Editor’s note: This is an excerpt of BVI Premier D. Orlando Smith’s statement to the Sixth Sitting of the Fourth Session of the Third House of Assembly on Jan. 15,2019.
One of the most difficult chapters in my years of public service has been the failed effort to create a commercial airline to serve the BVI.
The BVI Airways project has been the topic of enormous discussion in our community for the past several years. That conversation has generally been well-intended, but much of it has been uninformed, and that has allowed speculation, rumor and outright falsehoods to spread.
The people justifiably want to know what happened to the $7 million allocated for this initiative. I shall do my best to provide an answer.
The idea for BVI Airways was born from the same belief that has been my government’s North Star since the day we took office: That it is our duty to invest strategically today in order to build a more prosperous tomorrow.
Nowhere is that more important than our tourism industry. The well-being of every soul in the BVI is connected — directly or indirectly — to tourism.
When tourism suffers, it takes bread off all of our tables; it limits government’s ability to provide essential services; it puts people out of work.
When tourism thrives, it injects life into our community; it puts money in family’s pockets; it allows government to do more for our people; and it creates opportunities for each and every one of us.
We cannot thrive if we cannot compete with other tourism destinations. And nothing threatens our competitiveness more than the lack of convenient and affordable air travel from the United States.
It is really quite simple. Go online and visit a travel site — Orbitz, Travelocity, Expedia, or Google. Search for travel options from New York, Chicago, Boston, or Los Angeles to Jamaica, or Turks and Caicos, or Bermuda, or Puerto Rico, or the Dominican Republic. You will see dozens of flight options from different competing airlines at all different price points — all with direct flights or one easy connection. Now do the same search for the BVI. Your options disappear. Travelers must connect through different airlines. The prices are high. The times are inconvenient. The choices are few.
Travelers who don’t know how spectacular the BVI is will choose our competitors. And each time that happens, it directly harms our economy and directly harms our children’s futures.
It was on the basis of this conviction that my government began exploring two projects aimed at improving air access to the territory:
• First, the expansion of the airport runway, which could open up the possibility for American Airlines, JetBlue and other major carriers returning to the BVI.
• Second, we began pursuing the possibility of supporting the creation of a new BVI airline.
The BVI airline possibility emerged four years ago when government was approached by a company called Castleton Holdings, which had experience in the airline industry. Castleton was interested in exploring the commercial viability of establishing a non-stop BVI Airways service between the Beef Island and Miami.
Some might ask why government would consider providing any benefits to a private business. The simple answer is that the airline business is fundamentally different from virtually any other business that operates in the BVI.
To build and run an airline, a company must be prepared to invest millions of dollars to buy planes, hire pilots and flight attendants, keep the aircraft in safe working order, purchase fuel, keep up with vast regulatory requirements, and market the service to travelers. These are all fixed costs. If a plane is completely full of paying passengers or if a plane is half empty — it still costs the same amount of money to operate that service. Thus, the risk of running an airline is very high.
That is why many other countries here in our region and around the world offer financial supports to their national air carriers. So I never questioned the need to provide some degree of support — both financial and logistical — to BVI Airways. It would simply be impossible to imagine a successful airline operating here without such incentives. Anyone who tells you such a thing is possible is peddling nonsense.
But I also understood that those incentives could not be endless. After all, the whole point of creating BVI Airways was to strengthen our economy — we would be doing ourselves no favors by pouring money into a project that had no hope of ever becoming financially independent.
With that in mind, we were pleased to receive the report in September of 2014 that predicted that over a three-year term, the venture would result in net cash flow of some $ 2.6 million, and over a longer five-year term produce a net cash flow of approximately $10.5 million.
This study found that if government was willing to provide initial financial support to BVI Airways to get up and running, then within a few short years the company would become profitable and could operate without further taxpayer funding.
And most importantly, the report, which was conducted by a highly respected industry expert, projected an increase of roughly 450,000 air passengers per year to the BVI — more than double the existing air passenger volume at the time.
It is impossible to overstate how meaningful it would be to our economy if we could double air travel to the BVI.
It would mean tens of millions of dollars in increased tax revenues to pay for health care, education, roads and public projects.
It would mean jobs for our people and profits for our local businesses.
