $15 million loan application from Samoa Airways, which the Government will guarantee.

U.T.O.S. Chief Executive Officer, Tevaga Viane Tagilima, told the Samoa Observer that the loan application is still being processed, and if approved would be added to a $15 million loan the State-owned investment company gave the airline in 2018.

“We haven’t given the airline [airline] any funds as the vetting process is underway,” he said. “Firstly this [specific] loan is guaranteed by the Government, [if] in any case there is a default, U.T.O.S. can call on the Government to guarantee to recover its funds.”

Tevaga refused to comment when asked if the airline has missed any repayments for the first loan, saying that information is confidential.

However, he emphasised Samoa Airways is currently being subject to their in-house loan application processes, just like any other loan applicant.

“It doesn’t really necessarily mean a loan is approved automatically; again there is a process and requirements in place and we have to look whether the airline or any borrower meets such requirements.”

It would be interesting what decision the U.T.O.S. management arrives at after its due diligence review, following revelations in February this year that Samoa Airways had an operating loss of $21 million in the last financial year.

Looking at the airline’s performance from the 2018-2019 financial year, U.T.O.S. unitholders have every right to question any decision the management will make in relation to Samoa Airways’ second $15 million loan application. 

And they should also ask whether the airline has already complete repayments for its first $15 million loan given in 2018?

So too would the taxpayers of Samoa, who would want the Government to channel funding to priority areas such as health and education, as well as support vulnerable sectors including tourism which saw 3,000 jobs lost and close to 100 businesses shut.

Last week the Parliament heard that the Minister responsible for Samoa Airways and the airline management flew to Norway to negotiate to lease a five-year-old Boeing 737-800 aircraft.

The Member of Parliament for Anoama’a West, Fonotoe Pierre Lauofo, told the Legislative Assembly during debate on the 2020-2021 fiscal year budget that it would cost Samoa Airways US$254,000 [T$678,000] a month to lease the aircraft.

“If it's US$254,000 for monthly lease I believe it is cheaper than the previous lease we had,” he said. “During this time there are ongoing problems faced by airline companies around the world with some facing bankruptcy and aircrafts grounded. 

“I believe if the aircraft and its operation is properly managed we will be able to lease another aircraft afterwards once the first one expected in August arrives…” 

But do we really need to lease an aircraft that will cost us over half-a-million-tala a month when there is literally no international travel? Or does the Government envisage a sudden flood of tourists and visitors to Samoa when states in Australia as well as New Zealand – two of our largest markets in terms of visitor numbers – continue to record COVID-19 cases, even after their lockdowns?

According to Fonotoe, the leased Boeing 737-800 aircraft is expected to arrive in the country in August, and the US$254,000 [T$678,000] a month rate is “cheap” hence there is scope for the leasing of two planes.

It is tragic that the Member of Parliament for Anoama’a West has not looked at the “big picture” implications of the Government’s spending, and is swayed by the “cheap” rate that it is possible for Samoa to lease not one but two planes! 

Let's do the math for Fonotoe, based on the aircraft lease rates he gave to the Parliament last week. Lease two planes at the rate of US$254,000 a-month-per-aircraft and you incur a total monthly charge of US$508,000 for both planes. Now, that’s T$1.37 million a month to lease both aircraft!

In the face of a shrinking global economy, not to mention the impact that COVID-19 has had on our two main foreign currency earners tourism and remittance, it appears the Government has not put the full brakes when it comes to Samoa Airways-related expenditure. It is still in cruise mode by the look of things.

Getting another $15 million loan to lease an aircraft at a time when the global aviation sector is in doldrums and most international borders closed due to the global pandemic lacks logic. 

Perhaps, our leaders and technocrats forgot about the economic projections that the Central Bank of Samoa (C.B.S.) released in April this year, with the Bank forecasting Samoa’s G.D.P. contracting by -6.6 per cent by the end of 2020 due to the impact of COVID-19.

And with the high degree of volatility currently in the local and international markets, you would think Governments while rolling out stimulus packages to support their local industries, would also work to protect their gains and channel meagre financial resources to critical areas to enable their people to cushion the effects of the global pandemic.

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