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GOVERNMENT OF MONTSERRAT (GOM)

PROSPECTUS

INVESTMENT OPPORTUNITY IN A TWIN OTTER AIRCRAFT

Offer to the Private Sector Ministry of Communications, Works and Labour Mahogany Drive Woodlands Montserrat Contact: Mr. Oral Martin Access Coordinator Tel. No.: 664-491-2521 Cell: 664-495-6700

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GOVERNMENT OF MONTSERRAT

INVESTOR PROSPECTUS FOR A TWIN OTTER AIRCRAFT Introduction GOM seeks the participation of the private sector in the investment, management and technical direction of key tourism infrastructure assets for Montserrat such as expanded aircraft capacity with improved seating comfort. It is vital that Montserrat is suitably equipped to develop and broaden its tourism sector. This involves appropriate air service connections to/from Montserrat, upgraded tourist/passenger handling facilities and an on-going marketing and promotion campaign to provide the necessary marketing/product awareness in the neighbouring regional source markets. GOM specifically requests expressions of interest from interested private firms/parties to propose alternative strategic alliances/joint venture arrangements for the following:

(a) the lease (purchase) of a Twin Otter aircraft (a DHC-6-300 series or a DHC-6-200 series) or any other suitable aircraft (e.g. Dornier 228)1; and

(b) its subsequent operation, management and joint marketing with GOM. 1. Investment Highlights

Offer at a Glance

Potential to jointly share with the Government of Montserrat (GOM) in the redevelopment of Montserrat’s tourism industry, by the provision of a Twin Otter aircraft and subsequent operations within the network of an existing airline. Outcomes of the offer will provide GOM with the opportunity to plan for the future development of new tourism promotional concepts and increased air passenger movements from Montserrat to/from Antigua and to/from Montserrat to regional tourism markets.

Offer closes on 19th October 2012.

The opportunity

Montserrat has a unique international and regional tourism appeal due to the volcanic impacts and its natural beauty.

1 Please note that suitability of the aircraft is dependent on the characteristics of the John Osborne Airport.

You are advised to obtain the relevant information completing your proposal

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Montserrat is in close proximity to Antigua and Guadeloupe, with approximately 600,000 staying tourists and 800,000 day cruise ship passenger arrivals. Air services link Montserrat directly with Antigua, and directly with Nevis.

Air access is currently provided by two airlines: Fly Montserrat and SVG Air. Both

companies operate 9-seater Britten-Norman (BN) Islander aircraft and provide scheduled and charter services to/from Montserrat. In 2011, 5,045 visitors arrived on Montserrat by air (68% of the total visitor demand of 7,392 visitors). This represented a decline in both visitors and tourists arriving by air, as compared to 2010 (7,707 total visitors and 5,869 airline visitors). Forecast total visitor demand and airline visitor demand for 2012 is expected to exceed the 2010 levels.

Average monthly aircraft load factors for the period January 2010 to June 2012 remain

high (between 57% to 74%).

During 2011, the average daily seat capacity provided by both airlines was 84 seats. This capacity has been increased over the period January to June 2012, with additional flights by Fly Montserrat to Nevis.

GOM believes that with a more appealing larger aircraft such as a Twin Otter2, there is a significant business opportunity for the private sector to further develop viable air passenger and air freight services to/from Montserrat and to other islands from Montserrat.

There are significant new investment plans under GOM and private investor

consideration in Montserrat at Little Bay, to support new forms of landside real estate development.

Night landing operations are currently being examined for Montserrat to expand

Montserrat’s interline access to regional and international airlines operating to/from Antigua.

2. Government of Montserrat’s Strategic Role in the Prospectus

(a) Regulatory Structure Airport and airline activities in Montserrat are regulated by a range of regulatory instruments and procedures, including those required by the International Civil Aviation Organisation (ICAO), the UK Civil Aviation Authority’s Air Safety Support International agency (ASSI) and Montserrat’s Aviation Act, 2002. This contains an amalgamation of a number of previous air transport-related laws, including the 1957 Aerodromes Act. All operators of aircraft which are not registered in a UK Overseas Territory (such as Montserrat) need to apply to the UK Department of Transport (Environment and Safety

2 or any other suitable aircraft (e.g. Dornier 228)

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Branch, Division of International Aviation). An operating permit is required for air services to/from Montserrat, where the period of service will exceed 14 days. The UK Department for Transport (International Aviation Division) also requires that all airlines wishing to operate to/from Montserrat need to provide a range of documents including:

Air Operators Certificate and Operations of Routes

Certificates of Air Worthiness

Certificate of Liability Insurance

Noise Certificate

Dangerous Goods declaration

Flight Crew Compliance (2 forms)

Aircraft Compliance with FM Immunity

Aircraft Lease details (wet or dry) Both sets of documents can be obtained from the Montserrat Government.

