PM proposes privatising debt-ridden flag carrier

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National asset privatisation has its benefits and drawbacks, but in the SriLankan Airlines context, national assets have suffered numerous setbacks, primarily due to controversies, such as corruption scandals, mismanagement, and political intervention particularly by the hierarchy and Rajapaksa family members in top positions. SriLankan Airlines is an example of a high-flying industry that had nose-dived for years, unable to reap benefits.

There were lapses on the part of the Government too. The Government should also create an environment conducive to businesses. According to an aviation expert, Sri Lanka was the only country in the world that refused entry to its own people during the pandemic. Present Chairman, Ashok Pathirage, is said to be pulling together the airline industry by using his business model, but that isn’t enough.

In 1998, the then Administration of former President Chandrika Kumaratunga had sold 40 per cent of the equity of SriLankan worth US$ 70 million, later increased to 43.6 per cent, and given management to Emirates, after it suffered years of losses.

SriLankan Airlines fell from grace long time ago and then it was entrusted to Emirates, but yet again the need for privatising SriLankan has come up.

Prime Minister Ranil Wickremesinghe of the Interim Government announced last week that SriLankan lost Rs 45 billion (US$ 125 million) in March 2021. “The loss for the year 2020-2021 alone amounts to Rs 45 billion. By 31 March 2021, the total loss was at Rs 372 billion. Even if we privatise SriLankan Airlines, this is a loss that we must bear. You must be aware that this is a loss that must be borne even by the poor people of this country who have never stepped on an airplane,” Wickremesinghe said.

SriLankan Airlines Annual Report 2020/21 noted that amid the dramatic decline in air traffic demand coupled with international border closures driven by the first, second, and now the third wave of rising Covid-19 cases, the recovery for the Airline has been slower than expected. Nevertheless, SLA managed to navigate through a period of suppressed revenues by concentrating on the cost-saving measures, cash burn reductions, selective flying mainly concentrating on cargo where revenue opportunities prevailed and support from the Government of Sri Lanka (GoSL). Cargo revenue offered a lifeline to the Airline by exploiting the heavily reduced passenger flight schedule resulting from the significant reduction in passenger numbers. Consequently, a substantial portion of air freight was carried in the bellies of idling passenger aircraft during the year in review, making cargo revenue surpass passenger revenue for the first time ever.

In 2018, the country revived a process of privatising the carrier after talks with TPG Capital collapsed following due diligence of the airline. But two years later, that plan was taken off the table, Bloomberg reported. TPG Capital, L.P. of United States operates as an investment management firm. The Company manages investment funds specialising in growth capital, venture capital, real estate, private equity, hedge fund, and debt investments. TPG Capital serves customers in the United States.

According to Bloomberg, at least eight parties had showed interest in a 2016 attempt to sell the flag carrier, including US buyout firm Blackstone Group LP.

Interestingly, Bloomberg quotes Shukor Yusof, founder of aviation consulting firm Endau Analytics in Malaysia as saying,
“Sri Lanka is in a very bad shape, so anyone thinking of buying its flag carrier is therefore taking a huge risk.”

The losses

The losses incurred by SriLankan have been on the rise mainly from the time the Easter Sunday Attacks that collapsed the travel industry.

Losses of SriLankan Airlines incurred in the recent past:

The cumulative losses as of 31 March 2021 was at Rs 371.734 billion and same period in 2020 it was at Rs 326.34 billion. On 31 March 2010, it was at Rs 2.72 billion, while on 31 March 2015 it was Rs 128.24 billion.

In terms of the debt of non-aircraft it remains as of 31 March 2021 at Rs 203.62 billion, while as at 31 March 2020 it was 121.75.75 billion. As of 31 March 2010, it was at Rs 5.12 billion and in 2015 it was at Rs 73.36 billion.

The non-aircraft debt as a percentage of the revenue indicates that the growing debt is unstable too. As of 31 March 2021, it was 271.50 per cent and same period in 2020 it was 76.58 per cent.

The net current assets have rapidly deteriorated too. As of 31 March 2021, it stayed at Rs 221.31 billion, while in the same period in 2020 it was at Rs 211.64 billion.

