The Efficiency and Effectiveness of Cayman Airways Limited

Executive Summary

Cayman Airways Limited (CAL) is the national airline of the Cayman Islands. The Cayman Islands Government (the Government) uses CAL to support its national priorities for domestic air services and services to and from destinations that it has identified as key to expanding the Cayman Islands’ tourism base and economic development. CAL’s principal activity is to provide scheduled passenger and cargo transport to, from and within the Cayman Islands. It generates revenue from its operations and receives government funding to deliver agreed outputs. CAL was significantly affected by the COVID-19 pandemic. The Government closed the borders in response to the pandemic, which significantly reduced CAL’s operations between March 2020 and November 2021.

As a government company, CAL is governed by a board of directors (the board). In December 2013, the OAG issued two reports about the governance of statutory authorities and government companies (SAGCs) in the Cayman Islands.1 The reports identified weaknesses in governance arrangements and the accountability relationships within SAGCs. As part of the audit, the OAG prepared a separate report for each SAGC containing specific recommendations for improvement. The separate report on CAL made 15 recommendations. In July 2017, we published a follow-up report looking specifically at governance of the Cayman Islands’ three aviation bodies.2 That report provided an update on CAL’s progress with implementing 15 recommendations and further actions it had planned. As part of this audit, we followed up on CAL’s progress with implementing the recommendations made in 2013.

The overall objective of this audit was to assess CAL’s efficiency and effectiveness. It sought to answer the following audit questions:

• How effective is CAL’s strategic direction and governance?
• How efficiently and effectively does CAL use its resources?
• Does CAL monitor and report its performance effectively?

We make 14 recommendations in this report, covering CAL’s funding model, financial and non-financial performance, strategic direction, governance, and workforce planning and management. We summarise our key messages for each of these areas below. In our view, the most important recommendations are those on the funding model and financial performance, including on budgeting. Therefore, we urge the Government and CAL to implement these recommendations as soon as possible.

CAL and the Government agreed on the Airlift Framework in 2009, which is intended to direct the allocation of government output payments. Under the framework, the Government pays CAL for strategic domestic, strategic tourism and core routes (see Exhibit 2). The funding model is unclear because it doesn’t specify what the funding provided by the Government is intended to cover. CAL makes losses on three of its route categories, including on strategic domestic routes across the three islands. It is unclear why CAL is not fully funded for strategic domestic routes, which provide essential lifeline services across the three islands. Government funding does not cover the total cost of CAL’s routes or CAL’s fixed costs.

CAL aims to generate enough operating revenue, that is, all revenue except government funding for outputs, to cover its variable costs and some of its fixed costs. CAL’s operating revenues usually cover its variable costs. However, operating revenues did not cover variable costs for the strategic tourism routes in 2020 and 2022. Over the five years from 2018 to 2022, CAL operated 16 routes. Two of the 16 routes consistently made a loss. CAL launched two more routes in 2023. CAL’s operating revenues do not cover the total cost of most flight routes. For the purposes of our audit, we counted each route flown in a year to be unique resulting in a total of 69 individual routes. For example, CAL’s New York route (see Exhibit 2) is one of 16 routes. CAL flew to New York in each of the five years from 2018 to 2022. Therefore, in analysing the performance of all routes, we count these as five individual routes. Of these, 57 (83 per cent) generated a gross profit, that is revenue less variable costs. Over the same period, only seven (ten per cent) of the 69 individual flight routes achieved a net profit, that is revenue less variable and fixed costs.

CAL does not usually receive the funding that it requests as part of the budgeting process and often receives supplementary appropriations. However, CAL requests the same amount of funding every year, even though it consistently incurred losses from 2018 to 2022. We noted that CAL receives the budgets that it requests for strategic domestic routes but makes losses on these routes. It is unclear why CAL does not request higher budgets for these routes.

CAL has reported deficits in each of the five years from 2018 to 2022, resulting in total losses of around $34 million. As at December 2022, CAL’s net worth was a deficit position of $25 million. Net worth is the value of an entity’s assets minus its liabilities. CAL has taken some measures to improve its financial performance but it has not documented a plan for doing this. CAL’s strategies contain some plans to improve financial performance, but these are not sufficiently detailed.

CAL’s financial performance was affected by the COVID-19 pandemic. CAL did not operate any flights between March 2020 and November 2021, except repatriation flights, which reduced its ability to generate revenues. However, CAL’s expenditure also declined during this time. Because there were no flights, expenditure on fuel and aircraft passenger services and other expenses also reduced significantly in 2020 and 2021. The Government provided additional funding to CAL during this time.