(b) Vision The GOM believes that there is both scope and justification for improving both the quality of the existing air services (in terms of on-board comfort and passenger acceptance to travel on larger aircraft). For Montserrat to redevelop its tourism sector and grow/restructure its economy, Montserrat needs to attract tourists to take day trips from Antigua and from other regional destinations. The close proximity to Antigua and Guadeloupe, with annual overnight tourists of approximately 600,000 and cruise ship passengers of 800,000 annually represent significant untapped tourism market bases. Access to St. Kitts and Nevis and St. Maarten markets can also be considered, with a suitable larger aircraft. GOM considers that there is a business opportunity for the private sector to invest and operate a suitable a Twin Otter or other comparable aircraft. It is committed to improving the tourism infrastructure in Montserrat to accommodate and support a growing number of tourist arrivals/departures. New town development planning is well underway in Montserrat at Carrs Bay and Little Bay.

(c) Specific Objectives

Short-Term (1 to 3 years) The provision of a Twin Otter service3 for Montserrat could be achieved from a range of options, including:

3 or any other suitable aircraft (e.g. Dornier 228)

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(i) GOM investment in the lease of a Twin Otter, for subsequent operation by the private sector;

(ii) Private sector purchase and/or leasing of an existing suitable DHC-6-300

series Twin Otter or DHC-6-200 series Twin Otter; and (iii) Private sector/GOM joint venture lease of a new or used Twin Otter (either

series 300, or the smaller 200 series).

Within the first 3 years of operation of a Twin Otter service4, the following forecast air passenger demand (both residents [of Montserrat and the Caribbean region] and tourists) could be anticipated:

Year Commencing April

Total Passenger Volume

2013 12,240

2014 12,855

2015 13,240

(See Table 1) Detailed forecasts for the period 2013 to 2032 are attached as Table 1.

Medium to Long Term The following air passenger volumes (residents and tourists) which could be achieved with a Twin Otter service after 2017 are as follows:

Year Commencing April

Total Passenger Volume

2017 14,045

:

2022 16,285

:

2027 18,880

:

2032 21,885

(See Table 1)

4 or any other suitable aircraft (e.g. Dornier 228)

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3. Details of the Proposed Investment in a Twin Otter

(a) The Offer to the Private Sector The offer to the private sector is to provide a Twin Otter service for Montserrat and destinations in the region, as defined in the specific objectives of Section 2. GOM has undertaken a number of key studies in relation to improving access to/from Montserrat for both residents of Montserrat/the Caribbean region and tourists (from the USA, UK, Europe, China/Asia). This includes a June 2011 Access Strategy which identified the need for a Twin Otter aircraft5 and the potential to develop tourism.

GOM considers that the following private sector firms/parties most interested in responding to the offer of participation in a new aircraft service will be:

firms/businesses currently operating air services from/to Montserrat;

firms/businesses which are currently operating Twin Otter aircraft in the Caribbean and who would like to expand their operations with a Twin Otter aircraft;

firms which have had experience in managing and operating air services but who have since withdrawn for various technical/financial reasons; and

firms outside the Caribbean who are involved with tourism operations (land-based or air transport-based) and would like to be involved in investing in a Twin Otter service based on Montserrat-Antigua operations.

The offer to the private sector is thus to consider the future provision of a new Twin Otter service for Montserrat and to be part of the economic redevelopment of Montserrat based on sustainable tourism demand within the Caribbean region.

(b) Potential Strategic Alliance Options Worldwide, the competitive dynamics of airline operations for both domestic and international passenger and cargo services has led to a growing role for partnerships and alliances. The GOM’s Access Strategy identified a range of possible future arrangements for public-private partnerships (PPPs) to provide opportunities for the private sector provide upfront investment in new access infrastructure, for both air and sea access. Three broad mechanisms for financing and supporting the recommended investment in a Twin Otter service were identified as:

5 or any other suitable aircraft (e.g. Dornier 228)

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(i) Funding sourced from the private sector without a joint venture with the GOM;

(ii) Public financing by the GOM, in partnership with the private sector; and (iii) Direct project financing from regional/international finance organisations

into an existing Caribbean airline with Twin Otter operations. Firms/parties interested in providing a Twin Otter service for Montserrat can consider and propose any one or more of the above financing options. GOM is interested to receive responses from the private sector which may be derivatives of the above 3 options or an alternative form of strategic alliance or joint venture partnership.

(c) International Offer

This Prospectus is not limited to the Caribbean region in relation to existing aircraft operators or to owners/investors in Twin Otter aircraft. However, this Prospectus does not and is not intended to constitute an offer in any jurisdiction or region or to any person or organisation to whom it would not be lawful to make such an offer. This offer is not underwritten by any financial organisation or intermediary.