A senior manager receives Rs 3.1 M – COPE

In July 2021, Chairman of the Committee on Public Enterprises (COPE), Prof. Charitha Herath, directed the Chairman of SriLankan, Ashok Pathirage to prepare a complete business plan to make SriLankan Airlines profitable and submit it to COPE within a month.

COPE also recommended to the Secretary to the Ministry of Tourism to study the present situation and submit a report at the Ministerial level within a month.

The Committee further recommended that an Expert Committee be appointed to conduct a comprehensive study and submit a report as early as possible.

The Committee also observed that a senior Management Officer serving in SriLankan Airlines as of 31 March 2021 receives a monthly salary of Rs 3.1 million and 82 pilots receive a monthly salary of over Rs 2 million, another 142 pilots, 12 aeronautical engineers, 9 engineering managers and three top management officers of SriLankan Airlines receive a monthly salary of between Rs 1 million and Rs 2 million. The committee also revealed that SriLankan Airlines’ daily loss was Rs 84 million and that a systematic plan was needed to make the company profitable.

But COPE also commended SriLankan Airlines for reducing its costs by US$ 66.9 million in 2019/20 and 2020/21.

Corruption, scandals

SriLankan has been managed since 2008, but for over 15 years it was exposed to mismanagement and corruption. SriLankan had plans to buy aircraft and it was heavily criticised, hence the idea was scrapped. However, in the present climate, they will continue to lose money, as many cancellations of reservations are occurring.

In fact, two COPE reports exposed the corruption and misuse of funds when the Mahinda Rajapaksa regime leased Airbus aircraft.

However, the corruption and scandals involved with the top management officials of SriLankan still stands tall. The cases are moving at snail’s pace and there is still no light at the end of the tunnel. Most of the cases involve the relatives of the Rajapaksas. SriLankan Airlines’ management was once upon a time handled by Mahinda Rajapaksa’s brother-in-law and another one closely connected was CEO Kapila Chandrasena.

Corruption in the Airbus deal began to rear its ugly head in early 2000. On 4 May 2022, Transparency International Sri Lanka (TISL) wrote a letter to the Bar Association of Sri Lanka (BASL) requesting the BASL to look into the legal proceedings against former Sri Lankan Airlines CEO Chandrasena.

TISL requested the BASL to take necessary action including inquiring with the Attorney General of Sri Lanka and the Inspector General of Police to initiate action or revive legal proceedings against this individual.

The letter said the case involving large amount of public funds embezzlement in the case of SriLankan Airlines. The TISL said in respect to the Airbus-SriLankan case in 2020, the TISL identified the Serious Fraud Office in the UK regarding the Deferred Prosecution Agreement (DPA) raising issue of the need for victim compensation. This DPA is on the public record and contains a statement of facts agreed upon by the authorities and Airbus admitting to bribes paid to these SriLankan parties. Although SriLankan Airlines has reportedly taken steps to make a claim against the company Airbus SE for US$ 1 billion in damages, the TISL demanded that necessary action should be taken by the SriLankan authorities for the loss of at least US$ 98 million inflicted on the citizens of Sri Lanka.

It is still claimed that a Sri Lankan working as an agent laundered US$ 15 million from an Airbus deal in 2014. However, there is another case of a US$ 65 million Airbus deal that Thirukumar Nadesan allegedly profited from, but because he had all the documents related to the deal, he escaped bribery charges and the UK authorities did not register him as a faulty man.

It all came to light in the case of Chandrasena, where EADS HQ/ SSC France (i.e., European Aeronautic Defence and Space Company N.V.), the parent company of Airbus SAS, paid a sum of US$ 2 million as a bribe to an account bearing the number 0107130602 under the name of Priyanka Neomali Wijenayake, Chandrasena’s wife. They were arrested in February 2020 and released on bail. Wijenayake had a Standard Chartered Bank of Singapore account under the name Biz Solutions, with account number 0107130602.

Media reported that as aircraft manufacturer Airbus reached a record 3.6 billion Euro settlement with the US, UK, and French authorities following a four-year investigation into allegations of bribery and corruption, TISL wishes to highlight the importance of paying compensation to the countries who are the victims of corrupt deals involving Airbus.

