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By Eileen O. Tabaranza

KOROR, Palau (October 3, 2000 - Palau Horizon/PINA Nius Online)---Belau Air Inc. (BAI), the only inter-island commuter service airline in Palau, has threatened to close down should it fail to secure a $107,000 loan from the Palau National Development Bank.

In an interview with the Horizon, stockholder and General Manager James Gazley said it is possible that the local airline will cease servicing Koror, Angaur and Peleliu states due to its inability to make lease payments for its Cessna 206 aircraft at $100 per flight hour.

Flights were temporarily suspended effective September 3, as the aircraft was returned to the lessor, Saipan-based Pacific Partners Inc.

The Cessna 207 aircraft officially made its maiden flight, for a medical evacuation, on October 4 last year.

The current slump in the tourism sector, plus the prevailing apprehension of passengers to ride in a "small aircraft" as a result of a tragic plane crash in 1998, has dampened business operations, Gazley pointed out.

"There's no demand for domestic service," he added.

What really turned down the company's operations, he said, was the 23 percent increase in price of aviation fuel to $5 a gallon, which became effective on May 1.

He explained that every time they fly the plane, the load capacity has been at a level of 34 percent, which is way below the ideal 55 percent load capacity to break even.

Gazley said he has seen during the eleven-month operation, that no operator would be able to sustain air service business on the island based on the 34 percent load capacity.

"We are losing money every month, but there were some months that we made money when tourism was up. But during the months of June and July, when the bad weather hit the island, tourists keep out of the air," he said.

"We are trying to get the funds to purchase and own the aircraft we are using. It costs too much to lease the aircraft, so we will purchase it (Cessna 207)," Gazley said, adding that the airline is paying the lessor $5,000 -7,000 a month, equivalent to about 50-70 flight hours a month.

It will have to pay $2,300 per month if BAI opts to purchase the aircraft, he said. But the airline would rather pay $100 per flight hour since it is not common in the industry to purchase an aircraft if it is only intended to test the market for such service, Gazley added.

Gazley is optimistic that the company can secure the loan to purchase the same aircraft that it has returned to Pacific Partner Inc.

He also told Horizon that although BAL is banking on the PNDB for funds, they have other means to keep the business afloat. These include inviting local and foreign investors to invest cash into the company and possible government subsidies proposed by the Angaur state government.

But he doubts that either of the two options would materialize since investors are not that keen on investing in the airline because of the losses it already has incurred, and that this year is election time.

Gazley said the loan was first declined because of the ownership structure of the company. It is not wholly owned by Palauns.

It is 51 percent owned by Saipan-based Pacific Leasing Corp., 19 percent by Gazley, 15 percent by Sen. Sam Masang, and the remaining 15 percent by other locals.

"We would like to give more shares to Palauans, especially Anguar residents, who are interested in the company," Gazley said.

"It is not a service of convenience, but it is an essential service," Gazley said.

Pacific Islands News Association (PINA) Website: http://www.pinanius.org 

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