(d) GOM Service Criteria for a Twin Otter GOM has reviewed in detail the historic and current performance of air services which have operated between Montserrat and Antigua. Whilst not being overly prescriptive as to the type and nature of aircraft service to be offered by the private sector, in response to the issuance of this Prospectus, the following broad operational or design criteria have been established by GOM:

availability of a Twin Otter aircraft6 on a scheduled daily/weekly/monthly basis;

a DHC-6-300 series aircraft7 with 19 passenger seat capacity or a DHC-6-200 series aircraft with 15 passengers and 1,000 lb. less payload;

potential to operate in collaboration with existing Islander aircraft services and with sea passenger movements; and

availability for maximum utilisation during Christmas /New Year vacation periods.

(e) Start-Up Financial Projections (0 to 10 Years)

The GOM Economic Appraisal of the proposed investment in a Twin Otter, completed in February 2012, estimated the following summary financial results:

6 or any other suitable aircraft (e.g. Dornier 228)

7 ibid

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Year Commencing April

Passenger Revenues (US$ ‘000s)

Air Cargo Revenues (US$ ‘000s)

2013 3,170 530.9

2014 3,260 546.8

2015 3,360 563.2

:

2022 4,130 692.7

(f) Schedule of Activities After Investment Decision

After GOM’s receipt of airline operator offers for the provision of a Twin Otter service, all responses will be reviewed carefully with UK DFID and UK Department of Transport personnel.

April 2013: GOM agreement with the preferred Twin Otter8 operator to proceed. 4. Corporate Governance

GOM is mindful of the importance of appropriate governance arrangements to be established in any new strategic alliance/joint venture arrangement.

Depending on the nature of the offer proposed, GOM will develop an appropriate corporate structure for the initial investment and ownership. A Board of Directors and suitable executive staff will be identified in conjunction with the private sector.

It is expected that a range of independent professional advisory inputs will be necessary to guide the corporate structure.

Remuneration arrangements will be subject to GOM administrative procedures and to appropriate market-based salary and incentive payments.

An external auditor will be appointed to provide oversight guidance in relation to both management and operational activities.

5. Risk Factors

(a) Overview

There are a number of factors, both specific to Montserrat’s economy and of a general tourism nature which may affect the future operating and financial

8 or any other suitable aircraft (e.g. Dornier 228)

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performance of the Twin Otter operations, the Caribbean tourism sector, in which it operates and the outcome of Montserrat’s tourism development strategy.

There can be no guarantee that the Twin Otter9 service will achieve its stated objectives or that the passenger, cargo and revenue projections contained in this Prospectus will be realised. Forward looking estimates and statements involve known and unknown risks, uncertainties and other factors which may cause the Twin Otter operations, performance and tourism-related achievements to be materially different.

The following section lists certain (but not necessarily all) risks associated with investment in a Twin Otter aircraft service for Montserrat. Before deciding to invest in a Twin Otter aircraft under whatever strategic alliance/joint venture arrangement to be proposed with GOM, interested private sector firms/parties should specifically consider the risk factors which have been identified. This is in order to fully appreciate the risks associated with investment in a Twin Otter aircraft.

(b) Specific Risk Factors In addition to the general risks set out in the overview, GOM believes there are a number of specific factors which should be considered and evaluated by all interested firms/parties. These risks are not in any order of priority. They include:

Acquisition of a suitable Twin Otter with all necessary manufacturer performance criteria able to be met.

Market development forecasts and the underlying development strategy which underpins both passenger and cargo revenue projections.

Technical risks associated with the actual delivery of the aircraft to Montserrat/ Caribbean region (physical asset and service delivery prior to commissioning).

Safety and occupational health issues, associated with the training of ground staff.

The ability to raise the financing required to operate the service

International and UK regulatory risks associated with operating services to/from differing international jurisdictions, where specific regulations may change to adversely affect aircraft schedules and service delivery.

Unforeseen expenditure risks, particularly associated with external ‘shocks’ such as increased international fuel prices; devaluations of major currencies or increase in international insurance market rates.

9 or any other suitable aircraft (e.g. Dornier 228)

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Macro-economic risks associated with global economic events and potential GFC Mark II events affecting international discretionary tourism travel intentions, international airline fares and Caribbean/international currency conversion levels.

6. Criteria for Alliance/Joint Venture Participation The sustained long-term growth of Montserrat’s tourism industry and its economic restructuring is critically dependent on achieving a financially rigorous investment outcome, with the introduction of a Twin Otter service. The following range of criteria will be relied upon to assess the adequacy of the responses received from the private sector from the issuance of this Prospectus. If there is to be a successful take up of this offer, the following items will need to be addressed, in the written response:

Governance

What form of strategic alliance/joint venture.