CAL has a range of goals, measures and indicators that could be used to measure and report its performance.

The Government and CAL agreed on 12 Strategic Ownership Goals and a range of outputs as part of the budgeting process. The Strategic Ownership Goals are not SMART – specific, measurable, achievable, relevant and time-bound – which makes assessing performance difficult. We were not able to measure performance for four of these goals. Of the remaining eight, we concluded that CAL had achieved six, partly met one and not met one. CAL’s performance against its agreed outputs for the Government is mixed. We found that most of the outputs had not been delivered, including in the years before and after the COVID-19 pandemic. CAL did not collect data for one output measure until 2022.

CAL has fulfilled all of the ten key roles that it set out in its strategic plans, except in 2021. In particular, CAL provides an essential inter-island air bridge across the three islands, contributes over $200 million annually to the economy and played a crucial role during the COVID-19 pandemic.

Between 2018 and 2022, CAL used a set of operating statistics to measure performance. However, there were no baselines for some of these. In April 2022, the CAL Board adopted a set of new key performance indicators (KPIs) that covered commercial performance, customer service, safety, customer experience and priority routes. However, the use of this set of KPIs had limitations. For

example, there were no benchmarks and the KPIs did not provide a holistic view of the organisation, as not all departments or operations were covered. We also noted that the Board did not consistently measure progress against all of the metrics. CAL’s Board replaced these KPIs in May 2023 with new objectives and key results and actions. The strategic plan sets out organisation-wide objectives, key results and actions. Some of the metrics require comparison with similar airlines. CAL has recently started to benchmark its performance against some statistics from the United States Department of Transportation.

In 2016, CAL’s fleet modernisation plan was approved by the Government. The plan was to replace CAL’s four larger aircraft with an equal number of new ones. CAL received favourable terms for the lease price and its duration from the preferred bidder. CAL set out nine benefits that it expected to achieve from modernising the fleet. These included providing more seats and baggage capacity and reducing fuel use. CAL has realised all of these benefits and can further build on the opportunities they offer, such as increasing baggage revenue from the increased capacity.

Despite having a range of goals and performance measures, CAL does not report on its performance to the public effectively. In 2022, CAL started to report its performance against its output targets in its annual report. This is a start but CAL could do more to report its performance against its goals and performance measures to the public.

Consecutive governments have set strategic outcomes to have a strong economy. The tourism sector and CAL are integral to achieving this outcome. The National Tourism Plan is a key government strategy but it expired in December 2023. A new tourism strategy is needed to provide essential high-level strategic direction to CAL and other public bodies. In 2018, the Government and CAL agreed on 12 Strategic Ownership Goals, and they have not changed since then. However, the goals are not SMART.

CAL had two strategic plans between 2018 and 2022. The Board was involved in developing these but did not formally approve them. The CAL Board approved its most recent strategic plan – the Business Plan 2023–2028 – in May 2023. All three strategic plans set out CAL’s ten key roles and align with good practice, but they have some gaps. For example, the most recent strategic plan aligns with the Government’s priorities and the National Tourism Plan but does not set out how CAL will achieve some of the 12 Strategic Ownership Goals. Moreover, it sets out CAL’s vision, goals and objectives and identifies success measures but it does not have clear baselines or links to financial and workforce plans, or a stakeholder engagement plan.

The Ministry of Tourism and Ports (MTP), Cayman Islands Department of Tourism (CIDOT) and CAL collaborate effectively on marketing and route selection. Our review of the route selection process for the Los Angeles route found this to be effective. However, that route selection process was not used for the new Barbados route added in 2023 because the route falls within the Surplus category in the Airlift Framework. All flights in the Surplus category should be profitable because it mainly comprises charter flights. We were told that the Barbados route was added at the request of the Barbados Tourism Marketing Inc. (BTMI). In July 2023, CAL and BTMI agreed that CAL would be refunded for any shortfall against a minimum revenue threshold. Therefore, CAL accepted BTMI’s request because it expects to operate the route profitably.

CAL has made some progress in implementing the recommendations that we made in 2013 to strengthen governance but some remain outstanding or have only recently started to be implemented. CAL’s current board has been in place since August 2021, when eight new non-executive members were appointed. One more member was appointed in September 2022 after the resignation of the chairman. The board members have adequate knowledge and experience as prescribed in the Public Authorities Act (PAA). However, the new members would have taken time to get up to speed and the continuity of the board was dependent on the four ex-officio members. We noted that the ex-officio members from MTP and CIDOT do not always attend CAL board meetings or send a substitute.

