Matangi Tonga, Vol. 18, No. 3

Tongans are putting their hopes and money on a struggling national airline.

by Pesi Fonua

Tonga's national airline, Royal Tongan Airlines, has been losing money ever since its new international air service started on 25 November 2002.

Now the Tongan government, as the principal shareholder, has been told that unless it injects $20.6 million pa'anga into the airline over the next 13 months the company will become insolvent, or in other words bankrupt.

'Akau'ola, one of the five directors of the Royal Tongan Board of Directors, said in a press conference in early November after a controversial KPMG report on the financial status of the airline was released to the public, that in his opinion, to abandon RTA now would be a bigger loss for Tonga than to keep it in operation.

The figure $20 million continues to be an unlucky number for Tonga. It is a tragic coincidence that Tonga lost its US$20 million Trust Fund in bad investments in recent years, and now that happens to be just the amount the country desperately needs to pull itself through the airline's start-up difficulties.

The prospect of loosing the international services of Royal Tongan receives mixed reactions from Tongans.

Failure is not an option for those who have invested their hopes and aspirations, time and money in the current operation, a key service that the Prime Minister hopes will boost three vital areas of the Tongan economy, namely tourism, fisheries and agriculture.

Meanwhile, others who criticise the venture claim that the airline is such a massive drain on the economy, that it should be abandoned because it only helps to drag the pa'‘anga down.

Economic depression

The decision by government to operate its own international air service, starting in 2002, was apparently based on a conviction that it could help Tonga pull itself out from the current economic depression, and be in control of its future development.

"“For too long the three vital areas of our economy, tourism, fisheries and agriculture, have been dependent on the priorities set outside Tonga," ”the Prime Minister, Prince 'Ulukalala Lavaka Ata, said at Fua'‘amotu International Airport when the Boeing 757 arrived to start its international air service.

"The appeals from the private sector to try and influence other carriers to provide greater frequency, more cargo space and flight times that are more socially acceptable, litter every Minister'’s desk, and I regret that Government'’s efforts have fallen on deaf ears,"” he said of the existing air services at the time.

The Prime Minister knew then that the Royal Tongan endeavour was not going to be easy. "“I bite the bullet knowing full well the consequences of my actions. For the small island states of the Pacific there are no easy options or solutions to provide for the growing needs of our peoples. With a brave heart, the support of our people and top class management, we cannot fail,"” he said.

Cheap fares

Twelve months later Royal Tongan Airlines is still flying the Tonga/Auckland route several times a week, and to Sydney once a week, having made its entry into the competitive air routes by slashing the air fares and offering some flights at more convenient times. It was a gamble that RTA management claims is paying off, but strong opposition to the mounting losses points out that RTA is rapidly draining the resources of the country with no sign of it ever being able to repay its debts.

This view was further emphasised with the release to parliament on October 27 by the Minister of Finance Hon. Siosiua 'Utoikamanu of an Investigative Accountant's Review that was carried out by KPMG Financial Advisory Services (Fiji) Ltd. The report was requested by RTA to undertake a limited review of the company'’s financial position at 31 March 2003, and budgeted operating results up until 30 June 2004, in order to comment on the solvency position of the company. Basically, the report pointed out that the airline had been losing money ever since its new international air service started in 2002 and that unless government, as the principal shareholder injected $20.6 million into RTA over the next 13 months the company would become insolvent.

Royal Commission

In response to the dire predictions in the KPMG report Government has responded by setting up Royal Commission of Inquiry into Royal Tongan Airlines, to be chaired by the Minister of Police, Hon. Clive Edwards.

Clive said that the Royal Commission would review the organisational structure, cost effectiveness and efficiency of RTA .

The insolvency issue of the Royal Tongan Airlines is a major headache for government who is finding it difficult to continue propping up the airline. The Tongan economy this year remained in a very depressed state, as the pa'anga continued its three-year downward slide against major currencies, fuelling higher inflation. At the same time government is working on an economic reform program, that involves privatising government enterprises, introducing a new taxation system and down sizing the public service. The reform will cost government $40 million.

For the Tongan government to just fork out $20 million to pay for the accumulated debts of RTA, in addition to pumping in millions of pa'‘anga to top up the annual budget of RTA during the next five years is a major problem.

Political issue

Meanwhile, the looming RTA insolvency has become a political issue. The KPMG report was presented to the House, and even though it was not debated, it gave parliamentarians something to chew on when parliament closed three days later.

Strangely, in a move guaranteed to make RTA's financial difficulties worse, the immediate reaction from the House came from Tongatapu No. 3 People's Representative, 'Isileli Pulu, who called for people to boycott RTA in protest over the possible consenting by the King to the amendment to Clause 7 of the Constitution "‘Freedom of Speech"

The CEO of RTA, Logan Appu, said that it was unfortunate that the issue had been politicised and the call to boycott RTA, "“is purely political, and I don'’t want to be drawn into a political argument. I have nothing to do with the Constitutional amendment. We are here to run an airline strictly on commercial terms...—we are not here to pick a fight." Logan said it was unfortunate that some people liked to abuse RTA. "If someone is looking for something to abuse, they abuse RTA, including financial institutions."”

With regards to the Investigative Accountant'’s Review report, and the value of the information presented, Logan said it was worth, "Nothing! absolutely nothing, except that we paid for it. The report was based on very old data, it was looking back, and that is what banks and financial institutions do, they always look back, but I am in the airline business and we look forward. We have already proven that our prediction is actually happening and we are well above our current load factor.

"We are now already into our new financial year. Do they know that we are flying to the Cook Islands, and on December 5 to Honolulu? Do they know that we have already changed from a wet lease to dry lease? Do they know that I have my own pilots now, and two Tongan pilots are flying the 757 now? Do they know that I have my own cabin crew and there is not one cabin crew from Brunei in the 757? They never looked at our business plan." Logan hoped that people do not confuse the present service of RTA, using the 757 and the RTA that has been in operation before the arrival of 757.

Logan said that under his five-year plan, he expected RTA to become self sufficient in three years time, but, "we need financial input from government. We asked government for $12-13 million pa'anga for our five-year budget. I need the money to buy another aircraft for the domestic service."”

Logan said that what government was trying to do was to bring in another shareholder to be a partner. "We want someone who could see the opportunities, but government is strapped for cash, but if they can bring in some money, just like they did with the Dateline Hotel."”

Logan said that the report was done mainly to satisfy the Westpac Bank of Tonga on the financial status of RTA. "“Because RTA has a $1.5 million overdraft with the bank, which has always been there since RTA was established. That is all, a miserable $1.5 million. They worried over what would happen if government, the shareholder, can'’t come forward and pay the $1.5 million overdraft. Government has already settled the overdraft and we don'’t have any overdraft with the bank."

The General Manager of the Westpac Bank of Tonga, Miska Tu'‘ifua, did not want to comment on the Investigative Account's Review of RTA, "“because the report was supposed to be only for the bank and Royal Tongan Airlines."