Saipan Air suspension puts off budget revision

Gov't banking on $5M-$7M in revenues from Saipan Air
Lt. Gov. Eloy S. Inos said the administration projected between $5 million and $7 million in additional tax revenues from Saipan Air’s operations that would have resulted in the revision of the $102 million budget for fiscal year 2013 but this plan is off the table “for now” after Saipan Air announced Monday that it is indefinitely postponing its flights.

House Ways and Means Committee chair Ray Basa (Cov-Saipan), meanwhile, said yesterday his panel has not been factoring in any additional revenue projected from Saipan Air’s operation in drafting the 2013 budget bill, which he plans to pre-file next week.

But like other lawmakers, Basa said he was “disheartened” that Saipan Air’s supposed business partner, Swift Air, did not make good on its promise, thereby indefinitely postponing Saipan Air’s flights launch.

Inos, in an interview with Saipan Tribune and KSPN 2 on Tuesday, said the $5 million to $7 million in additional projected revenue would have been used to restore 80 work hours biweekly.

This amount would have come from “direct and indirect tax revenues” and its multiplier effects on the economy related to Saipan Air’s operations.

Gov. Benigno R. Fitial, in his March 30 budget submission to the Legislature, said the government needs almost $7 million to lift the austerity measures in 2013.

Inos said the administration was already poised to submit to the Legislature, before July 1, a revised revenue projection of $107 million to $109 million right before Saipan’s Air’s announcement.

“For now, it will be off the table. But we’d like to speak more with the proponents of the project, i.e. Tan Holdings, what do they see as a possible resolution if they are going to continue the effort or they are going to go and look for other ways to do it,” Inos said in an interview after signing two proclamations on Capital Hill Tuesday morning.

Inos said it is “very unfortunate” that Saipan Air, which he estimated has already invested millions in establishing a new airline, had to postpone its flight launch plans “for reasons beyond its control.”

“I know that they expended a lot of resources to try to put something together, a project of this significance. I felt bad that it has come to this point and I just hope that the company will be able to work something out with their partners or find other folks who want to partner up with them and we can bring back this project to life because it is very important,” he said.

‘Sad day for CNMI’

Rep. Ray Palacios (Cov-Saipan) said yesterday it’s a sad day for the CNMI when Saipan Air announced the postponement of the flights because of reasons beyond Saipan Air’s control.

“It’s devastating news for us but we hope Tan Holdings will get out of this problem. I wish Mr. Jerry Tan and his company good luck and that they will continue to pursue this airline project. As a community and as government officials, we should also pursue other economic activities. Like what the Senate president said, I hope voters will sign the petition for the Saipan casino so it will be on the ballot. Saipan casino industry will help out economy,” Palacios said.

Basa said government employees and their families have already suffered for almost two years because of the 16-hour cuts, and he is reiterating his call to support legalizing casino gaming on Saipan to help the local economy and restore the 80 hours for government employees.

“Casino is a viable revenue-generating industry,” he said.

Rep. Joseph Palacios (R-Saipan) said he is optimistic that Saipan Air’s flights will get off the ground eventually.

Senate President Paul Manglona (Ind-Rota) said the best thing would be for the Fitial administration to meet with Saipan Air to know whether the airline sees the launching of the flights in the next few or several months, so that the government would know whether to still consider projected additional revenue sources within 2013 or not.

Manglona, just like the other officials, is hoping that Saipan Air’s announcement is only a hiccup and that it will eventually launch its flights.

Senate Vice President Jude Hofschneider (R-Tinian), for his part, said he thought the administration would be more concerned about addressing its obligations to the NMI Retirement Fund rather than in restoring 80 hours when it gets additional revenues.

“In my opinion, I prefer that the government put more money into the Retirement Fund,” he said.

The government owes the Fund some $320 million in unpaid employer contributions plus interest.

Another lawmaker, who asked that his name not be published at this time, believes that $12 million, and not almost $7 million as the governor had said, is needed to restore 80 work hours biweekly, if one were to include retirement contributions.

Legal actions

Saipan Air, which is supposed to be the CNMI-based international carrier, held off its July 1 inaugural launch.

That was because its partner firm, Swift Air, defaulted on its contract agreement and Saipan Air will take legal actions as a result. Swift Air was supposed to provide the planes.

Steven P. Pixley, chief legal counsel for Tan Holdings, said Saipan Air-fully owned by Tan Holdings-is filing complaint against Swift Air in the U.S. District Court for breach of contract, misrepresentation, and fraud.

Saipan Air received notice of cancellation from Swift Air a week before Saipan Air’s scheduled July 1 launching despite Saipan Air’s payment of $1.26 million in security deposits and good faith negotiations with Swift Air.

Saipan Air also learned that Swift Air could not acquire certification from the Federal Aviation Administration.


Inos, a former Finance secretary and former executive at Tan Holdings, said he was “surprised” to learn about Saipan Air’s postponement of inaugural flights on Monday night.

“I was not aware of the sudden situation, the pullout of the aircraft arrangement and it’s very unfortunate,” he said.

Inos said the administration was “poised to make some adjustments in the budget, taking into account the economic benefits that will be derived as a result of those additional flights.”

“Right now, this [Tuesday] morning, we have to do some major realignment of the numbers to see if it still means something that we need to adjust in the budget, and we’ll see how that unfolds before the end of the day. But we were counting on the effects within the economy as a result of the additional [airline] seats to be brought about by the arrival of the Saipan Air flights starting on July 1. Now that that thing has been called off, suspended, then we have to take that into account in our communication to the Legislature,” Inos said.

He said there are other factors that could help produce additional resources but they are not as significant as Saipan Air’s impact on the economy.

Saipan Air initially planned to provide daily flights to Narita, Japan and four times a week to Beijing, China.

By Aug. 1, the airline had planned to offer daily flights to Osaka, Japan and thrice-a-week flights to Shenyang, China.


House Ways and Means Committee members Rep. Rafael Demapan (Cov-Saipan) and Rep. Joseph Palacios (R-Saipan) separately said they were personally expecting a 2013 budget revision from the administration but Saipan’s Air postponement of its flight launching will make any increase in projected revenue difficult, if not impossible.

“But the committee is almost done with the budget bill and we’ll be pre-filing it shortly. I guess the news about Saipan Air means there might not be revised budget submission from the administration,” Demapan said.

Demapan also hopes that the administration will now restore the 80 work hours for all federally funded employees.

Rep. Joseph Palacios, for his part, said the Ways and Means Committee was hoping that the Department of Finance would meet with them to discuss government revenue and spending, prior to pre-filing a budget bill.

“I am so disappointed that Finance could not make the time to meet with us. We have questions about revenues from the Department of Public Lands, for example, or revenues projected from Saipan Air operations. But as of our meeting on Monday, we’re sticking to the administration’s budget submission,” he said.

Haidee V. Eugenio | Reporter
Haidee V. Eugenio has covered politics, immigration, business and a host of other news beats as a longtime journalist in the CNMI, and is a recipient of professional awards and commendations, including the U.S. Environmental Protection Agency’s environmental achievement award for her environmental reporting. She is a graduate of the University of the Philippines Diliman.

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