Samoa Airways owes more than its debts

By The Editorial Board 07 December 2020, 12:00AM

The case of Samoa Airways, the airline seeking to lease a plane at a time when the nation’s borders are closed to air traffic, has been well covered in these pages recently. 

But recent revelations that the airline is falling behind on the payment of its debts adds a new level of seriousness to the story and one that should concern the entire nation. 

The front page of the Weekend Observer, carried the revelation that the national carrier had fallen behind on its bills on such a large scale at one of the country’s most iconic businesses. (“Samoa Airways' $400,000 hotel debt revealed”). 

Not only had Samoa Airways allegedly decided to stop paying its debts to Sheraton Samoa Aggie Grey’s but was not contactable when the hotel attempted to call in what it was owed. 

The story quoted an official spokesperson from the hotel who confirmed that the airline had incurred accommodation bills in excess of $400,000 which had not been paid back.

The bills dated back to when the airline was accommodating staff from Malindo Air, with which the airline had a “wet lease” arrangement. 

As the story showed these were hardly new expenses that might have been overlooked. 

The airline had terminated its arrangement with Malindo by April. 

As the hotel made clear the airline was not only not paying up but also acting with disregard for the norms of conducting honourable business: initially making payment arrangements which were then not followed through.

Even requests for meetings with the airline’s senior staff were now going unanswered. 

“This arrear (debt) has been [there] a long time [ever] since Malindo left and we have been asking the Samoa Airways to make a commitment to pay us, even portion by portion but they never made that commitment,” the spokesperson said.

“Yes they paid some money to us, but they still owe over $400,000. 

“It is very difficult to recover [this loss] and we are at the stage of looking at closing but we have so many employees and we don’t want to lay off any people. 

“And we’re talking about 182 staff and we don’t want to get to that stage and we are just using what is left [from] our cash flow to sustain.”

Requests for meetings with the airline’s Chief Executive Officer, Seiuli Alvin Tuala, had gone unanswered.

Revelations that Samoa Airways is behind on its bills add seriousness to growing questions about the health and viability of the national carrier and what effects it could have on the national economy. 

We are in a situation in which a state-owned enterprise’s discreditable conduct in business is potentially going to cost Samoans their jobs.

That is a situation worth pondering. 

Samoan taxpayers are financing a business that is putting the economic livelihoods of its fellow citizens in jeopardy. 

But these revelations also lend further credence to suggestions from the former Chief Executive of Polynesian Airline, Fauo'o Fatu Tielu, that the airline is “technically bankrupt”.

The latest accounts to which we have been able to gain access for the airline carrier do not paint a rosy picture of its finances.

We revealed the airline’s bottom line carries some $64 million in accumulated losses and, most worryingly, that it is in a state of negative equity.

It was not Fauo'o, who is running in the forthcoming national elections for the Fa'atuatua I le Atua Samoa ua Tasi (F.A.S.T.) party who needed to underscore the seriousness of this situation.

Jaslyn T. Mariner-Leota, the Assistant Controller and Auditor-General, wrote in October of last year, that the airline’s finances for the Financial Year 2018-19 put its future survival under a cloud. 

“The [airline’s] total liabilities exceeded its total assets by $11,258,751. The conditions indicate the existence of material uncertainty, which may cast significant doubt about the company's ability to continue as a going concern,” she said in an October statement. 

But Fauo'o put it plainly when he noted that the bottom line of these figures was the airline’s creditors, suppliers and lenders are now the real owners of our national carrier. 

We must acknowledge that these are dated financial figures. 

They come before the global COVID-19 pandemic tore through the international travel industry in an unprecedented manner, leading global traffic to fall by two-thirds. 

It is possible, then, that under such circumstances Samoa Airways bottom line has improved. But it is highly unlikely.

The only conditions under which that could happen would be for the airline to source additional financing, or sell its assets.

According to the airline’s public statements very little of this has happened.

Any other situation in which the airline’s finances can be cleaned up will have to come from Government accounts and the taxpayers of Samoa.

The airline received $1 million in the Government’s second supplementary budget in April, which was designed to revitalise the nation’s economy. 

That a line item of such size for a state-owned enterprise was included in what was designed to be a stimulus package raised questions at the time.

But we were told that money was set aside to settle some of the airline’s outstanding debts to local suppliers which would, in turn, inject money into the country’s economy. 

Now that we know that this sum was apparently not enough to settle the airline’s outstanding accommodation bills it raises the question about how many other local businesses are the airline’s creditors but have not spoken out. 

The airline must tell us where that $1 million, designed to cushion Samoa’s economic freefall, was spent and to whom its remaining liabilities are owed. 

Efforts by the airline to obtain more money via a loan from the Unit Trust of Samoa (U.T.O.S.) are also yet-to-be-met. 

The Chief Executive Officer of U.T.O.S., Tevaga Viane Tagilima confirmed that no funds had yet been released to the airline following its request for $15 million. 

We have repeatedly sent questions to Samoa Airways, its management and its Chief Executive Officer and received no replies.

We have asked questions about its finances, its debt with Aggie Grey’s and the progress of a lease arrangement with a Dutch company. A Boeing 737-800 with Samoa Airways insignia was spotted flying at a Dutch airport, suggesting a lease was imminent. 

The closest thing we have received to a response from Samoa Airways is a public statement from the airline that denied it had entered into a lease agreement with the Dutch company.

(That makes the case of the plane sporting the airline’s colours all the curiouser). 

But they also took issue with our reporting on the airline’s predecessor, Polynesian Airlines’, previous debt levels.

In an article we wrote we mistakenly quoted Fauo'o as saying that he had inherited an airline with $300 million in debts.

“The newspaper continues to report misleading information of a $300 million tala debt. The actual amount was much less,” the airline wrote in a statement on 26 November.

We acknowledged our mistake: the figure was closer to $100 million at the time Fauo'o took stewardship of the airline.

But it would be a mistake for Samoa Airways to speak dismissively about the airline’s history of debt.

In 1992, its predecessor’s debt levels reached $200 million, an amount equivalent to half the entire economy. 

We trust that these outstanding debts to the Sheraton will be paid. 

But we must acknowledge the fact that every debt that is repaid from a Government bailout comes at the expense of something else, such as spending on education or poverty reduction programmes. 

As we stand on the precipice of Samoa Airways entering into another lease deal we demand transparency about the airline’s financial situation.  

With everything we know about the airline’s past and everything transpiring about its present finances the Government needs to present a completely transparent account of the airline’s accounts before it enters into another deal. 

The currently global economic downturn has forced tough choices upon Governments worldover.

We deserve to know whether securing another plane for a national carrier that appears unable to handle its current debts is the best use of our money.

And for that we will need more than assurances and platitudes but something that has been missing for far too long in the saga of our national airline: a dose of the uncomfortable truth. 

By The Editorial Board 07 December 2020, 12:00AM

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