It would have been irresponsible of government not to pursue this opportunity further.
And so, through a series of negotiated agreements, government secured an arrangement with Castleton under which government would be willing to provide revenue support to the newly established BVI Airways. The agreed upon sum was $7 million. In return for that commitment, BVI Airways would use commercially reasonable efforts to begin service between Tortola and Miami.
Upon completion of that agreement, BVI Airways set to work and achieved important steps on the path to commencing operations.
• Two well-maintained aircraft were acquired.
• Certification from the Air Safety Support International was secured.
• U.S. Department of Transportation approvals were secured.
• FAA approvals were secured.
• TSA approvals were secured.
• Ground crew and flight crews were hired and trained.
• A robust corporate back office to handle accounting, legal, marketing and other functions was established.
All of this was done at considerable cost and effort from BVI Airways. And as we observed this progress, we had good reason to believe that we were on the path to finally having the air service our country needs and deserves.
Unfortunately, that is when troubles began to arise.
In 2016, BVI Airways submitted a complaint to government regarding our plans to expand the runway at the airport. According to the complaint, our runway expansion plans undermined BVI Airways’ ability to raise capital from investors because a longer runway would mean competition from legacy carriers.
BVI Airways claimed many of its potential investors were no longer interested in the venture if they had to compete with these larger airlines. From this point forward, the project began to slowly unravel.
BVI Airways still had to pay for flight and ground crews, service its debt and pay for other expenses, but it had no revenue and no access to new investors. Put simply, the company was running out of money.
BVI Airways came to government asking for additional money from us.
Government could see no path toward responsibly increasing our commitment. The best we could do was bring forward the payment schedule of the $7 million we had committed to provide. We did so in the belief that it would be sufficient to get BVI Airways up and running, at which time we hoped that revenue from ticket sales, combined with renewed investor interest, would make the company viable.
As it turned out, that goal was never reached.
BVI Airways did not have the capital necessary to commence service. In June of 2017, it laid off its staff and shut down operations.
Since that time, government has been working with our legal advisors to explore every possibility for recouping some or all of the $7 million we invested with BVI Airways. I cannot promise that it will be successful.
For now, the truthful answer to the question of where is the $7 million is that the money was invested, and the investment failed to deliver a return.
Now, let me be perfectly clear, the money was not put into any person’s pockets. Nobody got rich off this project. Rather, the money was spent paying salaries to pilots, flight attendants and ground crews. It was spent on consultants and lawyers to secure the complex regulatory approvals required to begin operations. It was spent paying off debts to banks that provided the financing to acquire the two aircrafts. That is not to say that there is not blame to go around.
There is, after all, one great unanswered question about this whole saga, which is why BVI Airways began this project when they had to know that we intended to expand the runway, which would eventually mean competition from larger carriers.
In all honestly, I cannot answer that question. What I can tell you is simply this: your government entered into this project with full knowledge of the risks, but also with a sincere belief that those risks were worth taking. No government can effectively serve the people of the BVI if it is not willing to take risks.
When we built the new cruise ship pier — it was a huge risk. But had we not done so, then our cruise ship industry would have shrunk, our economy would have been harmed, and hundreds of our fellow citizens who now have opportunities to work and prosper would never have had those chances.
When we built the new hospital — it was a huge risk. But had we not done so, then the people of this territory would still be faced with the intolerable situation where necessary medical services would have been unavailable here in the BVI.
When governments before ours established the Community College, when they built the airport, when they invested in infrastructure and education — all those investments carried risks.
And, of course, not all the risks government has taken on have worked out. Sometimes projects fail. Certainly, that appears to be the case with BVI Airways.
But I also hope that no one takes from this experience the false lesson that risks must be avoided. On the contrary, we must continue to do so. We must be bold. We must be prepared to try new things and take on big challenges because it is the only way to secure our future.
And God willing, so long as we remain willing to take risks, and to dare to achieve big things, then I am confident that we will succeed far more frequently than we will fail.
I use the word fail guardedly as I repeat that we are still trying all legal means to recoup some of the monies lost. I can only hope that we will be successful.
— Dr. D. Orlando Smith is British Virgin Islands premier and minister of Finance. He was named in the Queen’s New Year’s Honors List in 2000 and was awarded an Order of British Empire.