I am extremely pleased to be able to speak about Privatization to the Bahamas Institute of Chartered Accountants. You are a unique group of professionals since your work provides valuable insights. In this regard there is a fundamental difference between lawyers and accountants. Lawyers are not trained to discover and testify about truth…but accountants are. A lawyer builds an argument for guilt or innocence depending on whom he represents. It would be interesting to speculate on the kind of society the Bahamas would have if "no-nonsense" accountants managed the political system rather than lawyers.
But…this afternoon we-re dealing with privatization as it may apply to a wide range of government activities…from Batelco to BEC, Water and Sewerage, Bahamasair, the public schools, and even the Post Office. Today to simplify things I will deal with only one corporation, Bahamasair, and a possible action program for your Institute.
I select Bahamasair with some regret for two reasons.
The first is…Bahamasair has had a splendid safety record with only one accident and no fatalities in its almost 27 years of operations.
The second occurred nine years ago when I was a student pilot flying solo from North Eleuthera to Nassau and I got lost. I mistook south for north and, although I did not know it, I was somewhere north of Nassau and west of Abaco rather than south of Nassau and east of Andros.
Pilot training in the United States trains you on how to handle this situation. You remain calm and authoritative and speak like Jim Lovell, the astronaut. You remember the line spoken by Tom Hanks in Apollo 13 "Houston…We have a problem"
So in my best Tom Hanks impersonation I pressed the push-to-talk button and with my calmest, most authoritative voice said ~
"Nassau Radio. This is Piper Cherokee Seven Two Eight Two Whiskey. I need a vector to Nassau International."
There was no response. After what seemed like five minutes I did it again.
"Nassau Radio. This is Piper Cherokee Seven Two Eight Two Whiskey. I am a student pilot and I need a vector to Nassau International."
The silence was deafening and still there was no answer. So I became even more specific.
"Nassau Radio. This is Piper Cherokee Seven Two Eight Two Whiskey. I am a student pilot, I-m lost and I need a vector to Nassau International."
At that point Captain Cartwright of Bahamasair, who was landing at North Eleuthera, heard my calls for help, responded, switched me to another frequency and had me stay on that frequency while he sorted it out. He came back on frequency and gave me a 190-degree heading home.
A pilot never forgets his student days and I will never forget Captain Cartwright.
So I use the Bahamasair case reluctantly…and…simply because I was able to get the latest audit report and the Prime Minister himself gave his appraisal of Bahamasair in a two-page newspaper article. This material is contained in the lead article to the last issue of The Review that I will make available to you at the end of my comments.
The facts are as follows:
- Prior to 1998 audited financial statements were never presented to Parliament. Statements for the years 1974 to 1986…but excluding 1981 and 1983…were tabled in 1998. There are no audited statements for the three years 1989 to 91 and the auditors are now working on 1995.
- The auditor-s report for fiscal 1994 was completed in September 1997 and showed that Bahamasair had an accumulated operating deficit of $162 million.
- The auditors issued a qualified statement because of doubts over the amounts shown for assets, revenues and liabilities. They had a "substantial doubt that the Company will be able to continue as a going concern."
From your training and experience you will recognize that this is simply a terrible audit. It-s as bad as it can get. In the real world of business this is the stuff that turns directors and shareholders alike into raging dissidents.
In his public statement the Prime Minister stated that ~
- Bahamasair is grossly overstaffed and
- Despite the overstaffing Bahamasair "lacks adequate, capable management, engineering, marketing and accounting personnel" and has "an established culture of doing things without proper authorization."
- The Prime Minister stated that the current operating loss was $16 million and he asked for and Parliament approved a $13.7 million government loan guarantee to enable Bahamasair to purchase two Boeing 737s. This made a total financial drain of $29.7 million…equal to 47 per cent of the 1998/99 fiscal deficit.
This is a sad commentary on a company that has been in operation for 25 years with almost 7 of those under the FNM.
An economist looking at this concludes that ~
- Bahamasair…despite its splendid safety record…despite its excellence in one critical area…is the perfect example of what is wrong with public corporations…they operate without market and financial restraints.
- The country can afford the luxury of government mismanagement only by taxing you and me and borrowing…by mortgaging your future and the futures of your children.
This does not make sense and it is just one example of why a program of privatization is necessary.
An accountant looking at Bahamasair can conclude that this publicly owned business has operated as a private corporation without public review and without acceptable financial standards. Transactions may or may not have been recorded, audits may or not have been made…and when they were, they were years late and always qualified.
This country should become a center for international business…businesses of many types and not just tourism and offshore banking. But to do so it must have a legal and business environment that facilitates economic transactions. Two important prerequisites are the swift and impartial application of the "rule of law" and financial standards that are world class…the equivalent to a perfect safety record in aviation. Let me come back to this point.
Why does Bahamasair have such a great safety record?
It-s pilots and operations management must work to world standards. Both airplanes and pilots landing in Miami are subject to U.S. Federal Aviation Agency ramp checks. Aircraft and pilot certificates and logs are examined and, if they do not meet FAA standards, they don-t leave. Bahamians can work to world class standards.
In this connection, the Institute of Chartered Accountants can play a positive role. I suggest that you consider issuing an annual report to the Bahamian public on the audits of the government and government corporations. As a minimum the annual review should show the year of the last available audit report, indicate whether it is qualified or not and list the major comments of the auditors. With such an annual report voters will become aware of international accounting standards and how the government meets these standards. The dialogue on privatization will become more rational and the country is bound to be the winner.