The CAL Board developed and adopted in March 2023 a Board Charter to guide how it functions. This should help improve overall governance but we noted that it does not align fully with international good practice. Before this, the Board used the PAA to guide its operations. CAL has a Code of Conduct for its staff but not one that applies to board members.

CAL provides orientation training for its board members. CAL’s orientation training covers some aspects of governance but more governance training for Board members is needed. The Office of the Deputy Governor within the Cayman Islands Government started to deliver governance training for board members in summer 2023. Two of CAL’s board members have attended this training.

The Board receives the right information to inform decision-making and provides good strategic direction. However, we noted that some discussions were not documented in the minutes of board meetings, which is essential for demonstrating effective scrutiny and challenge.

CAL has consistently employed more than 325 staff in the Cayman Islands, except in 2021. In 2020, as a direct result of the COVID-19 pandemic and reduced flight operations, CAL decided to reduce its staffing levels. It did this through a voluntary separation package and reduced its total workforce by around 20 per cent. Since then, CAL’s workforce has increased. As at December 2022, CAL employed 360 staff.

CAL has a varied workforce made up of many different professionals. The workforce is mainly Caymanian and, similar to many other organisations, it is ageing. Around two-fifths of CAL’s workforce is aged 50 or over and over one-third of its pilots is over 50. CAL told us that it has some plans for certain staff groups. However, it does not have an overarching workforce plan that considers the size, skills and capabilities needed to achieve its strategic plan.

CAL does not routinely prepare workforce statistics to help make informed decisions. We calculated the average staff turnover as 11 per cent over the five years from 2018 to 2022, ranging from 7 per cent to 13 per cent. CAL is usually able to recruit staff to specialist roles, such as pilots and maintenance staff.

CAL is implementing section 47 of the PAA, which aims to bring SAGC staff’s terms and conditions in line with the civil service. The Cayman Islands Government’s Portfolio of the Civil Service completed its evaluation of CAL’s job descriptions and pay scales in September 2021. CAL decided to implement the revised pay scales from 1 December 2022. In addition, CAL proposed a separate pay scale for pilots, to ensure that it compares favourably with pay offered by competitors. The Cabinet approved the pilot pay scale in May 2023. This was applied retrospectively from 1 December 2022. In July 2023, CAL implemented other parts of section 47 of the PAA to better align its other terms and conditions, such as pensions and healthcare insurance. By December 2023, CAL had spent $2.6 million implementing the PAA. CAL plans to fully implement section 47 in the future, subject to affordability, which it estimates will cost an additional $3.5 million annually.

Introduction

1. Cayman Airways Limited (CAL) was established in August 1968 after the Government purchased 51 per cent of Cayman Brac Airways from LACSA (the Costa Rican flag carrier). In 1977, the Government acquired full ownership of CAL and designated it the National Flag Carrier.
2. CAL is a government company and a corporation registered in the Cayman Islands.3 As a government company, CAL is subject to the Cayman Islands’ laws and regulations, including the Companies Act, Public Management and Finance Act (PMFA), Financial Regulations, the Procurement Act and Procurement Regulations and the Public Authorities Act (PAA). CAL is also subject to the laws and regulations of the countries it flies to.
3. CAL is governed by a board of directors (the board) in line with the PAA. The Chief Executive Officer heads up the management team and oversees the operations of CAL. CAL had 360 staff as at December 2022.
4. CAL’s principal activity is providing scheduled passenger and cargo transport to, from and within the Cayman Islands. As at December 2023, CAL operated non-stop services between Grand Cayman and five major US destinations (Miami, Tampa, New York, Denver and Los Angeles) and six regional destinations (Kingston and Montego Bay, Jamaica; Havana, Cuba; Bridgetown, Barbados; Panama City, Panama; and La Ceiba, Honduras). CAL launched the service to Los Angeles in 2022 and the services to Barbados and Panama in 2023. CAL has a wholly-owned subsidiary, Cayman Airways Express, that operates daily flights between Grand Cayman and the Sister Islands of Cayman Brac and Little Cayman.
5. CAL’s primary revenue sources are passengers, cargo and ground-handling fees, and revenue funding from the Government for providing air services (known as output payments). The PMFA defines outputs as the goods or services produced by an entity. CAL also provides handling services to other airlines at the Owen Roberts International Airport in Grand Cayman.
6. CAL has a fleet of eight aircraft comprising:
   • four leased Boeing 737-8 MAX aircraft, which it uses for international flights and the serviceto Cayman Brac;
   • two Saab 340 aircraft that CAL owns, which provide the service between Grand Cayman andCayman Brac;4 and
   • two Twin Otter aircraft, which CAL owns through its subsidiary, Cayman Express Limited,which provide the service between Grand Cayman and the Sister Islands.
7. CAL works with a range of public bodies, including the Government. Exhibit 1 shows the public bodies that CAL works with primarily. CAL is governed by the Civil Aviation Authority Act (2015 Revision). Section 27 of this act requires CAL to comply with the directions of the Director-General ofthe Civil Aviation Authority of the Cayman Islands (CAACI) about parking, landing and take-off. It also requires CAL to pay fees determined by CAACI. In addition to CAACI, CAL works with other government-owned entities in its regular course of business.

