Liat's Caribbean marriage

Mark Darby describes how he has helped forge a remarkable new direction for Antigua's Liat in his second article about life as the chief executive of the Caribbean airline

I still find it hard to believe that my current preoccupation after less than a year in charge of Liat is to merge it with another carrier. Last July, when I took on the job of leading the turnaround of this famous, but ailing, carrier - which has for half a century had a vital role linking the scores of islands scattered around the eastern Caribbean - I could never have predicted how fast events would run.

Back then, if anyone had said I would be merging Liat with arch-rival Caribbean Star I would have called them crazy. But that is exactly what is happening. From February, the two carriers, which operated virtually identical schedules with identical aircraft - Bombardier Dash 8 turboprops - began operating commercially as one airline.

This does not mean the merger is complete. The legal side will take a little longer. However, the combined flight schedule is a sign of the conviction and certainty that I share with Skip Barnette, the chief executive of Caribbean Star, that integrating our schedule now is the right thing to do.

Leap of faith

It is a quite a bold step for Caribbean Star and a leap of faith for them to move their sales and marketing over to Liat in advance of the merger. But Skip and I know it will happen. We have said to each other: "Let's just get on and do it."

We both knew things could not go on as they were. The airlines were cutting each other's throats. Liat and Caribbean Star, which was formed in 2000 by Texan businessman Sir Allen Stanford, were losing cash by the truckload. The carriers competed on almost every city-pair they flew. Fares just kept on tumbling. Both airlines were losing roughly $35 per passenger on every sector and were flying aircraft that were only just about half full.

Neither carrier could sustain such losses. The first talks about a merger began in earnest in late November and a letter of understanding was signed just days before the New Year. Owen Arthur, the prime minister of Barbados, was appointed by the main shareholders of Liat, which include Antigua and St Vincent, to lead the talks with Stanford. The island owners want an airline that will serve the interests of the region and do it at a profit.

Tight schedule

The deal was ratified by Liat's board on 9 January and signed a day later by the prime ministers of the three islands and Stanford. The timing was tight, as the merged schedule for this summer had to be filed with travel data provider OAG by 16:00 that very day.

The commercial agreement between the two airlines means that Caribbean Star is effectively wet-leasing its aircraft to Liat, which in turn is operating the combined schedule under the Liat flight code. Virtually all the route duplication has instantly been removed while the combined airline will operate 16 turboprops (and two back-up aircraft) to all 22 destinations previously served by both carriers. There are teams from both airlines developing the blueprint for how the merged company will look. I believe this is the first time two airlines have integrated their operations so deeply without formally merging.

Reaction in the local media has broadly been positive, although once the deal is done the local papers will be down to half their normal size, such is the interest in Liat and its future. Everyone thinks they know what is right for Liat, from taxi drivers to office workers, and they are not shy in telling me!

I believe the reaction to the merger talks has in general been positive because once merged there will still be a good- sized airline serving the region, providing a comprehensive range of scheduled services to all the major islands of the east Caribbean. Additionally, as there is a strong loyalty and affection for the Liat brand, many have been reassured because the airline will be called Liat - Star of the Caribbean. But I won't deny there is suspicion about the future and I will have plenty more explaining to do in the press and on the region's popular radio talk shows.

There are plenty of challenges ahead to get the new Liat in shape too. Firstly there is the financial side. Liat alone has to clear a debt mountain of $100 million. The plan from day one is for the new Liat to be debt free. We are negotiating with our government creditors to swap the debt for some form of equity in Liat. The airline will need working capital as well, which may come from a number of sources, including loans to the island governments from banks owned by Allen Stanford. If this works out, Stanford will be paid back out of proceeds from the eventual sale of the merged carrier.

On the way up

As our staff works hard on the integration of Liat and Caribbean Star, the improvements to Liat's operation have not faltered. The airline's punctuality, historically poor, rose to over 85% for the past four months of 2006 and the trend has continued into 2007.

It is a juggling act to keep the everyday business running while keeping up with the constant rounds of meetings that the merger process requires, but despite all the distractions the management team has done an excellent job of remaining focused and motivating staff.

Another reason for rushing ahead with the merger, as if our terrible financial position wasn't enough of a reason, is that in mid-March the Cricket World Cup begins in the West Indies. This is a huge sporting event for the region. We wanted to make sure that if any changes had to be made they would all be resolved in advance of this event. While I'd like to think that the deal we currently have planned will be final, nothing can be taken for granted until the deal is finally done. I won't be surprised if there is a dramatic twist still to come!

The past few months have been fascinating. Although I've been on a very steep learning curve as I have had to get to grips with so many varied issues, it has been great fun. For now the challenge is to keep the airline running smoothly while preparing for the final merger - and plan for the period beyond. And, as an Englishman I have to teach Skip, my American colleague, and a bit of a baseball fanatic, how to play cricket.

Read about Mark Darby's "roller-coaster" first 100 days at Liat online

Skip Barnette of Caribbean Star and Peter Davies of Caribbean Airlines offer their thoughts on the future of the region's airlines

Source: Airline Business