The statement of facts issued on 31 January 2020 as part of the Deferred Prosecution Agreement reached between Airbus and the prosecuting authorities, indicates that Airbus had agreed to pay out a sum of US$ 16.84 million (Rs 2.5 billion [2015]) to influence the aircraft purchase, to a company registered in Brunei under the wife of an executive at SriLankan Airlines.

Prior to these revelations, there were instances where the former President of Sri Lanka Mahinda Rajapaksa also misused SriLankan Airlines and benefited from it.

There were local reports exposing that he spent over Rs 785 million within three years to charter SriLankan Airlines aircraft for his visits abroad and the Airbuses would often remain idle in various airports until he finished his tours.

In 2015, after the Rajapaksas were defeated, then Prime Minister Ranil Wickremesinghe released a long statement relating to SriLankan Airlines and the corruption it is engulfed in.

In that statement, the PM Office noted that the Board of Inquiry (BoI) found that Chandrasena was paid a monthly salary of Rs 1.5 million on top of other perks and he had also enjoyed salaries simultaneously from his other appointments.

The BoI also found that a London Station Manager who tried to stop the illegal practice of sending motor spare parts for the use of former President’s son Yoshitha had been suddenly transferred out on the direction of former President Rajapaksa.

The airline had also tried to hush up two serous flying mishaps involving Chief Pilot Druvi Perera and Captain U.A.V. Pathirana, the statement said. There were also allegations of two staff engaged in human smuggling getting off lightly, raising serious concerns whether a few employees continue to support a criminal human smuggling ring.

Also, it was highlighted the appointment of a retired Army Major General P. Chandrawansa, who did not have aviation security experience, on a salary of Rs 450,000 without following recruitment procedures and he was accused of engaging in political activities while being employed by SriLankan Airlines.

The statement also mentioned about the reports they obtained that there was also major fraud in the awarding of tenders and singles out a duty-free deal and the sale of wine as one of the blatantly corrupt deals of SriLankan requiring a criminal investigation. The BoI pointed out that the corrupt manner in which the General Sales Agents were appointed in many countries on behalf of the airlines and manipulations made. The BoI concluded that the management culture was a major contributing factor for abuse of power and external interference into the business of SriLankan Airlines.

The BoI panel was headed by anti-corruption advocate and senior lawyer J.C. Weliamuna. In his statement, he said he found instances of gross abuse of power by former Chairman Nishantha Wickramasinghe, whose penchant for young air hostess cost the debt-ridden airline even more problems.

The BoI also said former President Rajapaksa made management changes to carry out a refleeting of the airline with brand new aircraft costing US$ 2.3 billion, despite the availability of more cost-effective alternatives.

Who is printing Ugandan money?

This is not all. There is more. Recently, a stack of parcels were sent to Uganda and it was alleged some of the items belonged to the Rajapaksas that were transported by air. SriLankan denied all allegations. SriLankan Airlines confirmed that Cargo flights left to Uganda in February 2021 with Ugandan currency notes from a global security printer who operates several factories worldwide, including one in Sri Lanka, exporting to global markets. “De La Rue provides bank notes for half of the central banks around the world. We do this from our sites in Sri Lanka, Kenya, Malta and the UK, with joint ventures in Sri Lanka and Kenya that contribute to the economies of those countries. We do not comment on our customers.”

Uganda, on the other hand, in 2018, signed a deal with a German company to begin printing its own security documents such as bank notes, passports, and cheques. In 2018, Ugandan President Yoweri Museveni witnessed the signing of a Memorandum of Understanding with Veridos Identity Solutions Group, a German firm. Uganda can’t afford to print its own currency, according to Bank of Uganda officials, because the “process is sophisticated and thus contacting a local company would be overly expensive.” The question remains. Who prints Ugandan currency?

While SriLankan faced such challenges, the Government should try to privatise the airline for the second time. The benefit of privatising SriLankan Airlines is that politicians will be less likely to interfere, and a fair deal should be struck, with Sri Lanka benefiting more than the new management that takes over.

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By Sulochana Ramiah Mohan