8. In 2009, CAL established an “Airlift Framework” to serve as the basis for the strategic planning, costing and allocation of government output payments. The framework aimed to better define CAL’s roles and accountability for the operations it undertakes for the Cayman Islands’ benefit. It also provides CAL’s overarching funding model. We discuss this later in the report in the Financial Performance chapter. Exhibit 2 summarises the four categories of the framework. CAL operated 16 flight routes under each of these categories between 2018 and 2022.

Note: The flights to Panama and Barbados that were introduced in 2023 are outside the scope of our audit but are included in the table for completeness. Our audit covers the 16 routes in the five years from 2018 to 2022. For the purposes of our audit we have counted each flight route operated in each year individually. Using this approach, CAL operated 69 individual flight routes in the five-year period. For example, CAL’s New York route (see Exhibit 2) is one of 16 routes. CAL flew to New York in each of the five years from 2018 to 2022. Therefore, in analysing the performance of all routes, we count these as five individual routes. We refer to both 16 flight routes and 69 individual flight routes throughout the report.

9. The Government purchases flights from CAL through output payments, which are set out in purchase agreements signed between CAL and the Government. The outputs are grouped into the following two categories:
   • “CAL 1: Strategic Domestic Air Services”, for the provision of air services between Grand Cayman and the Sister Islands of Cayman Brac and Little Cayman. 
   • “CAL 2: Strategic Tourism, Regional and Core Air Services”, for the provision of direct air services to strategic US and regional gateways identified as key source markets for expanding the Cayman Islands’ tourism base and facilitating the Cayman Islands’ economic development.

10. The Government funds CAL’s Strategic Domestic and Strategic Tourism operations because it considers them critical for the Cayman Islands, even when they may not be profitable. In some instances, for example after hurricanes and during pandemics, the Government may also purchase additional Core operations from CAL.

11. The objective of the audit was to assess CAL’s efficiency and effectiveness. It sought to answer the following questions:
    • How effective is CAL’s strategic direction and governance?
    • How efficiently and effectively does CAL use its resources?
    • Does CAL monitor and report its performance effectively?

12. The report is structured into four chapters:
    • Strategic direction and governance.
    • Financial performance.
    • Workforce planning and management. 
    • Performance.
13. The audit covered CAL’s governance, oversight, performance and use of resources for the five years from 2018 to 2022. However, we considered 2023 data and information where relevant to ensure our findings are current. It also assessed the high-level direction the Ministry of Tourism and Ports (MTP) and the Cayman Islands Department of Tourism (CIDOT) give CAL. The audit evaluated the impact of the Edward Bodden Airfield in Little Cayman being certified for small aircraft only on CAL’s financial performance. However, the audit did not assess the Government’s plans – and progress against them – to get the Edward Bodden Airfield certified for larger aircraft. The audit did not assess the selection process for the new Grand Cayman to Barbados route.
14. The audit drew on a range of evidence to inform our findings and conclusions. This included the following:
    • Interviewing key stakeholders, including CAL’s Board of Directors, senior management, MTP, CIDOT, CAACI and the CIAA.
    • Reviewing documents, including legislation, budget documents, financial reports and statements, strategic plans, minutes of board meetings, financial metrics and staffing information.
    • Analysing and recalculating financial and performance information.
    • Comparing the frameworks, processes and practices in use against good practice.
    • Analysing audit evidence and assessing it against agreed criteria to develop findings, conclusions and recommendations.
    • Providing a draft report to CAL officials so they could review its factual accuracy and respond to the report’s recommendations (see Appendix 2). 
    • Presenting a final report about the audit to the Parliament.
15. More information about the audit, including the audit criteria, approach and methodology, can be found in Appendix 1 of this report.