Ownership of the capital investment proposed.

Intended management structure to provide capital investment security and management/operational control of aircraft service delivery.

Expectations as to GOM obligations in relation to alliance/joint venture outcomes.

Technical

What model type of aircraft is proposed, and what availability is proposed.

Technical specifications of the proposed aircraft.

o date of manufacture o dimensions o maximum passenger and cargo payload o seat capacity o speed (knots) between Montserrat and Antigua; Montserrat and

Dominica; Montserrat and St. Kitts

Finance

What maximum level of capital investment in the service is proposed.

What annual operational costs could be supported.

Where will the aircraft be registered, e.g. Montserrat.

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Marketing and Promotion

Other route pairs proposed for operation with Montserrat.

Specific marketing roles/responsibilities to be offered.

What new marketing initiatives could be considered (forms of innovation) by GOM in a strategic alliance/joint venture.

Specific performance targets/incentives which GOM could offer to maximise load factors.

Management

What form of overall management structure would be proposed.

What specific roles would GOM have in relation to the proponent.

Operational

What crewing arrangements would be offered with the proposed aircraft: o Likely number of ground staff to be positioned at Montserrat. o How training would be undertaken and funded.

Where and how would the aircraft be serviced daily/weekly/monthly.

Where and how would scheduled service replacement be undertaken.

Risk Factors

Relevant risk factors as listed in Section 5. 7. Taxation Considerations The development of a successful operation(s) with (or without) GOM joint venture participation will have GOM taxation consequences. It is the responsibility of the proponent/interested party to satisfy themselves of the tax consequences which will apply. GOM, its personnel, and its advisers accept no liability and responsibility with respect to taxation consequences. GOM taxation on lease contracts covering a Montserrat-registered aircraft will need to be discussed with relevant GOM taxation personnel. 8. Timings of Potential Private Sector Interest

Issuance of Expressions of Interest (EOIs) and Prospectus: 21 September 2012

Submission by the private sector of Prospectus responses: 19 October 2012

Approval by GOM of private sector offer: 9 November 2012

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Attachment: Table 1: Forecast Annualised Passenger Demand for Air Services Between Antigua/Montserrat; Antigua/Barbuda; Antigua/St. Kitts; Antigua/Dominica Utilising a Twin Otter Aircraft [Source: GOM and DFID Economic Appraisal of Access Investments and Subsidies in Montserrat, February 2012]

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Low Medium High

Average Daily Growth Growth Growth

Route: Minimum Flights Per Day 2/ Latent Demand 3/ (2% p.a.) (3% p.a.) (5.5% p.a.)

1(a) Antigua/Montserrat 4 50 - 60 2013 9,350 12,480 15,600

1(b) Montserrat/Antigua 4 40 - 45 2014 9,540 12,855 16,460

2015 9,730 13,240 17,365

2(a) Antigua/Barbuda 4 44 - 50 2016 9,920 13,640 18,320

2(b) Barbuda/Antigua 4 44 - 50 2017 10,120 14,045 19,325

: : : :

3(a) Antigua/St. Kitts 2 30 - 35 2022 11,175 16,285 25,260

3(b) St. Kitts/Antigua 2 24 - 30 : : : :

2027 12,340 18,880 33,010

4(a) Antigua/Dominica (Four Centre Airport) 4/ 2 26 - 30 : : : :

4(b) Dominica/Antigua 2 26 - 30 2032 13,620 21,885 43,145

1/ Assumes that operation of Fly Montserrat/SGV Air 7-seater aircraft will continue, as demand requires.

2/ Based on interviews with Antiguan tour operators, with Fly Montserrat and with SVG Air airline

management/staff.

3/ As identified by local/regional airline personnel to be minimum achievable passenger levels with

utilisation of a de Havilland DHC-6 Series 400 (Twin Otter), of 17 - 19 passengers, 2 pilots, acceptable

on-board comfort and 'perceived' safety levels by passengers.

4/ Air services to Dominica with a Twin Otter can access the smaller airport/runway closer to

Dominica's town centre (not possible with the LIAT Dash 8 aircraft); commuting time saving of 1-1/2 hours

per Dominican resident/visitor one-way.

Scenarios

Table 1: Forecast Annualised Passenger Demand for Air Services

Between Antigua/Montserrat; Antigua/Barbuda; Antigua/St. Kitts; Antigua/Dominica

(Medium Growth Scenario): Utilisation of Twin Otter Aircraft 1/

Forecast Annual Passenger Demand

for Twin Otter Services