Noumea, New Caledonia: Serious concerns have been raised in New Caledonia about the future of the territory's only domestic airline.

An independent audit commissioned late last year by the local government showed Air Caledonie has operated at a loss for the past decade.

The Auditor General has released a report explaining the reasons for the airline's precarious financial situation.

The airline has been struggling to pay for the cost of three aircaft purchased four years ago.

Air Caledonie has also been hit by rising rises fuel prices and an increasing staffing costs.

Observers say that unless urgent changes are made, New Caledonia could lose a major link to its outer islands.