Strategic direction and governance

16. Strategic planning is an essential process in determining an organisation’s direction and priorities as well as in identifying, managing and reducing risks. The United Nations Strategic Planning Guide for Managers says “Strategic planning is about understanding the challenges, trends and issues; understanding who are the key stakeholders and what they need; and determining the most effective and efficient way possible to achieve the mandate. A good strategy drives focus, accountability, and results.”
17. Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The responsibilities of the board include setting a company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. Corporate governance is therefore about what the board of a company does and how it sets the values of the company, and it is to be distinguished from the day-to-day operational management of the company by full-time executives. Many academic studies conclude that well-governed companies perform better in commercial terms.
18. This chapter covers the strategic direction provided to CAL by the Government, MTP, CIDOT and the CAL Board. It also covers governance and oversight by the CAL Board.

19. Previous governments have set a strategic broad outcome to have a strong economy. One of the activities to support this outcome was to implement the National Tourism Plan. The current Government’s Strategic Policy Statement (SPS) for 2024–26 has the following two specific outcomes that relate to CAL:
    • Improve our tourism, as an industry, product and economic driver.
    • Maintain a market/commercial leading edge in financial, maritime and aviation services.
20. These two specific outcomes contribute to broad outcome 2 – Enhance competitiveness while meeting international standards. However, we noted that CAL is not mentioned in the SPS as one of the public bodies expected to contribute to these outcomes.
21. MTP provides strategic direction and guidance to the tourism and hospitality sectors through developing policies and legislation aimed at promoting the sectors’ growth and development. CAL has an integral role in the tourism sector.

22. As part of the 2018-19 budgeting process, CAL and the Government agreed on 12 Strategic Ownership Goals. These were set out in the 2018 and 2019 Ownership Agreements and have remained the same in all Ownership Agreements since. The 12 goals are set out in Exhibit 3.

23. These 12 Strategic Ownership Goals meet some, but not all, elements of the SMART – specific, measurable, achievable, relevant and time-bound – principles. All 12 goals are specific, achievable and relevant, but not all are measurable or time-bound. Therefore, this makes it difficult to effectively measure performance against them. Where possible, we assess CAL’s performance against these goals later in the report.

24. In 2019, CIDOT developed the National Tourism Plan 2019–2023 and tabled it in Parliament in January 2020. The plan aimed to provide a comprehensive framework for sustainable tourism development and management. It also aimed to share both a long-term vision and medium-term objectives to help the tourism sector thrive and prosper while conserving the Cayman Islands’ natural resources and cultural heritage. For example, the plan highlights increased airlift as one of the priority issues for tourism. It also highlighted the need for direct flights to the west coast of the United States and Europe. CAL started a direct air service to Los Angeles, a city on the west coast of the United States, in November 2022.
25. As a result of the COVID-19 pandemic and the closure of the borders, the Government developed RB5 – The Road Back to 500k Air Arrivals in July 2020. RB5 stated that CIDOT planned to partner with CAL and other regional airlines to service markets such as Latin America, including Argentina, Mexico and Brazil. CAL started a direct air service to Panama in June 2023. Panama is a key air connectivity hub for travel to South America.
26. We noted that the National Tourism Plan expired at the end of 2023. MTP and CIDOT told us that they intend to roll the plan forward while developing a new one. A new national tourism plan must be prepared and published as soon as possible to provide high-level strategic direction to CAL.

27. Every two years, as part of the budgeting process, CAL signs an Ownership Agreement and Purchase Agreement with the Cabinet. The Ownership Agreement sets out CAL’s ownership performance goals for those two years. The Purchase Agreement sets out the outputs CAL will deliver for the two years.
28. CAL’s outputs in its Purchase Agreements from 2018 to 2022 are SMART. We assess CAL’s performance against the agreed outputs later in this report.
29. CAL’s funding is linked to the outputs in its Purchase Agreement. CAL submits invoices to the MTP monthly requesting its annual output funding in equal instalments. The invoices contain data about the outputs CAL produced in the month, but MTP approves, and the Cabinet pays them irrespective of the outputs produced. Therefore, it is unclear how effectively MTP holds CAL to account for producing its budgeted outputs.

30. MTP’s Chief Officer and CIDOT’s Director are ex officio members of CAL’s Board of Directors. We noted that they do not always attend board meetings or send representatives to board meetings that they miss. This may hamper their effectiveness in providing oversight to CAL, including having input into its strategic decisions. Between them, they missed 25 meetings out of 59 (42 per cent) and there were 12 meetings (20 per cent) that neither of them attended between 2018 and 2022.

31. CAL has had three strategic plans since 2018 – the Business Plan 2015–2020, a 2021 update to the Business Plan 2015–2020 and the Business Plan 2023–2028. The Board approved the last one in May 2023. The previous two strategic plans were developed in collaboration with the Board but were not formally approved. Therefore, there was no approved strategy or plan for the period covered by our audit and for part of 2023. Despite these plans not being approved, CAL used them to guide its operations. Therefore, we assessed these plans against good practice.
32. The strategic plans align with government strategies and priorities such as the National Tourism Plan 2019–2023 and the Government’s SPSs, and with CAL’s Airlift Framework, its output agreement and strategic ownership goals. For example, the strategic plans align with:
    • The Government’s goal to serve domestic and tourist markets.
    • The National Tourism Plan’s goal to increase airlift.
33. CAL’s strategic plans also align with good practice but have some gaps. Exhibit 4 shows our assessment of CAL’s strategic plans against good practice.

34. Our analysis shows that all three plans set out a vision, goals and objectives, and identified success measures. However, none of the plans links to financial plans to demonstrate affordability or to workforce plans to demonstrate staffing levels needed to deliver the goals and objectives. The most recent plan, for 2023–2028, does not set clear baselines.
35. CAL’s 2023–2028 Business Plan does not set out how CAL will achieve the following four of the 12 Strategic Ownership Goals:
    • Continuing the process of restructuring and operational reform to increase revenue, reduce costs and achieve maximum efficiency.
    • Contributing directly and indirectly to the economy through employment and purchasing goods and services in the Cayman Islands.
    • Refinancing debt to improve its cash flow and provide enough working capital.
    • Exploring commercial agreements with select international carriers, comprising connected websites and full codeshare agreements.
36. As part of its strategic planning, CAL should identify its stakeholders and set out how it plans to effectively engage with them. However, we noted that CAL does not have a stakeholder engagement policy. A stakeholder engagement policy would help CAL proactively consider the needs of its internal and external stakeholders and determine how to manage these based on the stakeholders’ power and interest.

37. CAL’s recent strategic plans, the Business Plan 2015–2020 and the Business Plan 2023–2028, identify ten key roles that the airline plays for the Cayman Islands. According to CAL, these roles justify its existence and continued government funding. Exhibit 5 shows CAL’s ten key roles. We assess CAL’s performance against these ten roles later in the report. The key roles are not clearly linked to the Strategic Ownership Goals. As reported earlier, CAL’s Board did not approve CAL’s strategic plans prior to May 2023. Therefore, it is unclear if the MTP had agreed on CAL’s ten roles before then.

38. CAL launches new routes in consultation with MTP and CIDOT. Between 2018 and 2022, CAL launched two new routes, one to Denver and the other to Los Angeles (LAX).
39. In performing our audit, we assessed the selection process for the weekly LAX route. The route selection process considered relevant data such as brand surveys, assumptions about load factors and the route’s expected financial performance. Load factor is defined as the percentage of available seats on a flight filled by passengers. CAL, MTP and CIDOT also collaborated effectively in identifying options for additional routes and selecting the LAX route as the best option. CAL’s Board approved the route in March 2022 and it started in November of the same year. We assessed the route selection process as effective.
40. CIDOT is responsible for general destination management, including marketing, for the Cayman Islands’ tourism industry. CAL works with CIDOT to get the maximum benefit from CIDOT’s marketing efforts by aligning its operations with the demand generated from CIDOT’s efforts. We were told that CIDOT holds regular marketing meetings with CAL to discuss how it will feature CAL in its marketing drives. However, we did not receive any evidence to support this.
41. We assessed CIDOT and CAL’s collaboration in marketing the LAX route as effective. Both entities marketed the route on their websites and social media platforms.
42. CAL launched a second weekly flight to Los Angeles in November 2023. CAL indicated that less than half of the people who travel on this route complete a return journey and that passengers use other airlines to return mid-week. To grow the Los Angeles market and provide additional flight options, it introduced the extra flight. We did not assess the selection process for this second flight.
43. In 2023, CAL launched a new route to Panama under the Strategic Tourism category. We did not assess the selection process for this route because it was outside the scope of our audit, which covers the five years from 2018 to 2022. However, we understand that the Panama route was assessed using the same process as was used to select the LAX route.

44. In 2023, CAL launched a new route to Barbados under the Surplus category in its Airlift Framework. CAL considered the Barbados route at the Barbados Tourism Marketing Inc.’s (BTMI) request and accepted it because it expects the route to be profitable. Therefore, CAL did not assess the Barbados route using the process used for the LAX route. We did not assess the selection process for this route because it was outside the scope of our audit. Based on an agreement signed between CAL and BTMI in July 2023:
    • CAL will operate the route for an initial one-year period, effective as of October 2023.
    • CAL will provide an air service to Barbados twice weekly, on Wednesdays and Thursdays, during the one-year period.
    • If ticket sales, minus government taxes and fees, do not meet a set “Minimum Revenue” threshold in any financial quarter, BTMI will pay CAL the shortfall.
45. CAL told us that it determined the minimum revenue threshold based on the minimum it needs to operate the route profitably. CAL’s Board approved the Barbados route in July 2023.

46. The Independent Commission on Good Governance in Public Services states that “good governance leads to good management, good performance, good stewardship of public money, good public engagement, and ultimately, good outcomes.” It identifies the following six principles of good governance, which we have used to assess CAL’s governance framework:
    • focusing on results;
    • performing effectively in clearly defined functions and roles;
    • promoting values and ethics and ensuring that they are followed;
    • making informed, transparent decisions and managing risk;
    • developing capacity and capability of the governing body; and
    • engaging stakeholders.
47. In December 2013, the OAG issued two reports about the governance of statutory authorities and government companies (SAGCs) in the Cayman Islands.^, The reports identified weaknesses in governance arrangements and the accountability relationships within SAGCs. As part of the audits, the OAG prepared a separate report for each SAGC containing specific recommendations for improvement. The separate report on CAL made 15 recommendations. Among other things, we recommended that:
    • CAL prepares a position description that sets out the roles and responsibilities of board members and reflects the reporting relationship between the board and the Cabinet.
    • CAL considers the skill set and experience required to be an effective board member and includes this information in the position description for a board member. CAL could then use the position description to inform the Cabinet of the desired qualities when the Cabinet considers new appointments to CAL’s Board.
    • CAL’s Board evaluates the performance of the President and Chief Executive Officer (CEO) on an annual basis.
    • CAL develops a formal orientation programme to ensure that new board members receive the necessary information to become effective in their new roles as quickly as possible. This programme should include the roles and responsibilities of a board member, as set out in the position description, the mandate and functions of CAL, and CAL’s strategic plan and business risks.
    • CAL adopts a policy for ongoing governance training for its board members.
48. In July 2017, we published a follow-up report looking specifically at governance of the Cayman Islands’ three aviation bodies. That report provided an update on CAL’s progress with implementing the 15 recommendations and further actions it had planned. It is worth noting that, at the time of the 2017 report, the PAA had only recently been introduced. As part of this chapter, we follow up on CAL’s progress with implementing the recommendations made in 2013.

49. CAL’s Board comprises 12 directors appointed by the Cabinet. Four of these are ex officio members, meaning they do not have voting power. According to the PAA, the board is responsible for CAL’s governance, including the general administration and oversight of its affairs and business. Sections 15 and 16 of the PAA set out the board’s responsibilities in more detail.
50. Section 51 of the PAA requires the Chief Officers of responsible ministries to ensure that public authorities comply with their purchase and ownership agreements. MTP is responsible for overseeing CAL according to the requirements of section 51 of the PAA. As reported earlier, CIDOT is responsible for the National Tourism Plan and works with CAL in selecting and marketing new routes. MTP’s Chief Officer and CIDOT’s Director are ex officio members of CAL’s Board.

CAL’s board collectively has the skills and experience to operate effectively but it does not have a skills matrix

51. As reported previously, in 2013 we recommended that CAL prepare a position description that sets out the roles and responsibilities of board members and reflects the reporting relationship between the board and the Cabinet. CAL could then use the position description to inform the Cabinet of the desired qualities when the Cabinet considers new appointments to CAL’s Board.
52. Section 9(4)(a) of the PAA requires the Cabinet to satisfy itself that individuals it appoints to boards have the skills, knowledge and integrity to carry out their duties. Section 9(5) of the PAA requires the Cabinet to ensure that board members have, among them, adequate knowledge, experience and understanding of:
    • corporate governance;
    • strategic and financial management; 
    • the scope of the business, outputs and operations of the public authority concerned.
53. In August 2021, the Cabinet appointed a new CAL Board for a two-year term. In doing so, the Cabinet replaced all eight non-ex officio members of CAL’s previous board. The Cabinet appointed one more person to the Board in September 2022 after the Chairman resigned in August 2022. In August 2023, the Cabinet extended the new board’s term for another two years.
54. We reviewed the profiles of CAL board members and compared these with the requirements of the PAA. Our analysis shows that CAL’s Board collectively meets the requirements of sections 9(4)(a) and 9(5). However, it is worth noting that all of the board members appointed in 2021 were new, which reduces their individual and collective experience as a board. Exhibit 6 summarises board members’ experience.

55. CAL told us that the MTP consults them before recommending nominees to CAL’s Board to the Cabinet. However, CAL has not developed a skills matrix showing the desired skills and competencies for its board members. Although the Cabinet has the sole authority to appoint board members, a skills matrix would guide it in making those appointments – a useful tool, considering that CAL operates in a specialised industry. 
56. Section 11(2) of the PAA states that the Cabinet cannot replace more than two-thirds of a public authority’s board members unless special circumstances arise. In August 2021, the Cabinet appointed a new CAL board for a two-year term. In doing so, the Cabinet replaced all eight non-ex officio members of CAL’s board. Replacing all non-executive board members at the same time creates a continuity risk. We will explore this further in our ongoing performance audit of Governance in SAGCs. 
57. Section 9(6)(c) of the PAA states that board members who are public servants are not entitled to vote. This means that the CAL board member with financial management skills is not entitled to vote because he is a public servant in another public entity. This could limit his influence and the board’s capacity to oversee CAL’s finances, although we were told that this does not happen in practice. We will further explore the impact of this section of the PAA in our ongoing performance audit of Governance in SAGCs.

58. In 2013, we recommended that CAL develop a formal orientation programme to ensure new board members receive the necessary information to become effective in their new roles as quickly as possible. This programme should include the roles and responsibilities of a board member as set out in the position description, the mandate and functions of CAL, and CAL’s strategic plan and business risks. We also recommended that CAL adopt a policy for ongoing governance training for its board members.
59. Since then, CAL has developed orientation training for its board members. As stated previously, CAL’s current board was appointed in August 2021. In September 2021, management provided the board with orientation training. The training set out an overview of CAL and key operational aspects. In September 2022, the Cabinet appointed another member to CAL’s Board. CAL provided this member with orientation training in January 2023. 
60. CAL’s orientation training covers some aspects of governance but more governance training for Board members is needed. In July 2023, the Office of the Deputy Governor started providing governance training to members of boards of SAGCs. The training covers board governance and the law; promoting and maintaining integrity; and improving effectiveness, including through collective decision-making, asking important questions and dealing with conflict. By November 2023, two of CAL’s board members had attended the training.

61. CAL’s Board did not have a charter to guide how it functions until March 2023, when the board approved one. CAL’s adoption of a Board Charter will improve how the board operates. However, our assessment of the charter identified that it does not cover the following elements of good practice:
    • the skills required to be a board member;
    • hospitality and gifts;
    • board committee evaluations;
    • the role of individual directors;
    • the retention of board papers; and 
    • director protection.
62. Before the development of the charter, CAL used the PAA as the principal guiding document for the board’s roles and responsibilities. However, the PAA does not cover all elements of international governance-related good practice. For example, the PAA does not set out or specify:
    • Guidelines about accepting gifts and hospitality, although it does highlight the need to avoid conflicts of interest.
    • Requirements for continuing professional development for board members.
    • How long board papers should be retained for.
    • Information-seeking protocols for the board.
    • Guidelines about how boards can access professional advice when needed.
    • The extent of board access to company data and information.
63. The CAL Board does not have a Code of Conduct highlighting the importance of and requirements for ethical conduct in its operations. We did not identify any instances of the board discussing ethics and corporate values. CAL has an employee handbook that outlines its commitment to professionalism, employee conduct and avoiding conflicts of interest. A Code of Conduct for board members could be incorporated into the Board Charter.

64. In 2013 we recommended that the Board evaluate the performance of the President and CEO on an annual basis. The Board did not formally assess the performance of the CEO between 2018 and 2022. Therefore, it is unclear how the Board holds the CEO accountable for CAL’s performance. CAL told us that the Board started the CEO’s assessment in 2023 but had yet to finish this.
65. As reported previously, regular board evaluations are considered good practice. We found that the Board did not assess its performance between 2018 and 2022. CAL told us that the Board started to do this in 2023 but had yet to finish the evaluation.

66. Overall, the Board gives good strategic direction and oversees CAL to ensure that it delivers on its mandate. For example:
    1. It meets monthly and makes key strategic decisions. For example, it approved CAL’s Fleet Modernisation Plan, which is discussed later in this report. It also approved all new and discontinued routes between 2018 and 2022.
    2. It approved a new strategic plan in May 2023, the Business Plan 2023–2028.
    3. It approved new key performance indicators (KPIs) in April 2022. It replaced these in 2023. We assess these KPIs in the Performance chapter.
67. The Board’s strategic direction is based on data, risks and information. CAL’s management gives the Board the right information to make informed decisions, allowing it to monitor finances, performance and risks. The information is contained in board packs that management sends to board members before they meet. However, it is unclear whether the Board has specified the level of detail it needs and the format it needs to be in.